In October 2024, the Bangladesh Securities and Exchange Commission undertook a significant step by establishing a taskforce tasked with rejuvenating the country鈥檚 ailing capital market. The taskforce was entrusted with the responsibility of proposing reforms to address the structural inefficiencies and governance issues that have long plagued the market, persisting since the catastrophic crashes of 1996 and 2010. Despite the formation of numerous committees and the introduction of various policy interventions over the years, there remains little denying that Bangladesh鈥檚 capital market continues to suffer from chronic issues of transparency, a lack of investor confidence, and a weak connection with the broader economy. A former finance minister once aptly noted that there exists no meaningful relationship between the capital market and the national economy in Bangladesh. The question now is whether the present taskforce can succeed where others have failed. Can it bridge this long-standing and damaging gap?
On March 27, 2025, the taskforce announced its initial set of recommendations concerning initial public offering related issues during a press conference at the BSEC headquarters. Some of these proposals appear to be well-considered, while others warrant closer scrutiny.
One of the principal recommendations involves reviving the 鈥楧utch auction method鈥� for qualified institutional buyers to bid for shares and determine the cut-off price for initial public offerings. This method was initially introduced in 2010 but was suspended in 2011 following serious concerns over irregularities, price manipulation, and overvaluation. While the book building method was subsequently reinstated in 2015 with comparatively stricter regulations, the Dutch auction feature was eventually abandoned. It must be recognised that, unlike developed economies where institutional investors play a stabilising role, Bangladesh鈥檚 market has historically experienced speculative behaviour that exacerbates volatility. In such an environment, the reintroduction of the Dutch auction method risks encouraging unnecessary price hikes during initial public offerings, thereby inviting market failure or destabilisation.
This should not be interpreted as an argument against allowing a premium on initial public offering pricing. Rather, the concern is to prevent excessive and unjustified premiums. The BSEC, in consultation with stakeholders, could issue clear guidelines for premium pricing based on valuation methods such as net asset value, earnings potential, current and future profitability, qualifications of directors and the business model. Premium听 initial public offering should not be abolished altogether, but the book building method ought to be suspended temporarily until the market is better prepared for its fair and transparent application.
Another major recommendation by the taskforce is the decentralisation of initial public offering approval authority from the BSEC to the stock exchanges, with the BSEC retaining final approval rights. While decentralisation may appear to promise greater efficiency, the ability of the stock exchanges to effectively shoulder this responsibility is highly questionable. The exchanges have been repeatedly criticised for operational inefficiencies and limited expertise. A more prudent approach would be for the BSEC to retain full听 initial public offering approval authority, but involve one or two representatives from each stock exchange in the commission鈥檚 approval meetings. Implementing such a measure would necessitate an amendment to Section 7 of the Securities and Exchange Commission Act, 1993. Additionally, the stock exchanges should establish dedicated issue management departments to enhance the overall听 initial public offering process.
There are also serious risks of conflict of interest should stock exchanges be granted听 initial public offering approval powers. As per the Securities and Exchange Ordinance, 1969, a stock exchange is defined as an entity that provides a marketplace for buyers and sellers of securities. Stock exchanges are structured as limited companies by shares, unlike the BSEC, which is a statutory body corporate (Section 3, Subsection 2 of the Securities and Exchange Commission Act, 1993). Granting stock exchanges approval authority could therefore undermine impartiality and create distortions in the market. To preserve transparency, it is essential that approval for initial public offerings and the operation of trading platforms remain under separate authorities.
Should the idea of transferring initial public offering approval to the stock exchanges proceed, a substantial amount of preparatory work would be necessary to strengthen their operational efficiency, transparency and evaluation processes. An alternative model could be to grant the exchanges greater autonomy in managing listings while keeping the BSEC as the regulatory watchdog. In such a structure, the BSEC would oversee the activities of the exchanges, retain the authority to intervene in cases of malpractice, and maintain a balance of power to ensure a robust approval process.
Turning to another set of recommendations, the taskforce has suggested that multinational companies and large domestic firms with turnovers exceeding Tk 1,000 crore be permitted direct listings, alongside a reduced offload limit of 10 per cent. Furthermore, companies with loans above Tk 1,000 crore would be required to list. Although these measures seek to boost market depth, forcing highly leveraged companies to list could introduce substantial governance risks. Companies burdened with significant debt obligations often prioritise debt servicing over business growth, which can undermine investor confidence. Moreover, mandating listing contradicts the fundamental principle that market participation should be voluntary and based on sound financial and governance standards rather than regulatory compulsion.
The taskforce has also proposed that stock exchanges appoint special auditors to conduct secondary reviews of audited financial statements submitted by issuer companies. In addition, it has recommended the creation of two separate lists: one for listed companies and another for initial public offering candidates (Ref. 3(2)(g) of the Draft Taskforce Report). However, establishing a new list of auditors is unlikely to be a viable solution. Presently, there are only 36 audit firms registered with the BSEC to serve around 400 listed companies. With most companies closing their financial year on 30 June (excluding banks, financial institutions and multinational corporations), there is a legitimate concern whether this limited pool of auditors can complete all the required audits within the stipulated 120 days.
Instead, the BSEC and the exchanges should consider forming an internal department comprising a significant number of chartered accountants, cost management accountants, chartered secretaries, IT professionals and capital market analysts. This department would be responsible for reviewing initial public offering related audit reports and documents and would possess the authority to take disciplinary action against auditors, issue managers, directors of issuer companies, Chief financial officers, and other key personnel who fail to meet reporting standards.
One critical omission in the taskforce鈥檚 recommendations is the lack of measures to demand accountability from issuer companies. Historically, Bangladesh鈥檚 market crashes have often been linked to insider manipulation by issuer companies, with allegations of key management personnel influencing fraudulent financial reporting to mislead investors. Despite this well-documented problem, the taskforce has not proposed stringent regulations to hold issuer companies more accountable.
Equally important, but notably absent from the taskforce鈥檚 considerations, is the harmonisation of BSEC rules with the policies of other key regulatory authorities. Greater attention must be paid to ensuring coherence between the BSEC鈥檚 regulations and those of the Bangladesh Bank, the National Board of Revenue, the Bangladesh Investment Development Authority, the Registrar of Joint Stock Companies and even the Ministry of Foreign Affairs in matters relating to foreign investment. Regulatory fragmentation between the BSEC and other agencies has historically led to inefficiencies and confusion for investors. True reform demands closer institutional collaboration and policy consistency.
Bangladesh鈥檚 capital market can indeed become a dependable foundation for the national economy, but only with a comprehensive and coordinated set of reforms. The recommendations of the current taskforce are an important starting point, but they are far from the final word. There remains an opportunity to incorporate these critical elements into the conversation and lay the groundwork for a genuinely sustainable and transformative future for the country鈥檚 capital market.
听
Dr Abu Sayeed Ahmed is a capital market analyst and a fellow member of the Institute of Chartered Accountants of Bangladesh.
