Brokers urge DSE board to halt junk IPOs listing 

Brokerage firms today urged the board of the Dhaka Stock Exchange (DSE) to refrain from listing any fundamentally weak companies in order to protect the interests of investors.

Representatives from the top 30 brokerage firms made this request during a meeting with the board of directors of the country's prime stock exchange at the DSE headquarters in the capital.

"Most companies listed on stock exchanges over the past 15 years have weak fundamentals and are considered junk stocks. Investors have been misled for years by holding shares in these companies," said DBA President Saiful Islam.

He added that such IPOs have diminished shareholder interest. The finance ministry has also expressed concern over the IPOs listed during the last 15 years. Now, the DBA seeks a halt to the approval of junk IPOs that fail to safeguard the interests of investors and shareholders.

DSE Chairman Mominul Islam said the capital market currently rests on a weak foundation due to a history of poor decisions, irregularities, and inefficiencies. He emphasised the need for collective action from all stakeholders to address the situation.

"Achieving this will require long-term structural reforms, thorough investigations, and the prosecution of irregularities and corruption, as well as efforts to restore the confidence of investors and intermediaries," he said during the meeting.

He expressed hope that investor confidence in the capital market will soon be restored through joint efforts. He urged investors not to panic and to remain patient.

President Saiful Islam also said that the DSE board assured the DBA that they would no longer allow companies with weak fundamentals to enter the market.

The DBA further called for the removal of the capital gains tax imposed in the current fiscal year. For individual investors, it said, the tax rate surged from zero to 40.50% (including surcharge) last year, while institutions are subject to a flat 15%, which is treated as full and final. In comparison, India levies a 15% tax on short-term capital gains and 10% on gains from investments held for more than a year.

The brokers also highlighted several critical issues, noting that such a high tax discourages sponsors from declaring generous dividends. Brokers are required to pay an Advance Income Tax (AIT) of Tk50 per Tk1 lakh in trade volume, while in India, it is only Tk5. Currently, brokers pay 20% of their revenue as AIT, an unprecedented rate compared to other businesses in Bangladesh. For instance, the RMG sector pays only 0.5% of its revenue.

While cash deposits are allowed, brokers are prohibited from making cash withdrawals, despite the fact that the Bangladesh Bank does not impose any restrictions on cash withdrawals from banks. The DBA questioned why brokers should be subject to such limits.

The brokers also called on the DSE to publish a whitepaper detailing irregularities from the past 15 years to bring transparency and accountability to the capital market.

Meeting with taskforce 

The DBA also participated in a meeting with the Capital Market Reform Taskforce, which was established to develop policies aimed at aligning the overall capital market with international standards.

DBA President Saiful Islam said, "We urge the taskforce to review the Stock Exchange Demutualization Act of 2013 and its related schemes to identify areas for improvement, as the law requires periodic reviews to strengthen the capital market."

He also criticised the performance of the seven independent directors, arguing that they have not been able to contribute meaningfully to the stock exchange's development since they only attend board meetings for about an hour each month.

The taskforce held its first meeting on 9 October 2024 and has adopted a participatory approach, involving various stakeholders, including investors, researchers, analysts, professionals, economists, academics, regulators, capital market experts, and the media.

It plans to review previous studies, surveys, and investigation reports and will establish different focus groups to support its work. A consultation group of experts will also be formed to provide input on various issues.

The taskforce held a stakeholder meeting with the DBA yesterday, with additional meetings and discussions with other stakeholders set to continue as usual. The taskforce has invited suggestions from all stakeholders, encouraging them to raise relevant issues.

An email system will be set up to receive feedback, grievances, and suggestions, which will be duly considered to identify important points for action.

Since February this year, the capital market has been in a bearish phase, exacerbated by the proposed 15% capital gains tax on individual investors before the 2024-25 fiscal year budget.

This triggered widespread panic among investors, leading many to sell off their shares, particularly in light of the ongoing Russia-Ukraine war and the global economic crisis.

High-net-worth investors have been offloading their shares to avoid the tax burden, a trend that continues today. Consequently, the share prices of most companies have been declining for several months, causing general investors to suffer losses and further eroding confidence in the capital market, according to insiders.