Why brokers seek brushing up of SME firms listing

Infographics: TBS

Stock market intermediaries, particularly the DSE Brokers Association (DBA), have urged the Dhaka Stock Exchange (DSE) to review the rules for listing small and medium enterprises (SMEs) on the stock market, citing disparities in the rules as well as lack of proper information about the financial health of the companies.

According to brokers, currently, SME firms are not required to publish their financial statements quarterly, unlike companies on the main board, and this disparity in rules leaves investors in the dark. 

They said such lack of information can also lead to stock price manipulation with share prices of some companies skyrocketing.

The brokers association made the call in a joint meeting last week.

After the meeting, DSE Chairman Prof Dr Hafiz Md Hasan Babu told reporters that in response to the demand, they have asked brokers to submit a written proposal, which will then be forwarded to the stock market regulator, the Bangladesh Securities and Exchange Commission (BSEC).

As per BSEC rules to raise funds through the qualified investor offer (QIO), SME firms have enjoyed more relaxed requirements compared to main board companies. 

According to brokers, the main board companies must publish quarterly financials within 30 days of each quarter's end to make investment decisions based on the financials. However, SME companies only need to publish annual statements which results in investors' remaining in the dark for a whole year.

Saiful Islam, president of the DBA, emphasised the need for uniform rules across both platforms. Citing the disparities in rules, he told TBS, "We always welcome the listing of fundamentally strong companies on both the main board and the SME platform. We have urged the DSE to review the rules because some disparities are there."

"Companies in both platforms raise public funds issuing shares, so why will there be separate rules? Not only that, investors are unable to know the financial health of the companies in the SME board as they are not required to publish quarterly financials," he added.

"Rules for all companies should be the same, and all the financial information should be published from time to time," he further said.

An official at the DSE, seeking anonymity, said, "As per rules, SMEs have been enjoying some relaxation as they are only required to publish annual statements."

The small and medium companies, with paid-up capital of at least Tk5 crore and below Tk30 crore, are listed on the SME board of the bourses through a qualified investors offer. Investors who have at least Tk30 lakh investment in the secondary market can buy-sell shares in the SME board.

In September 2021, as a part of its product diversification, both the stock exchanges of the country had launched the SME board, with an initial listing of six firms. According to the DSE, currently, shares of the 20 companies are being traded on the SME platform.

Till date, over a dozen firms have raised funds from the stock market through the QIU at fixed price method. No company has raised funds through the book building method.

However, around three years after launching the platform, the brokers raised concerns about the SME board as weak companies were getting listed and transferring non-operative OTC firms to the SME platform.

Officials at BSEC related to the matter told TBS that the regulator had provided some relaxation to encourage the listing of the SME firms, and create a vibrant platform. If investors are facing any problems, the regulator will look into the matter, they added.

Concern sparks on transferring loss-making OTC firms to SME

According to intermediaries, the concern sparked as the BSEC decided to transfer some of the non-performing companies to the platform.

Through a directive, the BSEC dissolved the OTC platform of the bourse in September 2021, and directed the bourses to take initiatives to facilitate trading of some of the companies of the dissolved platform.

The directive included providing trade facilities to 23 OTC firms that are not in operation.

With the order, the Dhaka bourse transferred five companies to the SME platform, and around a half dozen of firms are in the pipeline to join the SME listing. 

Later, as a part of resuming shares trading on the SME platform, the DSE rejected two firms listing on the platform after physical inspection, citing non-compliances and violation of securities rules.

A former director at DSE, wishing not to be named, told TBS, "The reasons put forward by brokers for reviewing the rules of SME listing are very logical, and timely."

He said, "The regulator had directed some OTC companies to trade on the SME board. It is very concerning for us, because these companies are not in operation, and have had no earnings for years. 

"Several companies have gone bankrupt, paralysed by lack of funds and lenders are also auctioning the assets of companies due to loan default. How will the investors invest in such companies?" he added.