Bourses can hold up to 70pc in new settlement company

The twin bourses together can hold 70 percent stakes at most in the proposed clearing and settlement company that will ensure smooth settlement of share and cash transactions from one place.

A clearing company is a financial institution that provides clearing and settlement services for financial, commodities derivatives and securities transactions. The company will replace the existing system.

At present, the clearing and settlement activities are done by the bourses with the help of the Central Depository of Bangladesh Limited, which operates the central depository system for electronic share transaction.

Neither of the stock exchanges can individually own more than 49 percent stakes in the new company, the paid-up capital of which will be Tk 500 crore, according to a draft law approved by Bangladesh Securities and Exchange Commission on October 6.

The stockmarket regulator has sent the draft law to other market stakeholders, including the Dhaka and Chittagong bourses, for their opinions, which may be considered before finalisation of the act.

Apart from the stock exchanges, the Central Depository of Bangladesh Limited (CDBL), banks, financial institutions, insurance companies and strategic investors can also be stakeholders in the settlement company.

Among them, the CDBL and strategic investors individually or jointly will be allowed to hold a maximum of 10 percent shares each.

The other stakeholders from the bank, financial institution and insurance company category can own a maximum of 10 percent shares jointly. No single entity will be allowed to hold more than 2 percent.

The capital market-related diversified products, including derivatives, futures and options, can also be introduced once the clearing company is in place.

As per the draft act, the board of directors of the proposed company will consist of 11 members, six of which will be independent directors.

Of the remaining five, two will come from the stock exchanges' board of directors, two from other stakeholders. The managing director of the company will act as an ex-officio director, which is he/she will have no voting power.

The BSEC can inspect the clearing and settlement company or investigate allegations against its directors, employees and depository participants and take action against them.

The punishment will be five-year imprisonment or Tk 5 lakh fine or both, according to the draft.

The BSEC can take over the clearing and settlement company and operate it if the regulator finds that it has failed to protect investor interest, was involved in controlling the capital market or anti-state activities.

Two years earlier, the Dhaka and Chittagong bourses had submitted a proposal to the BSEC to set up a clearing company jointly for smooth settlement of share and cash transactions from a single place.

The Asian Development Bank, as part of its Bangladesh capital market development programme, has long been advising the government and the stockmarket regulator to set up a separate clearing corporation.