Regulator moves to prop up secondary market

Stock brokers and dealers with minimum paid-up capital of Tk 50 crore will be allowed to play the role of a market maker -- an effort to keep the secondary market stable.

A market maker is a person or a licensed firm that is always ready to buy and sell securities to provide liquidity as well as stocks to the markets.

After receiving the regulatory permission, one can act as a market maker for a maximum of three authorised securities, according to a draft of market-maker rules recently approved by Bangladesh Securities and Exchange Commission.

The stockmarket regulator has sought public opinion on the draft rules. The regulator will finalise the rules after scrutinising the public opinion that would have to be submitted to the commission by August 21.

The BSEC has formulated the draft rules by amending the existing market maker rules, which was enacted in 2000, as none of the stakeholders in the last 16 years expressed their interest in becoming a market marker.

Updated market-maker rules are vital to make the trading of exchange-traded funds functional, as the stockmarket regulator finalised exchange traded fund rules in June, paving the way for entities like the stock exchanges to run index-based funds.

Those with more than Tk 50 crore in paid-up capital can act as a market marker for more than three authorised securities, according to the draft rules. And a maximum of five market makers will be allowed for each authorised securities.

However, the net portfolio investment of a market maker can never exceed five times its net worth, according to the proposed rules.

A significant part of the draft rules is that a market maker will be allowed to go for short sale of shares, which is now prohibited by the regulator.

Short selling is the practice of selling securities that have been borrowed from a third party with the intention of buying back identical assets later to return to the lender. 

A market maker can make short-selling up to 20 percent of its total sales on particular securities on a day, according to the draft rules. 

No market maker will be allowed to borrow 10 percent or more shares from the issuer, employee or other shareholders of the authorised securities.

The stocks exchanges will set procedures for automatic settlement and execution of short selling of securities done by the market 

makers.

The licensing period for a market will be one year, and it can be renewed every year upon fulfilling the regulatory requirements. 

The regulator can also scrap or suspend the licence of a market maker anytime on legal grounds.