Presentation on securities laws and regulations

Securities Laws and RegulationsImparted By:Mohammad Shafiqul Islam BhuiyanAssistant General ManagerDept. of Listing AffairsDhaka Stock Exchange [email protected]

Topics to be coveredPurview of BSECPurview of Stock ExchangesCorporate Governance GuidelinesIssue Management GuidelinesMargin RulesListing Regulations

30-Jul-15*Dhaka Stock Exchange Ltd.

Dhaka Stock Exchange Ltd.

Purview of BSECBSEC stands for Bangladesh Securities and Exchange Commission.The Bangladesh Securities and Exchange Commission (BSEC) was established on 8th June, 1993 as the regulator of the countrys capital market through enactment of the Securities and Exchange Commission Act 1993The Commission consists of a Chairman and four Commissioners who are appointed for fulltime by the government for a period of four years and their appointment can be renewed only for further one term, but the condition is that age can not exceed 65



Purview of BSECMissionof the BSEC is to:Protect the interests of the investors in securities.Develop and maintain fair, transparent and efficient securities markets.Ensure proper issuance of securities and compliance with securities laws.

The Commission's main functions:Section 8 of the Securities and Exchange Commission Act, 1993 provides details of the functions of BSEC, some of them are as follows:Regulating the business of the Stock Exchanges or any other securities market;Registering and regulating the business of stock-brokers, sub-brokers, share transfer agents, merchant bankers and managersof issues, trustee of trust deeds, registrar of an issue, underwriters, portfolio managers, investment advisers and other intermediaries in the securities market;



Registering, monitoring and regulating of collective investment scheme including all forms of mutual funds;Monitoring and regulating all authorized self regulatory organizations in the securities market;Prohibiting fraudulent and unfair trade practices relating to securities trading in any securities market;Promoting investors education and providing training for intermediaries of the securities market;Prohibiting insider trading in securities;

Purview of BSEC30-Jul-15*Dhaka Stock Exchange Ltd.


Purview of BSECRegulating the substantial acquisition of shares and take-over of companies.

The Commission, keeping the Bangladesh Bank informed, may seek information regarding bank account from any bank, insurance company and financial institution or other authority, as the case may be, so far as it relates to the transaction of security.Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of securities, the Stock Exchanges and intermediaries and any self-regulatory organization in the securities market.Conducting research and publishing information.regulating the activities of clearing corporation established for settlement of transaction of securities including derivatives etc.



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Purview of BSECMost of the functional authority of BSEC derives from The Securities and Exchange Ordinance, 1969, some of them are as follows:S-2A. Control over issue of capital:

(2) No issuer, or no company, whether incorporated in Bangladesh or not, shall, except with the consent of the Commission,-(a) make an issue of capital in Bangladesh;(b) make in Bangladesh any public offer of securities for sale;..(4) While giving consent under sub-section (1) & (2) Commission shall not fix the price of the issue.S-2CC. Power to impose Conditions: Notwithstanding anything contained in Kvvbx AvBb, 1994 or in any other law for the time being in force, or in any contract or any Memorandum and Articles of Association of any company, any consent or recognition accorded under section 2A, section 2B or section 2C, whether before or after the commencement of this section, shall be subject to such conditions, if any, as the Commission may, from time to time, think fit to impose.



Purview of BSECS-9: Listing of securitiesS-17. Prohibition of fraudulent acts, etc.: No person shall, for the purpose of inducing, dissuading, effecting, preventing or in any manner influencing or turning to his advantage, the sale or purchase of any security, directly or indirectlyS-20: Prohibitory order,S-20A. Power of Commission to issue directions in certain cases,S-24 Penalty: (1) Whoever contravenes the provision of section 17 shall be punishable with imprisonment for a term which may extend to five years, or with fine which shall not be less than five lakh taka or with both,S-25B. Power to establish Special Tribunal,S-32A Regulation of business of Commodity Futures Contract,S-33 Power to make rules,S-34 Power to make regulations.



Purview of BSECList of some major Acts, Ordinance, Rules, Regulations:The Securities and Exchange Ordinance, 1969The Bangladesh Securities and Exchange Commission Act, 1993The Securities and Exchange Rules,1987Margin Rules, 1999The Securities and Exchange Commission (Issue of Capital) Rules, 2001The Securities and Exchange Commission (Public Issue) Rules, 2006The Securities and Exchange Commission (Rights Issue) Rules, 2006wmwKDwiwUR I GP Kwgkb (myweavfvMx eemv wbwlKiY) wewagvjv, 1995wmwKDwiwUR I GP Kwgkb (gvPU evsKvi I cvUdvwjI gvbRvi) wewagvjv, 1996wmwKDwiwUR I GP Kwgkb (wgDPzqvj dv) wewagvjv, 2001wWcwRUwi AvBb, 1999 wWcwRUwi cweavbgvjv, 2000wWcwRUwi (eenvwiK) cweavbgvjv, 2003Notifications, Orders, Directives



Purview of ExchangeSection 2(m) of the Securities and Exchange Ordinance, 1969 reads as follows: Stock Exchange means any person who maintains or provides a market place or facilities for bringing together buyers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a Stock Exchange, as that term is generally understood, and includes such market place and facilities.



Purview of ExchangeThe major functions of the Exchange are:Listing of Companies (As per Listing Regulations).Ensuring compliances of Listed SecuritiesProviding the screen based automated trading of listed Securities (As per Automated Trading Regulations)Index ManagementSettlement of trading (As per Settlement of Transaction Regulations).Approval to the transaction/transfer/gift of share outside the trading system of the exchange (As per Listing Regulations).Market Administration & Control.Market Surveillance.Research & Information and Publications & Public Relations.Monitoring the activities of listed companies (As per Listing Regulations).Investors grievance Cell (Disposal of complaint bye laws 1997).Investors Protection Fund (As per Investors Protection Fund Regulations, 2014).Announcement of Price sensitive or other information about listed companies through online



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Purview of ExchangeStock Exchanges has become demutualized with effect from November 21st, 2013 under the provisions of , The Dhaka Stock Exchange (Board and Administration) Regulations, 2013 provides governance guidelines for the Exchange. Main features are: Constitution of the Board of Directors: Majority of the members of the Board of Directors of the Exchange, including the Chairman is Independent Directors.7 (seven) Independent Directors5 (five) Shareholder DirectorsThe Managing Director is Ex-Officio member of the Board with voting right Quorum of the Board Meeting: The quorum shall be one-third members of the Board of Directors of which majority of the Directors present shall be Independent Directors. The Regulatory Affairs Committee (RAC) acts as the vehicle for separation of business and regulatory activities of the Exchange.The Exchange has a separate Regulatory Affairs Division (RAD) to conduct the regulatory functions of the Exchange. The RAD is headed by the Chief Regulatory Officer (CRO)



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Major Act, Rules and Regulations of the Exchanges: , Demutualization SchemeThe Dhaka Stock Exchange (Board and Administration) Regulations, 2013The Dhaka Stock Exchange (Listing) Regulations, 2015The Dhaka Stock Exchange (Trading Right Entitlement Certificate) Regulations, 2013The Dhaka Stock Exchange (Settlement of Transactions) Regulations, 2013The Dhaka Stock Exchange (Settlement Guarantee Fund) Regulations, 2013The Dhaka Stock Exchange (Short-Sale) Regulations, 2006The Dhaka Stock Exchange Automated Trading Regulations, 1999.Dhaka Stock Exchange (Investors Protection Fund Regulations), 2014The Dhaka Stock Exchange (TREC Holders Margin) Regulations, 2013

Purview of Exchange30-Jul-15*Dhaka Stock Exchange Ltd.


Corporate Governance GuidelinesCorporate governancebroadly refers to the mechanisms, processes and relations by which corporations are controlled and directed. Corporate governance essentially involves balancing the interests of the many stakeholders in a company - these include its Board of Directors, shareholders, management, customers, suppliers, financiers, government and the community. Corporate governance includes the processes through which corporations' objectives are set and pursued in the context of the social, regulatory and market environment.

Corporate governance became a pressing issue following the 2002 introduction of the Sarbanes-Oxley Act in the U.S., which was ushered in to restore public confidence in companies and markets after accounting fraud bankrupted high-profile companies such as Enron and WorldCom.

BSEC vide its notification dated February 20, 2006 first introduced Corporate Governance Guidelines in Bangladesh for the Listed Companies which was subsequently amended broadly on August 7, 2012.



Corporate Governance GuidelinesEarlier the conditions under Corporate Governance Guidelines was on comply or explain basis now these are imposed on 'comply' basis.Major Conditions:

1. BOARD OF DIRECTORS:1.1 Board's SizeThe number of the board members of the company shall not be less than 5 (five) and more than 20 (twenty):

Banks and non-bank financial institutions, insurance companies and statutory bodies need to follow guidelines of primary regulators.1.2 Independent Directors

At least one fifth (1/5th ) of the total number of directors30-Jul-15*Dhaka Stock Exchange Ltd.


Corporate Governance GuidelinesIndependent Director means a director: who either does not hold any share in the company or holds less than one percent (1%) shares of the total paid-up sharesNot a sponsor of the company and is not connected with the companys any sponsor or director or shareholder who holds one percent (1%) sharesfamily members also should not hold one percent (1%) sharesNo relationship, whether pecuniary or otherwise with the companyNot a member, director or officer of any stock exchangeNot a partner or an executive or was not a partner or an executive during the preceding 3 (three) years Not be an independent director in more than 3 (three) listed companiesNot been convicted by a court as a defaulter in payment of any loan to a bank or a NBFI;Not been convicted for a criminal offence involving moral turpitude.



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Corporate Governance GuidelinesThe independent director(s) shall be appointed by the board of directors and approved by the shareholders in the Annual General Meeting (AGM).The post of independent director(s) can not remain vacant for more than 90 (ninety) days.The Board shall lay down a code of conduct of all Board members and annual compliance of the code to be recorded.The tenure of office of an independent director shall be for a period of 3 (three) years, which may be extended for 1 (one) term only.



Corporate Governance Guidelines1.3 Qualification of Independent Director (ID)Independent Director shall be a knowledgeable individual with integrity who is able to ensure compliance with financial, regulatory and corporate laws and can make meaningful contribution to business.The person should be a Business Leader/Corporate Leader/Bureaucrat/ University Teacher with Economics or Business Studies or Law background/Professionals like Chartered Accountants, Cost & Management Accountants, Chartered Secretaries. The independent director must have at least 12 (twelve) years of corporate management/professional experiences.In special cases, the Commission may relax.



Corporate Governance Guidelines1.4 Chairman of the Board and Chief Executive Officer:

The positions of the Chairman of the Board and the Chief Executive Officer of the companies shall be filled by different individuals.

1.5 The Directors Report to Shareholders:

The directors of the companies shall include some additional statements in the Directors' Report prepared under section 184 of the Companies Act, 199430-Jul-15*Dhaka Stock Exchange Ltd.


Corporate Governance Guidelines2. CHIEF FINANCIAL OFFICER (CFO), HEAD OF INTERNAL AUDIT AND COMPANY SECRETARY (CS):2.1 Appointment

The company shall appoint a Chief Financial Officer (CFO), a Head of Internal Audit (Internal Control and Compliance) and a Company Secretary (CS). The Board of Directors should clearly define respective roles, responsibilities and duties of them.

2.2 Requirement to attend the Board Meetings

The CFO and the Company Secretary of the companies shall attend the meetings of the Board of Directors.30-Jul-15*Dhaka Stock Exchange Ltd.


Corporate Governance Guidelines3. AUDIT COMMITTEE:The company shall have an Audit Committee..The Committee shall assist the BoD in ensuring that the financial statements reflect true and fair view .The Committee shall be responsible to the Board of Directors.3.1 Constitution of the Audit CommitteeAt least 3 (three) membersAt least 1 (one) independent directorAll members of the committee should be financially literate and at least 1 (one) member shall have accounting or related financial management experienceCasual vacancies shall be filled up within 1 monthThe company secretary shall act as the secretary of the CommitteeThe quorum of the Committee meeting shall not constitute without at least 1 (one) independent director.



Corporate Governance Guidelines3.2 Chairman of the Audit CommitteeChairman of the Audit Committee shall be an independent director.Chairman of the audit committee shall remain present in the AGM.3.3 Role of Audit Committee:Monitor choice of accounting policies and principles.Monitor Internal Control Risk management process.Oversee hiring and performance of external auditors.Review the annual financial statements before submission to the board for approval.3.4 Reporting of the Audit CommitteeReport on its activities to the Board of Directors3.4.2 Reporting to the AuthoritiesReport to the Commission three times or completion of a period of 6 (six) monthReporting to the Shareholders and General Investors



Corporate Governance Guidelines4. EXTERNAL/STATUTORY AUDITORS:5. SUBSIDIARY COMPANY:6. DUTIES OF CHIEF EXECUTIVE OFFICER (CEO) AND CHIEF FINANCIAL OFFICER (CFO):7. REPORTING AND COMPLIANCE OF CORPORATE GOVERNANCE:The company shall obtain a certificate from a practicing Professional Accountant/Secretary (Chartered Accountant/ Cost and Management Accountant/Chartered Secretary) regarding compliance of conditions of Corporate Governance Guidelines of the Commission and shall send the same to the shareholders along with the Annual Report on a yearly basis.The directors of the company shall state, in accordance with the prescribed format, in the directors' report whether the company has complied with these conditions.



Issue Management GuidelinesObtain Issue Management license from BSEC as per wmwKDwiwUR I GP Kwgkb (gvPU evsKvi I cvUdvwjI gvbRvi), wewagvjv, 1996.Require to issue due diligence certificate as per prescribe format.Every issue manager has to submit at least 1 IPO document in every 2 calendar year.Issue manager has to comply with, among others, the following major rules and regulations:

The Securities and Exchange Ordinance, 1969The Securities and Exchange Commission (Public Issue) Rules, 2006wmwKDwiwUR I GP Kwgkb (gvPU evsKvi I cvUdvwjI gvbRvi), wewagvjv, 1996The Dhaka Stock Exchange (Listing) Regulations, 2015The Companies Act, 1994Other conditions imposed by BSEC in consent letter30-Jul-15*Dhaka Stock Exchange Ltd.


Issue Management Guidelines

Signing agreement with the prospective issuerSite visit for assessment of public offeringSelect Method of Public OfferingPrepare Draft ProspectusApply to BSEC for Public OfferIPO Approved by BSECPublish vetted Prospectus in NewspapersApply to the Exchange for ListingCollect SubscriptionConduct LotteryAllotment andRefundListing Approval by the ExchangesCredit Share/UnitsCommencement of Trading

ISSUE MANAGERS INVOLVEMENT IN GENERAL PROCESS OF LISTING THROUGH IPO30-Jul-15*Dhaka Stock Exchange Ltd.


LISTINGListing is the process of acceptanceof a qualifyingsecurityfortrading on a registered stock exchange.

Mode of Listing:Listing through Initial Public Offering (IPO)Fixed Price MethodBook Building MethodOffloading of Shares of the companies through Direct Listing



Requirements for IPOEligible for Book-building methodThe company must have at least Tk. 300 million net-worth;Shall offer at least 10% shares of paid up capital (including intended offer) or Tk. 300 million whichever is higher;Shall be in commercial operation for at least immediate past five years;Shall have profit in three years out of the immediate last five completed accounting/financial year;Shall have no accumulated loss at the time of application;Shall get its financial statements audited a firm of chartered accountants from the panel of auditors of the Commission;Shall be regular in holding annual general meeting;

The Commission if deems appropriate for the interest of investor or development of capital market, may exempt or relax any of the above requirements.

Eligible for fixed price method:Minimum paid up capital (existing + proposed) requirement for initial public offering (IPO) shall be Tk. 30 (Taka thirty) crore;Minimum size of IPO shall be Tk. 12 (Taka twelve) crore, but that shall not be less than 10% (ten percent) of the total paid up capital (existing + proposed);No issuer of a listed security shall utilize more than 1/3rd (one-third) of the fund raised through IPO for the purpose of loan repayment;



Requirements Concerning Capital and Operation:The concerned applicant- shall have minimum paid up capital of Taka 300 (three hundred) million;shall have no accumulated loss;shall be in commercial operation for at least immediate last 5 (five) years; shall have profit in 3 (three) years out of the immediate last 5 (five) completed accounting/financial years with steady growth pattern;is regular in holding of annual general meeting (AGM);has not raised capital (excluding bonus issue) within preceding 2 (two) years;has not issued the same class of securities in any manner other than bonus issue within the preceding 2 (two) years of submitting application of listing;

Requirements for DIRECT LISTING30-Jul-15*Dhaka Stock Exchange Ltd.


shall have positive net current assets (Current Assets less Current Liabilities) at the end of immediate preceding 3 (three) accounting/financial years;shall have net positive cash flows from its operating activities for immediate preceding 3 (three) accounting/financial years;shall comply with the provisions of Corporate Governance Guidelines as prescribed by the Commission from time to time;any of its sponsors/directors is not a bank defaulter; has been assigned rating by a credit rating company;has prepared its financial statements in accordance with the requirements of the Securities and Exchange Rules, 1987 as well as the provisions of International Financial Reporting Standards (IFRS)/International Accounting Standards (IAS) as adopted in Bangladesh and audited the same as per requirements of International Standards on Auditing (ISA) as adopted in Bangladesh.

Requirements for DIRECT LISTING30-Jul-15*Dhaka Stock Exchange Ltd.


30-Jul-15Dhaka Stock Exchange Ltd.*Margin Rules, 1999 covers margin loan facility provided by the Stock Brokers and Rule 36 of the wmwKDwiwUR I GP Kwgkb (gvPU e vsKvi I cvUdvwjI g vbRvi) wewagvjv, 1996 and schedule thereof covers the margin loan facility provided by Merchant Banker (Portfolio Manager).

Rule 3(12)(c) defines margin in the following manner: margin means the aggregate amount of cash and market value of securities deposited by a client into his margin account, but shall not include securities which are bought and carried in the margin account; Margin Rules


30-Jul-15Dhaka Stock Exchange Ltd.*Rule 3(2) Margin account arrangements must be evidenced in the form of a written agreement executed between the member and the client.

**Rule 3(5) Whenever the equity in a client's margin account falls below 150% of the debit balance, the member shall request the client to provide additional margin to bring the equity to not less than 150%. Such additional margin must be satisfied by deposit of cash or marginable securities within three days from date of notice. The member shall not permit any new transactions in the margin account unless the resulting equity in the account would be not less than 150% of the debit balance.

Rule 3(6) A member shall not permit the equity in a client's margin account to fall in any way below 125% of the debit balance. Once the equity falls below this level, the member shall have absolute discretion and without notice to the client to liquidate the margin account including the marginable securities deposited to bring the equity to not less than 150% of the debit balance.

** BSEC has extended suspension period of effectiveness of Rule 3(5) of Margin Rules, 1999 till December 31, 2015 vide an Order dated June 30, 2015Margin Rules, 1999


30-Jul-15Dhaka Stock Exchange Ltd.*Clause 5 of schedule under Rule 36 of the wmwKDwiwUR I GP Kwgkb (gvPU e vsKvi I cvUdvwjI g vbRvi) wewagvjv, 1996 provides guidelines on margin in the following manner:

gvwRb FY c`vbi weeP welqmg~n| gvwRbej wmwKDwiwUi wecixZ gvwRb FY c`vbi gvPU evsKvi (cvUdvwjI gvbRvi), Abvbi ga, wbwjwLZ welqmg~n weePbv Kwie, h_v:(K) wewbqvM wbivcv;(L) wmwKDwiwUi dvvgUvjm& ev gwjK welq;(M) wmwKDwiwUi Zvij/wecYbhvMZv;(N) hywmZ Avq;(O) g~jab cew (Capital appreciation);(P) SzuwKi Dcv`vbmg~n (Risk factors);(Q) Kivivci cfve|Margin Rules


The margin deposited (pledged) by client with the stock broker shall be in the form

a. Cash, b. Securities issued by the Government or its agencies, c. Marginable securities d. Other instruments as the Commission may from time to time prescribe.Types of Margin (Deposit)30-Jul-15*Dhaka Stock Exchange Ltd.


Marginable Securities are all except the following:

Z-category SecuritiesAny existing listed security of which the P/E ratio exceeds 40. The members of the stock exchanges shall not extend credit facilities to their approved clients beyond 0.5(zero point five) times of clients margin/clients deposit (i.e. credit facilities shall be on 1:0.5 basis) under the Margin Rules, 1999.All corporate benefit, such as dividend, bonus, rights etc. entitled according to book closure/record date will be added with portfolio value.The stock brokers shall not provide margin facilities to any member of the Board of Directors of its own company, officer and staff employed in the company management, their parent, spouse, son, daughter, sister, brother, son-in-law, daughter-in-law and other relatives.

Margin Guideline30-Jul-15*Dhaka Stock Exchange Ltd.


Listing Regulations30-Jul-15*Dhaka Stock Exchange Ltd.

Regulation No. TitleRegulation

Regulation- 2 (d), (e), (i), (r)

DefinitionsCompany SecretaryCompliance OfficerMaterial Change/InformationSponsor

Regulation-3(1-3)

Recommendation by Exchange to the Commission Primary recommendation along with checklist within 20 days.Ask clarifications from issuer or its directors, officers, issue manager(s), auditors, valuer(s).Final recommendation along with a declaration within seven days.


POST LISTING CONTINUOUS COMPLIANCESListing Regulations30-Jul-15*Dhaka Stock Exchange Ltd.

Regulation No. TitleRegulationRegulation 15 (1)Auditing of Financial StatementsFinancial statements shall be audited by any firm of chartered accountants which is in the panel of the Commission.

Regulation 15 (2), (3) & (6)

Statutory auditors Tenure: No auditor shall be appointed for a consecutive period exceeding three years.

Financial statements shall not be audited by any firm of chartered accountants or auditor which or who is convicted for any securities or exchange or financial related offence.


GO-LIVE OF LATEST MATCHING ENGINE OF DSE30-Jul-15*Dhaka Stock Exchange Ltd.


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Presentation on securities laws and regulations

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Transcript of Presentation on securities laws and regulations