Securities regulator has prepared a four-point formula for boosting institutional investments in bourses, officials have said.
The formula includes addition of certain provisions to the Bank Companies Act to help increase contribution of major institutional investors like banks to the capital market, creation of scope for investment of pension, life and other funds in securities and fiscal incentives for investment of provident funds in the capital market.
The institutional investment issues were discussed at a meeting of the Bangladesh Securities and Exchange Commission (BSEC) last week. Chairman of the commission Dr M Khairul Hossain presided.
Secretary to the financial institutions division Ashadul Islam attended the meeting as the chief guest.
Officials said the meeting discussed the need for redefining the capital market exposure or changing certain provisions in the Bank Company Act in line with the global norms to increase the institutional contribution to the capital market.
The issue of creating scope for investing in pension, life and other funds in the bourses also came up for discussion.
Officials said the capital market watchdog proposed offering incentives to individuals to encourage them to invest in mutual funds through systematic investment plan, which ultimately will be transformed into institutional investment.
The commission suggested offering tax and other kinds of incentives to encourage investment of private sector provident funds in the bourses.
A senior commission official, who attended the meeting, told the FE the proposals were discussed and put forward to the ministry of finance for consideration so that institutional investors could help enhance the depth of the market.
He said individual investors do always want to make short-term gain and trade shares as soon as they attain maturity.
But the institutional investors make investment in the market for a long period and they are the building blocks of stock markets.
The official also said the state-run Investment Corporation of Bangladesh (ICB) has recently been allowed to draw Tk 20 billion by floating bonds in the capital market. But it was asked to reinvest at least Tk 15 billion in the market ahead of the upcoming national election.
Such investments do help generate fresh funds too, luring more private investment into the market, he said.
Economist Professor Abu Ahmed told the FE that in order to attract institutional investment, the commission first needs to draw quality stocks into the market.
He said apart from offering incentives to institutional investors, the individuals need to be given financial benefits in various forms so that they can transform themselves into long-term investors.
Mr Ahmed argued that the shares of sponsor directors and privileged quota holders-the merchant banks and asset managers-must be put under lock-in for a certain period.
"These people at one stage reduce their holdings and do not offer good dividends, and also turn the companies into sick ones," he said.
He noted that the proposal for investing pension fund, life fund and other funds in the bourses is a good one and it needs to be materialised for the betterment of the capital market.
syful-islam@outlook.com