Commission Introduces Depositories Regulations

The Securities and Exchange Commission has introduced the operational framework for a central depository system, namely the Depositories Regulations 2000 (pursuant to the Depository Act 1999).

The aim of the regulations is to pave the way for scrips(1) trading on the domestic stock markets. Under the regulations the commission will issue certificates for companies to perform depository business.

Any company may be registered provided that:

• its minimum paid capital is Tk2500 million;

• two members of its board of directors are nominated by the commission;

• its chief executive is appointed and removed subject to the prior permission of the commission; and

• the memorandum and articles of association are approved by the commission and any alteration is subject to the commission's prior permission.

Recently one bank's inordinately large number of transactions in one day aroused the suspicion of the commission. It was suspected that some sort of insider dealing had taken place and the commission's vigilance committee decided to launch an investigation. Bank officials claimed that price-sensitive information was officially communicated to the stock exchange after the trading hour of the day. The information stated that the bank (a limited company) would declare a 25% dividend this year. When the commission asked why it had not been informed sooner, the bank replied that the board resolution was taken on a Thursday evening and, since the following two days were holidays, it could not immediately inform the stock exchange. This led to the belief that bank officials had deliberately withheld information, which is illegal under insider dealing laws. The transaction was for 280,600 shares with a value of approximately $1 million. This represented 41% of the day's total transactions.

For further information on this topic please contact Ishrat Mahmud at Legal Remedy by telephone (+880 2955 0645) or by fax (+880 2955 0645) or by e-mail ([email protected]).

Endnotes

(1) A provisional certificate of money subscribed to a bank or company, entitling the holder to a formal certificate and dividends.