THE AIM OF THE SEC

The aim of the SEC is to ensure the protection of the interests of securities investors and proper issuance and compliance with securities laws but the protection under the existing laws is questionable.

Abstract:

The legislations in connection with the protection of security investors’ right in the light of Bangladesh perspective have come forward to the public after share market crash of 1996. In this connection the Bangladesh Securities and Exchange Commission has taken steps against the invaders of securities laws. The major legislation underlying the areas are the Securities and Exchange Commission Ordinance of 1969, the Securities and Exchange Commission Act 1993. Rules and regulations have been framed under these laws. The provisions relating to security investors’ right are less effective till now due to effective mechanism. The legislature has framed rules and regulations by inserting some provisions in the statutory laws, but security investors’ right are not expectedly ensured. The object of this paper is to introduce some effective formula by which securities investors’ right may be protected.

  1. Introduction:

The Securities and Exchange Commission is a highly prestigious body and influences to a large extent in the economy of Bangladesh. The laws relating to securities are new phenomenon in Bangladesh. The former British colonial giant did not incorporate the laws and regulations regarding securities unlike other major incorporated laws. After the creation Pakistan, in 1954, the former Government formed a mutual organization (cooperative body) under the name and style of East Pakistan Stock Exchange Association which came into operation in 1956 and later corporatized in the name of Dhaka Stock Exchange (DSE). The basic philosophy of incorporating securities laws in Bangladesh are enshrined in the preamble of the Securities and Exchange Commission Ordinance of 1969 (SECO) that was enacted for capital markets and issue and dealing in securities. On 8th June, 1993, the Bangladesh Securities and Exchange Commission (BSEC) was established under the Securities and Exchange Commission Act 1993 (BSECA).  On December 10, 2012, BSEC’s name has been changed as “Bangladesh Securities and Exchange Commission” instead of Securities and Exchange Commission (SEC) through an amendment of the Securities and Exchange Commission Act of 1993.  Following the SECO, SECA also enumerated its object in the preamble that SEC was established for the purpose of protection of investors in securities, for the development of securities markets and for matters connected therewith or incidental thereto. The practical scenario in Bangladesh is different in connection to investors protection. After post liberation era, the Government of Peoples’ Republic of Bangladesh enacted several laws, rules, regulations, bye-laws, notifications etc to ensure the protection of the interests of securities investors, but relief under the existing laws are still ambiguous.

  1. Formation of BSEC:

BSEC is a statutory body and attached to the Ministry of Finance.[1] BSEC consists of a Chairman and four Commissioners who are appointed for fulltime by the government.[2] The Chairman acts as the Chief Executive of the Commission. The Commission has overall responsibility to formulate securities legislation and to regulate the market accordingly. BSEC is a statutory body having perpetual succession, a common seal having power to acquire, hold and dispose of properties, both movable and immovable, and shall by the said name sue and be sued.[3]

  1. Historical Background:

After an eruptive fall of great Wall Street in 1929, shares prices in the New York Exchange have been fallen overnight. Franklin D. Roosevelt, 32nd President of the U.S.A. committed to introduce a new law in connection with investor protection laws. Roosevelt’s finally introduced the Securities Act of 1933, the Securities Exchanges Act of 1934, the Investment Company Act of 1940 and Investment Advisers Act of 1940. After the Poseidon share scandal in the early 1970s, Gough Whitlam, head of Australian Labor Party made an election promise to amend the existing share market laws based on the English style rather than statutory control introduced by the USA before the Second World War. Now the Australian securities laws are based on the Australian Securities and Exchange Commission Act of 1989 which was enacted to maintain, facilitate and improve the performance of the securities markets and futures in the interests of commercial certainty and to maintain the confidence of investors in the securities markets and futures markets by ensuring adequate protection for such investors. The Securities and Exchange Board of India Act of 1992 (SCBIA) created the Securities and Exchange Board of India to protect the interests of the investors in securities and to promote the development of and to regulate the securities market. Following the above legislation, Securities laws are introduced in Bangladesh.

  1. BSEC’s Scope for Protection of Security Investors’ Right:

Section 2A[4] states that without of prior approval of BSEC, no company incorporated in Bangladesh is allowed to invest outside the territory of Bangladesh.

Section 2B[5] states that without of prior approval of BSEC, no person issue any document publicly offering for sale any security which does not contain a statement that the document was issued with the consent of the BSEC.

Section 2C[6] states that without of prior consent of BSEC, nobody is permitted to deliver any consideration for any securities with regard to an issue of capital.

Section 2CC[7] states that any approval or consent or recognition shall be subject to such conditions as BSEC may think fit to impose. BSEC curbed the transferability of securities by inserting a notification.[8]

One Bank Ltd vs. Government of Bangladesh and Others[9]

The apex court held that Section 2CC of SEO is not ultra vires the Constitution. Power under section 2CC given by the legislature to the SEC to protect interest of the investors and develop the capital market.

Motahar Hossain vs. BD Commerce Bank and another[10]

The apex court observed that SEC has no power to impose further condition under section 2CC of the SEC to require a company to go for public issue instead of a right issue.

  1. Powers and Functions of BSEC:

Section 8[11] states that the responsibility and duly of BSEC is to ensure the proper issuance of securities, to protect the interest of the investors in securities and to promote the development of and to regulate the capital and securities market.

Section 8(2)[12] states that BSEC shall have the following powers and functions:

  • 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 managers of   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.
  • Regulating the substantial acquisition of shares and take-over of companies.
  • 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.[13]

BSEC shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.[14] The U.S. Securities Exchange Act of 1934 did not codify the duties and responsibilities of the Commission, rather it provides a detail description with regard to its necessity.  The U.S. Act ensures civil penalties for insider trading. Australian securities law prohibits insider trading. The legislature leaves a very wide power to the BSEC to regulate insider trading by framing rules.

Section 17[15] states that BSEC may delegate any power except the power to make rules to the Chairman, member or any officer of the BSEC.

Section 17 (Ka)[16] states that BSEC may form a committee of any person or persons to conduct any inquiry.

Shinepukur Holding Ltd vs. SEC[17]

Authorization to the executive director of the BSEC to file the share scam cases would be an act of the BSEC and the Chairman being the chief executive would represent and have all the ordinary powers of the BSEC to fulfill its purpose including suing for prosecution for violation of the SBEC laws.

Section 17 (Kha)[18] states that BSEC shall exercise all powers under the code of Civil Procedure. Our laws are seems to be closest to the Australian laws in this regard.

  1. Registration Certificate:

Section 10[19] states registration procedure of certain class of persons and prohibits any sale or dealing in securities by them otherwise. BSEC has power to cancel or suspend the registration certificate for contravention of any law, or the Rule or any condition of registration.

  1. Penalty for Contravention:

Section 18[20] provides that when any person contravenes any provision of SECA, he shall be liable to be punished rigorous imprisonment for a term not exceeding five years or a fine which shall not be not less than five lakh taka.

Any person involved in any inquiry is not complied with or failed to supply necessary information or to afford proper co-operation, he shall liable to pay a fine which shall not be less than one lakh taka for every day and the default continues a fine not exceeding ten thousand taka per day.

Section 25A[21] states an exception to the established principle of common law, namely that a person is not guilty unless so proved.

United States vs. Wolfson[22]

The American courts have consistently rejected the argument by defendants that various provisions of securities laws are constitutionality vague when made the basis for criminal prosecutions.

  1. Taking Cognizance:

Section 19[23] conferred the power of taking cognizance only to Court of Sessions which may take cognizance of an offence by lodging a complaint in writing made by the BSEC or any person authorized by BSEC.

  1. Appeal:

Section 21[24] states that any person aggrieved by an order passed by any member or officer, prefer an appeal to BSEC against such order and the decision of BSEC shall be final. BSEC at its own instigation or in the light of any application, reconsider any matter already decided upon and in this case the decision of BSEC shall be final.

  1. Civil Liability:

Section 23[25] is an attempt at the summery of the case law on the liability incurred by a wrong doer in tort.[26] Any person who becomes liable to a person may recover contribution from a person who if joined in the original suit, would have been liable to make the same payment.[27]

11.Findings:

  1. The procedure of punishment mentioned in SECA is ridiculous to some extent in the light of considering the present scenario. There are different mafias (a group involved in secret or criminal activities) who directly or indirectly involved in the stock market crash. They took thousands crore taka from the market. In this context the punishment is below standard.
  2. Neither SECO nor SECA inserted provisions in connection with fine. The offender has no headache to pay fine under the prevalent securities laws in Bangladesh.
  3. There is no provisions in the securities laws like ordinary penal law with regard to forfeiture of property of the offender.
  4. The Court is empowered to take cognizance and dispose complaint lodged under securities laws subject to BSEC’s prior approval and hence there no separate legal body like Cyber Tribunal, Nari O Shishu Nirjatan Daman Tribunal, Special Tribunal to d try the offence under the securities laws.

12.Recommendations:

  1. The punishment inserted in the SECA should be modified in accordance with the changing circumstances. Maximum punishment should be increased from five years to death penalty or imprisonment for life or not less than ten years rigorous imprisonment. Because, there are some sort of glorious examples in Bangladesh that few investors committed suicide by loosing capital for share market crash.
  2. Fine may be a proper alternative relief for the securities investors. The existing securities laws should be amended by incorporating the provisions in connection with fine so that the Court by imposing fine to the offender for the purpose of compensating the investors.
  3. The legislature should introduce the provisions with regard to forfeiture of offender’s property and distribute the same among the investors.
  4. The legislature may amend the existing securities laws by conferring the power of taking cognizance to the Magistrate Court and a separate tribunal a may be established named “Security Investors’ Protection Tribunal” in the regard.
  5. A separate monitoring cell should be set up to ensure check and balance of security markets.

13.Conclusion:

Bangladesh is passing a very crucial time regarding security investments. The legislature enacted and issued laws, rules, regulations, notifications to ensure security investors’ right. The major question is the proper implementation of these legislations. Our legislature borrowed most of these securities law from USA, but failed to provide effective mechanism in order to ensure the protection of security investors’ right. Finally, it may be identified that the implementation of the investors’ right under the existing laws in our country are still questionable.

Bibliography:

  1. A) Cases

United States vs. Wolfson, (2d Cir.1968) 405 F.2d

Shinepukur Holding Ltd vs. SEC (1998) 18 BLD 61

One Bank Ltd vs. Government of Bangladesh and Others (2010) 15 BLC 91

Motahar Hossain vs. BD Commerce Bank and another (unreported)

  1. B) Legislations

Securities and Exchange Commission Ordinance 1969

Bangladesh Securitas and Exchange Commission Act 1993

Notification no.SEC/Section-7/Lock-in/97-128-1 dated 16 September 1997.

  1. C) Books

Karim, Md. Saiful, A Compilation of Company and Securities Laws (Shams Publication, 6th ed, 2012).

Securities Related Ordinance, Act, Rules and Regulations, (Bangladesh Securities and Exchange Commission, 3rd ed, 2015).

Zahir, Dr. M. Company and Securities Laws (The University Press Limited, 3rd ed, 2015).

  1. D) Others

http://www.sec.gov.bd/home/about

http://www.sec.gov.bd/home/functions

Powers and Functions

[1] http://www.sec.gov.bd/home/about

[2] Md. Saiful Karim, A Compilation of Company and Securities Laws (Shams Publication, 6th ed, 2012), 68.

[3] Securities Related Ordinance, Act, Rules and Regulations, (Bangladesh Securities and Exchange Commission, 3rd ed, 2015), 442.

[4] Securities and Exchange Commission Ordinance 1969 s 2A

[5] Above n 4 s 2B

[6] Above n 4 s 2C

[7] Above n 4 s 2CC

[8] Notification no.SEC/Section-7/Lock-in/97-128-1 dated 16 September 1997.

[9] 15 BLC(2010) 91

[10] Unreported.

[11] Bangladesh Securitas and Exchange Commission Act 1993

[12] Above n 11 s 8(2).

[13] http://www.sec.gov.bd/home/functions

[14] http://www.sec.gov.ph/about/powers-and-functions/

[15] Above n 11 s 17.

[16] Above n 11 s 17(Ka).

[17] 18 BLD (1998) 61

[18] Above n 11 s 17(Kha).

[19] Above n 11 s 10.

[20] Above n 11 s 18.

[21] Above n 4 s 25A.

[22] (2d Cir.1968) 405 F.2d

[23] Above n 11 s 19.

[24] Above n 11 s 21.

[25] Above n 11 s 23.

[26] Ibid.

[27] Dr. M. Zahir, Company and Securities Laws (The University Press Limited, 3rd ed, 2015) 287.

Submitted By: Manjurul Hasan Khan Toasin