The government will have to form a special tribunal to deal with capital market related cases, in line with the conditions the Asian Development Bank has attached to a $215 million credit offer for Bangladesh.

The government will also have to limit banks' exposure to the capital market.

The credit under the lender's Capital Market Development Programme is accompanied by a total of 26 strings that an ADB mission put forward in a draft last month.

The Banking Division of the finance ministry has already sent the proposal to different agencies for their opinion.

Of the $215 million fund, $120 million is special fund resource and $95 million is ordinary capital resource, according to the draft.

If the government accepts the conditions, the amount will be disbursed in two equal tranches of $107.5 million each.

However, the government has requested the ADB to raise the amount to $300 million and the proposal is under a review of the lender, the draft said.

The ADB said the conditions are “to strengthen stabilisation measures of the securities markets following the history of booms and busts characterising the markets”.

Another objective is to make the capital market more effective in mobilising resource to support the economy's financing requirement and to better promote growth and development.

The ADB said the capital market tribunal will help the stock regulator detect trading irregularities and market abuse, leading to a rise in investor confidence.

Before releasing the first tranche of the funds, an amendment to Securities and Exchange Commission Ordinance 1969 regarding the formation of the special tribunals has to be placed in parliament for passage.

And before the second tranche is released, the amended act has to be passed in parliament, according to the conditions.

Banks' exposure to the stockmarket will not exceed 25 percent of their capital, the ADB said. Now rules permit the banks to invest up to 10 percent of their deposits in the stockmarket.

For this, the lender said, the government will have to amend the banking company act.

The amended bill should go to parliament before the first tranche is made available and the bill should get a go-ahead before the release of the second instalment.

The ADB has also attached a condition that the demutualisation act for stock exchanges has to be placed in parliament.

The ADB draft said the demutualisation would segregate ownership, management and trading rights of members and convert the two exchanges into commercial and more professionally-run organisations.

The stock exchanges will then be able to pursue their strategic interests including market development with more vigour, the lender said.

The exchanges will also be less susceptible to the members' vested interests, it said.

A finance ministry official said they are likely to place the demutualisation act in parliament by December.

Another major condition is about the passage of financial reporting act in parliament.

Once the act gets through, the lender said, the accounting and auditing standards will be upgraded to enhance market confidence and allow for informed investment decisions.

The ADB set some other conditions related to strengthening the SEC, and to develop the bond market.

Of $215 million funds, $15 million is for market stability (for SEC's additional staff work time, coordination committee staff time maintenance and operation cost of SEC surveillance equipment), $100 million is for market facilitation (cost of demutualisation and establishment of capital market tribunal, operation cost of financial reporting council), $5 million for supply measures, and $95 million is for demand measures.

The Daily Star/Bangladesh/ 5th Aug 2012