Demutualization of Dse

Demutualization of Dhaka Stock Exchange

According to ‘The Exchanges Demutualization Act, 2013’ demutualization means the process of separating ownership and management from the Trading Rights for a particular exchange under approved scheme of demutualization. More specifically demutualization is the process of making the exchange into a profit making organization which will be owned by its shareholders. Previously Dhaka Stock Exchange (DSE) was a mutual corporation which was owned by several members and it was not operating having any motive of profit making. As it has been demutualized recently by this new act, DSE has turned into a profit making company. In our financial market it has been expected to have a significant impact.

Only separating ownership and trading rights is not the objective of demutualization. Two other major objectives are to ensure greater and improved governance, and to ensure efficiency and performance of the exchange. As major financial restructuring was shouted out, demutualization is implemented as one step towards that. After the demutualization the ownership structure has been changed. While previously the ownership was confined to the members of the DSE, now the shareholders will be the owner of the exchange. Another change is that DSE now has a different legal form as it is now a company not a mutual organization.

Authorized capital of DSE is Tk. 25,000,000,000 which is divided into 2,500,000,000 shares having face value of Tk. 10 for each. Paid up capital presently is Tk. 18,037,765,000 which comprises 1,803,776,500 shares. These shares are allotted equally to 250 initial shareholders of the DSE. Thus each shareholder got 7,215,106 shares having total value of Tk. 72,151,060. After the demutualization, assets of DSE are revalued as per the direction of the ‘The Exchanges Demutualization Act, 2013’. In revaluation, Net Assets method is applied. Under the method, all the assets are valued at market value and then market value of the liabilities is deducted from that. Book value of a particular asset is used as an alternative of market value, where market value is difficult to obtain. The revalued amount is taken as the paid up capital of DSE.

The governance structure of DSE will change due to the demutualization. Presently most of the member of board of directors of DSE should be independent, even the chairman of the board will be elected from the independent directors by the board. The board will comprise of 13 members – 7 independent directors, 4 directors from the shareholders, 1 director from strategic investors and 1 CEO.

One issue of demutualization is criticized worldwide and that is the conflict of interest in demutualized exchange which is in one hand a regulatory organization and in other hand a profit making firm. A possible solution of the issue is to separating the regulatory function from profit making operation. A separate division entitled “Regulatory Affairs Division (RAD)” has been established which will be supervised by “Regulatory Affairs Committee (RAC)”. Both of these are separated from other divisions and committees of the DSE that are related to commercial operation. RAC will conduct all the regulatory works and ensure regulatory works are completely separated from commercial function. RAC will comprise of 3 independent directors and Chief Regulatory Officer (CRO).