LAW, RULES AND REGULATIONS

7.1 Current Regulations
      7.1.1 Investments
      7.1.2 Repatriation of investment funds, dividends and profits
7.2 Securities Import/Export Regulations
7.3 Investment Restrictions
        7.3.1 Direct Investment
        7.3.2 Indirect Investment
7.4 Insider Legislation
        7.4.1 Legal Basis
        7.4.2 Definitions
       7.4.3 Penalties for Insider offences
       7.4.4 Reporting requirements for insiders
7.5 Take-over Rules
7.6 Reporting requirements
       7.6.1 Insider holdings
7.7 Transfer of ownership in securities
7.8 Pledging securities as collateral
7.9 Lost & Stolen Securities
        7.9.1 Register
        7.9.2 Cancellation and replacement procedures
7.10Chittagong Stock Exchange (Short - Sale) Regulations, 2005

7.1 CURRENT REGULATIONS

7.1.1 Investments

Foreign investors are free to make investment in Bangladesh in the industrial enterprises excepting a few reserved sectors e.g. defence equipment. Permission is not required to set up an industrial venture in collaboration with local investors or wholly owned by the foreign investors.

To avail the facilities & institutional support provided by the government, entrepreneurs should apply to the Board of Investment for registration.

7.1.2 Repatriation of investment funds, dividends and profits

There is no restriction on the repatriation of capital invested in Bangladesh.

Foreign companies including banks, insurance companies and other financial institutions are free to remit their post tax profits to their country of origin without prior approval of Bangladesh Bank (the central bank).

No permission is needed for remittances of dividend income to non-residents on their investment in Bangladesh.

There is no restriction under the Foreign Exchange Regulation Act on the import of securities into Bangladesh.

Securities can be exported or taken out of Bangladesh without general or special permission of the Bangladesh Bank. Residents in Bangladesh who are holders of foreign securities and who wish to send the securities to banks, brokers or agents abroad for the purpose of sale, transfer etc. should apply to the Bangladesh Bank through an Authorised Foreign Exchange Dealer for necessary export permit. Permission for transfer of such securities will be granted provided the Authorised Dealer gives an undertaking that the securities will be received back in Bangladesh within a specified period, or in the case of sale, the foreign currency proceeds of the sale will be repatriated to Bangladesh. Bangladesh Bank also considers applications for the exchange of foreign shares and/or securities held by residents abroad. Applications for this purpose should be made through an Authorised Dealer or Stock and Share Broker. Such applications will be considered favourably provided the Bangladeshi shares/securities to be imported from abroad are approximately of the same market value as foreign shares and/or securities that are desired to be exported.

A non-resident can invest in the primary market. At present a quota of 10% of the total amount of IPO are reserved for Non-Resident Bangladeshis (NRBs). Non-resident Bangladeshi may apply either directly by enclosing a foreign demand draft drawn on a bank payable at Dhaka, or through a nominee by paying through a foreign currency deposit account maintained in Bangladesh.

Investment in the secondary market can be made through a licensed stock broker and custodian bank.

See also 7.1  and 7.2

7.3.2 Indirect Investment

By non-residents

Non-residents may buy Bangladeshi Securities in Bangladesh against freely convertible foreign currency remitted from abroad through the banking channel. Transaction related to such investment including repatriation of dividend, interest earning and sales proceed are made through a Non-resident Investor’s BDT Account (NITA).

Indirect Investment abroad by domestic investors

See 7.2

The legal basis of insider legislation is covered by the Securities and Exchange Commission (Prohibition of Insider Trading) Regulations, 1995. The authority of these regulations is conferred by section 25 of the SRO No 149-Law /95-Securities and Exchange Commission law, 1993,

7.4.2 Definitions

• Insider

An insider is such a person who:

- is a director, controlling shareholder, managing agent, banker, auditor, consultant, officers and employee of a Company

-by virtue of his relationship with the above persons or with the company or by the dint of his position, his come into the possession of unpublished price sensitive information or who may reasonably expected to have access to such information.

• Insider dealing

Insider dealing means the purchase or sale or otherwise transfers of a company securities made on the basis of unpublished price sensitive information.

7.4.3 Penalties for Insider offences

An insider trading offence is punishable with imprisonment for a term of maximum 5 years or a fine of upto BDT 0.5 million, or both.

7.4.4 Reporting requirements for insiders

A company must report to the Securities and Exchange Commission, Registrar of Joint Stock Companies and the Stock Exchanges the following:

- Any change in its Board of Directors.

A report on each director, officer and/or other shareholder of the company who is or has been the beneficial owner of any class of the company’s listed security of five percent (5%) or above at any point of time. The report should be submitted within the first week of every month.

-    All companies listed on the stock exchanges shall submit to the Commission a report in case of every transfer of share by   the company’s sponsors (which include every director, promoter and officer) within seven days of such transfer.

In Bangladesh there are no explicit rules governing take over. In an implicit form they are regulated by Companies Act 1994 and other Regulatory Act

7.6.1 Insider holdings

See 7.4.4

Each Security Certificate has an attached transfer deed, popularly known as Form 117. The form details the name of the holder and the scrip and contains the verified signature of the current holder. No stamp duty is payable on the transfer deed. Application for transfer may be made either by the transferor or the transferee.

No fees may be charged for transfer.

The company may give 7 day’s previous notice by advertisement in some newspaper prior to closure of share transfer books for any time or times not excluding in the whole forty five days in each year but not exceeding thirty days at a time. The companies listed in Chittagong Stock Exchange shall give a minimum of 14 days notice to the Exchange prior to closure of share transfer books for any purpose.

Shareholder has to apply to the financial institution along with the Certificate with the signature verified transfer deed. The bank seeks a No- Objection -Certificate for the proposed lien.

The central bank’s regulations allow commercial bank to advance 60% of the average market value of the pledged stocks during the last 6 months. Maximum amount a bank can advance to one investor is 0.25 million BDT.

A Stock Broker can receive maximum of 0.75 million BDT. While pledging, a Stock Dealer/Broker has to submit to the bank the original license received from the Securities & Exchange Commission.

7.9.1 Register

In case of a certificate is lost or stolen, the owner has to lodge complaint to the police station, notify the company and Stock Exchanges.

Stock Exchanges maintain register of the lost and stolen certificates.

The company issues duplicate share with or without any fees.

7.10 Chittagong Stock Exchange (Short - Sale) Regulations, 2005

In exercise of the powers conferred by section 34 of the Securities and Exchange Ordinance, 1969 (Ordinance No. XVII of 1969), the Chittagong Stock Exchange Ltd. makes, with the prior approval of the Securities and Exchange Commission the following regulations, namely: -

1. Short title: - These regulations may be called the Chittagong Stock Exchange (Short-Sale) Regulations, 2005.

2. Definition :- (1) In these regulations, unless the context otherwise requires –

a) “ledger” means a record containing the details of all short-selling activities by a stock dealer or stock broker for its own account or for the account of its clients as required under these regulations;

b) “stock exchange” means the Chittagong Stock Exchange Ltd.

c) “short-selling” means the sale of a security which –

i) the seller does not own, or
ii) is consummated by the delivery of a security borrowed by or for the account of the seller;

(2) Words and expressions used herein and not defined, but defined in the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Securities and Exchange Commission Act, 1993 (XV of 1993), the Rules and Regulations made thereunder shall have the same meanings respectively assigned to them in the said Ordinance, Act, Rules and Regulations.

3. Owning security :- A person shall be deemed to own a security only if –

a) he has title to the security; or
b) he has purchased the security; or
c) he has entered into an unconditional contract, as prescribed by the SEC legally binding on him to buy the security, even if the buyer does not yet have title to them; or
d) he has unconditional right or interest to or in the security; or
e) he owns a security convertible into or exchangeable for the relevant security and has tendered such security for conversion or exchange or has issued irrevocable instructions to convert or exchange such security; or
f) he has an option to acquire the security and has exercised such option; or
g) he has rights or warrants to subscribe to the security and has exercised such rights or warrants.

4. Prohibition of short-selling :- (1) No stock dealer/stock broker can be engaged in short selling unless authorised by CSE.

No stock dealer or stock broker shall be allowed to engage in short-selling a security of a company that is not an eligible security for short sale as per the Guidelines for Securities Borrowing and Lending for Short-Selling of Securities Listed on the Chittagong Stock Exchange, and the said security which it does not own either for its own account or for the account of its client except as prescribed in these regulations.

Provided that a stock dealer or stock broker shall not short sell for its own account or the account of its clients unless the stock dealer or stock broker or the client, as the case may be, has a valid contract conforming the aspects/form that are included in the said Guidelines for Securities Borrowing and Lending to ensure delivery within the time stipulated by the clearing house of the stock exchange in terms of its Settlement of Stock Exchange Transactions Regulations, 2005:

Provided further that in the case of short-selling for the client’s account, the relevant contract to borrow the security shall be countersigned by the stock dealer or stock broker dealing on behalf of the selling client to stand as guarantor for its client to ensure timely delivery of the security sold short:

Provided further that no person shall make a short-sale of a security on the stock exchange below the price of the last sale of the security in the stock exchange.

(2) The Chief Executive Officer of the stock exchange or any officer of the stock exchange authorised by him for the purpose may, by notice in writing, restrict or prohibit a stock dealer or stock broker from short-selling any security, if the circumstances so warrant.

(3) The notice of such restriction or prohibition to the stock dealer or stock broker as mentioned in sub-regulation (2) above shall take effect immediately upon communication to or service on such stock dealer or stock broker and shall remain effective and in force until it is revoked or modified by the chief executive officer or by the officer of the stock exchange authorised by him for the purpose.

5. Manner of short-selling : - (1) Subject to the provisions of regulations 3 and 4, a
stock dealer or stock broker may short-sell a security –

(a) for its own account; or

(b) for the account of its clients provided it knows or is informed in writing that an order to sell is a short-sale, and shall, when placing a short-selling order, indicate in such manner as the stock exchange concerned shall, from time to time, determine that the order is a short-selling order.

(2) On receipt of an order for the sale of a security, a stock dealer or stock broker shall enquire of the client whether at the time of placing the order such client owns the security offered for sale.

(3) A stock dealer or stock broker shall take all reasonable steps to ensure that the client’s disclosures pursuant to these regulations are accurate.

6. Maintenance of records, etc :- (1) A stock dealer or stock broker engaged in short-selling shall maintain a ledger as specified in Form-A, which shall be kept upto-date in respect of short selling activities carried out by it on its own account or for the account of its clients.

(2) No stock dealer or stock broker shall cause or allow an entry to be made in a ledger maintained under sub-regulation (1) which it knows or has reasonable grounds to believe to be false or misleading in any material respect.

(3) A stock dealer or stock broker shall make the ledger maintained under sub-regulation (1) available for inspection to the stock exchange and the Commission upon the request of any of them and shall provide copies of such ledger, if requested by either of them.

(4) A stock dealer or stock broker is required to preserve the ledger maintained under sub-regulation (1) for a period of not less than five years after the date of execution of the short selling transactions to which they relate.

7. Contravention: - Contravention of any of the provisions of these regulations shall be punishable under the provision of the Securities and Exchange Ordinance, 1969 (XVII of 1969), Securities and Exchange Commission Act, 1993 (XV of 1993), the Rules and Regulations made thereunder, and the bye-laws of the stock exchange as well.

8. Power to impose restriction or grant exemption: - The Commission may, from time to time restrict or exempt any order or trade of any stock dealer or stock broker in respect of all or any of the provisions of these regulations.

9. Supersession of existing regulations:- These regulations supersede any other regulations relating to trading, clearance and settlement of transactions in force in the stock exchange, so far it relates to the short-sale of any listed security pursuant to these regulations:

Provided, however, that in case of short-sale of security which is under depository system, relevant provisions of the depository related laws, regulations and bye-laws shall be applicable.

By Order of the Board

Abu Bakar Siddique
Chief Executive Officer