SEC revises merchant banker, portfolio manager rules

The securities regulator has revised the Merchant Banker and Portfolio Manager Rules 1996, incorporating some provisions concerning, among others, appointment, termination and suspension of chief executives of the merchant banks.

The move comes after surfacing of some allegations about chief executives of some merchant banks playing 'controversial' roles during the recent stock market debacle.

The Securities and Exchange Commission (SEC) issued a gazette notification on December 20 on the revised merchant banker and portfolio manager rules.

The revised rules have imposed restrictions on the direct or indirect connections of managing directors (MDs) or chief executive officers (CEOs) of the merchant banks with any securities-related business.

At the same time, their involvement with any stock exchange, its members or issuer companies will also not be allowed under the new rules.

The tenure of the chief executives will be a three-year period and this tenure can be extended only after approval by the securities regulator. But no CEO will be allowed to continue his job, if his age reaches 65.

The revised rules have empowered the board of directors of the merchant banks to terminate or suspend the chief executives, if they fail to discharge their responsibilities or they are found guilty of any misconduct or for reasons of moral turpitude or degradation.

However, two-third members of the board of directors of a merchant bank will have to approve such a decision and the accused CEO must be provided a reasonable period of time to put forward his written and verbal opinions in response to the allegation(s).

About the vacancy of the posts of CEOs, the revised rules said the next seniormost executive of a merchant bank will carry out the responsibility of its CEO until the next one is appointed.

The SEC will appoint the chief executive for a merchant bank, if its board of directors fails to appoint its CEO within three months following the departure of the erstwhile chief executive. In that case, the merchant bank concerned will have to bear the salary and other financial costs on account of other facilities that are allowed for the newly-appointed CEOs.

Under the revised rules, the securities regulator will also issue directives from time to time about the qualifications required for becoming a CEO. But the appointment of chief executives in the subsidiary merchant banks of ICB and other state-owned banks will not come within the purview of such rules, the gazette notification added.

The SEC executive director and spokesman Mohammad Saifur Rahman said the securities regulator has incorporated the new conditions in the revised rules, after a careful consideration of the overall situation in the country's capital market.

"The stock exchanges have to take the consent of the regulator while appointing their chief executives. That is why the approval by the regulatory body is also necessary for the merchant banks in appointing their CEOs, as these institutions are also important stakeholders," Rahman told the FE.

He said the SEC has already formed a committee for making recommendations to help bring about overall changes to the merchant banker and portfolio manager rules to ensure proper transparency and accountability of the merchant banks.

Earlier, experts and investors made allegations against the merchant banks, as they are most engaged in lending operations and do hardly offer any portfolio management services, upon proper exercise of their due diligence and discretionary power, to their clients which, according to them, are also responsible for exposure of a vast majority of investors in the stock market to some unwarranted risks and also market manipulations by the vested interests.