BSE cracks down on defaulters
Mbongeni Mguni | Friday February 21, 2014 16:49
The BSE’s new draft listing rules, published last week, are open to feedback from listed companies, brokers and registered advisers who are the targets of the new rules. Other stakeholders are also allowed to feed into the final listing rules, with a cut-off date of May 12.
If approved, the default board will be the BSE’s fourth after the domestic, foreign and venture capital.
On the default board, the defaulting companies will be fined P500 every day, with the BSE issuing a public notice on the violation after one month and reserving the right to even tougher action, such as suspension and delisting, after three months.
Besides the common offences such as delays in publication of financial results, other misdeeds leading to default board transfer include listed companies whose financial statements are the subjects of an audit qualification. Another offence is the failure to return the annual certificate of compliance within two weeks.
Apart from the default board - which can be found in other exchanges such as Sri Lanka’s Colombo Stock Exchange - the BSE is also proposing a 10-fold increase in the penalty it can charge wrongdoers.
The bourse plans to impose fines not exceeding P250,000 on listed companies who violate the new rules.
Brokers and registered advisers who violate the new code will be liable to censure, penalties not exceeding P50,000, further disciplinary action and suspension or termination.
“Unless the BSE considers that maintenance of the smooth operation of the market or, the protection of investors otherwise requires, the BSE will give advance notice to the parties involved of any action which it proposes to take and will give them opportunity to make representations,” the draft rules state.
The new rules come after a year in which the BSE was plagued by instances of non-compliance, particularly around the statutory publication of financial statements and AGM notices.
BSE officials recently told BusinessWeek that the new rules were meant to be as simple as possible ‘to avoid the excuse that we didn’t know’.
The exchange also plans to run compliance workshops for listed entities and their advisers throughout the year, as a way of cleaning up professional standards on the bourse.
However market players this week told BusinessWeek that the proposed rules carried the potential to scare investors away from an exchange that has battled with illiquidity and growth of membership.
The players said transferring securities to a default board was in itself a punishment as investors would view the affected company as high risk ‘or equivalent to junk credit status’.
“We are trying to understand the rationale for a default board, because it appears for a minor infraction, a counter can be thrown off the main board which will negatively impact investor sentiment,” said one insider who requested anonymity.
“The rules could be seen as unpopular at a time when the exchange is fighting illiquidity and also trying to attract more listings.
“At the same time, however, the BSE has always been very responsive to its members and everyone appreciates the need to protect investors’ interests through a better managed trading platform.”
Compliance officers at listed companies together with brokers and advisers were this week scrutinising the new rules, which the BSE internally developed having rejected drafts produced by the finance ministry consultants several years ago.
Recently, BSE CEO, Hiran Mendis told BusinessWeek that after the consultation period, the exchange’s main committee would consider amendments to the new rules before NBFIRA’s approval is sought.
“Once you are listed, you have to abide by the rules. You are listed and you have to abide by whatever the rules are,” he said.