BSE extends feedback into new 'tough' rules
Mbongeni Mguni | Thursday May 15, 2014 16:39
On Tuesday, officials confirmed that the May 12 deadline for comments submissions had been extended to allow for several feedback workshops with listed companies. Ordinary members of the public can also submit their views during the extended period.
'We have been running workshops for interested parties, groups of listed companies and other market participants, but as is usual with these types of processes, there have been logistical challenges,' the BSE's listing and trading manager, Tsametse Mmolai told Mmegi Business.
'Thus far, we have had very good discussions at the workshops for the listed companies.
'The BSE plans to hold two more workshops before the month-end deadline leading to the finalisation of consultations.
In February, 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, adding that, 'This is a very open process'. According to the draft of the rules in circulation, the BSE is proposing the establishment of a default board where errant companies will have their securities transferred to until they demonstrate compliance.
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 is the subject of an audit qualification or disclaimer. 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 ten-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 Mmegi Business 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 growing its 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.'