SEC toughens rules on minimum shares of sponsors, directors

The Securities and Exchange Commission or SEC has toughened the rules on minimum shares held by sponsors and directors of publicly listed companies.

They were unable, until now, to sell their shares if those did not account altogether for 30 percent.

From now on, they will not be able to even borrow money against their shares if those do not account altogether for 30 percent of total shares in their companies.

The decisions taken on Tuesday also bar them from transferring shares as gift, or to their family members, in case of having less than 30 percent shares in total.

Until now, the companies, of which the sponsors and directors other than independent ones do not jointly hold 30 percent shares, were barred from raising money from the stock market by offering right shares.

The new decisions will now prevent these firms from issuing bonus shares as well.

If the post of a director except independent ones falls vacant owing to them not holding minimum 2 percent shares of the paid-up capital separately, the companies will now have to fill up the casual vacancy from individuals holding more than 2 percent shares within 30 working days, according to the new rules.

After announcing the decisions in a media release, the SEC issued a notification confirming the new rules and repealing the previous ones on shares held by sponsors and directors.  

In the release, the SEC said Dhaka and Chittagong stock exchanges will have to keep a separate category for companies that do not comply with the minimum 30 percent share rules for their sponsors and directors.

It also said no listed company will be able to offer bonus shares for reasons other than important ones like balancing, modernisation, rehabilitation and expansion.

Publication of the reasons behind issuing bonus shares and the amount of money against the reasons along with price sensitive information is a must, according to the release.

As many as 40 companies listed on the stock market have not been following the rules on sponsors and directors altogether having 30 percent and separately 2 percent minimum shares.

Sponsors control some of these firms despite having only 1 percent shares jointly, while the rest 99 percent are owned by general investors or different institutions.

It means these sponsors will not suffer much loss if their decisions lead the firms to go broke.

Some of these companies also issued right shares in breach of the rules already in place. 

The new SEC decisions follow recent media reports on such irregularities.

As many as 14 directors of four companies challenged the SEC rules effective from 2013 on shares held by sponsors and directors, but the High Court dismissed their writ petition and upheld the SEC rules.