Demutualization of Chittagong Stock Exchange Ltd

Transcription

1 Demutualization of Chittagong Stock Exchange Ltd May 18, Bangladesh Market at A Glance 2 1

2 Three foremost challenges for exchange industry Exchanges need to be ultra transparent and fair to gain the confidence of the investors; Exchanges need to play a critical role to police the conduct of the financial Intermediaries and the listed corporations; Exchanges need to become more efficient transaction platforms. 3 This Document is a Copy Right of Chittagong Stock Exchange Ltd Demutualization????? Demutualization is a process involving: transition from a mutual association of exchange members operating on a not for profit basis to a limited liability, for profit company; essentially separating ownership from the rights of access to trading accountable to shareholders. End purposes: To improve regulatory framework at the exchanges To minimize conflict s in their Governance Structure To unleash Economic and Business Potential 4 2

3 Outcomes Envisioned in March 9, 2011 Directive of the Bangladesh Government Enhancement of the stock market in terms of value, Liquidity and market participation after demutualization; Enhancement of the stock market in terms of efficiency and independence after demutualization Consideration of the interests of all stakeholders. 5 Timeline of how CSE completed its work on Demutualization Model Government/SEC instructions received on: Mar 9, 2011 CSE Board meeting to discuss Government/SEC instruction: CSE Board appointed Demutualization Committee: Demutualization Committee performed following tasks: Regular meetings Consultations with stakeholders Familiarization/study visits Appointment of consultant Discussions on draft model Stakeholders briefings Approval by the Board: Dec 26, 2011 Briefing to the SEC: Dec 27, 2011 Submission of Plan to the Finance Minister: Dec 29,

4 Expected Timeline for Demutualization SL No Agenda Time frame & prospective date 1 Submission of Demutualization Scheme [Gazette notification of Demutualization Act 2012 on May 2,2013] 90 days July 31, Approval of the Scheme 60 days September 29, Publishing the approved scheme 7 days October 6, Holding General Meeting, changing of memorandum and articles of association, allocation of shares etc. 30 Days October 29, 2013 Ref. (Section of Act) Action 5 CSE 6 BSEC 7 CSE 8 CSE The date of Demutualization: An exchange shall stand demutualised either at the date of the aforesaid meeting or on date of receiving the certificate of re-registration from the registrar. [November 19, 2013] 5 Submission of the memorandum and articles of association, etc. to the commission and the registrar 6 Registration of the memorandum and articles of association, issuance of registration certificate and issuance of certificate of reregistration 7 days November 5, days November 19, (1) CSE 9(2) Registrar 7 8 Expected Timeline for Demutualization SL No Agenda Time frame Ref. (Sec. of Act) 7 Election and the 1 st meeting of the board of directors 8 Direction to transfer share from the blocked account 9 Transfer of share from the blocked account to Strategic Investor 90 days February 17, years November 19, year from the date of the commission s giving direction. November 19, Registration of the TREC holders 3 years November 19, Commencement of business 6 months May 19, Time frame for transferring TREC 5 years November 19, Time frame for registration of the new TREC holders 14 Commencement of business by the new TREC holders 15 Listing: Listing of exchanges shares in any stock exchange 12 months November 19, months May 19, 2020 As per the decision and time of CSE 11(1)(a) Action Demutualized Exchange 14(1) BSEC 14(1) CSE 16(1) TREC holders 16(1) TREC holders 16(2) TREC holders 16(3), 16(6) TREC holders 16(3), 16(6) TREC holders 17 CSE 4

5 CSE s Model Fulfills all Broad Principles of ADB/SEC s for Demutualization On 8 Dec 2011, the ADB appointed consultant for SEC notified a list of 12 Broad Principles to be included in the demutualization plan of an applicant stock exchange on the basis of which the Scheme would be approved by the SEC. Principle 1 Valuation Principle 2 Governance Structure Principle 3 Fitness and Properness of Directors Principle 4 Committee Structure Principle 5 Conflict of Interest Principle 6 Separation of Business and SRO Roles Principle 7 Achieving Wider Share Ownership Principle 8- Limits on Ownership Principle 9 Separating Ownership from Trading Rights Principle 10 Future Market Entrants Principle 11 Changing the Business Focus Principle 12 Business Plan 9 How CSE evolved its Model? An example of Collective Leadership Sensitization of the members about the process and benefits Shared the results of international benchmarking Making members aware of the costs & benefits Asked the members to become champions of the process The Members defined their own objectives for the demutualization of CSE The Board divided objectives into strategic goals Prepared an achievable plan (Regulatory, Governance, Business) Broader Highlights of CSE s demutualization plan CSE s Model and ADB broad principles for the demutualization plan 10 5

6 CSE s objectives for demutualization 1. To implement one of the best regulatory frameworks for enhancing fairness of the market. 2. To put in place a balanced governance and ethics structure. 3. To use the process of demutualization for the strategic business advantage of CSE and position the exchange as multi-product platform. 4. To improve market access and outreach through a regulated network. 5. To eliminate the problem of fragmentation and poor price discovery for the benefit of common investors. 6. To integrate domestic markets with regional and global markets. 7. To make CSE a world class exchange to attract foreign investment. 11 Classification of Objectives with the Purposes of Demutualization Objectives 1 & 5 Implementation of best regulatory framework and Elimination of Fragmentation and Poor Price Discovery Strategic Goals Regulatory/ Market Fairness 2 Balanced Governance and Ethics Structure Governance 3 & 4 Strategic positioning of CSE as multi-product platform; Improving market access and outreach 6 & 7 Enabling integration of domestic, regional and global markets and attract foreign investment Business Viability Market Growth 12 6

7 Highlights of CSE s Demutualization Plan Regulatory Framework Governance Structure Business Growth 13 Highlights of CSE s Demutualization Plan Regulatory Framework Separate Division Headed by CRO Chinese Walls Regulatory Review Committee Ombudsman CSE s Annual Regulatory Audit and Annual Regulatory Report Supervision and management of Investor Protection and Education Fund. Subjects: Market fairness, conduct of intermediaries compliance by listed companies, regulatory improvements 14 7

8 15 Highlights of CSE s Demutualization Plan Governance Separation of Ownership and Trading Privileges Balanced and evolving Board Composition in line with Broad basing objectives Fit and Proper Criteria (Integrity, honesty, reputation, solvency and financial standing, experience/education) Code of Conduct for the Board (Conflict of Interest) Committees (Integrity and Ethics, Regulatory Review, Audit Nomination & Remuneration and HR Committees) 16 8

9 Highlights of CSE s Demutualization Plan Business For profit entity Conversion into Multiple Asset Classes (Equities, Derivatives, Debt, Commodities derivatives and spot, currencies) Broadening access through registered branches and mandatory activation of all TREC holders Continuous Professional Development for Market Intermediaries Investors Education and Awareness International alliances 17 Outcomes of the CSE s Demutualization Model Shareholding: Issuance of 100% (60% shares will be held in block account) shares to all existing members who will then become shareholders. Trading Rights: The entire initial shareholders will be issued with a trading right entitlement certificate. The shareholders, who are not already registered, shall become registered not later than three years from the date of demutualization and, shall commence trading on the exchange not later than six months from the date of such registration. Transferability: A trading right entitlement certificate issued may only be transferred once within five years from the date of demutualization. 18 9

10 Outcomes of the CSE s Demutualization Model Broad-basing and Strategic Investors: Initially: Members-100% (40% + 60% to be held in the blocked account) Within 3 years of demutualization: BSEC will ask for finding strategic partners who will the block account. eventually own 25% shares earlier held in After listing: 35 % shares earlier held in the block account will be owned by general public. 19 Broad-basing Shareholding & Governance Structure Term Shareholding structure Initial shareholders Strategic Partners General Public Initially 100% ( 60 % of which will be held in block account) 0% 0% Within 3 years of demutualization 40% 25% 0% After listing 40% 25% 35% Note: The board will consist of 15 directors (8 independent directors and 7 from existing shareholders) with CEO being the 16th director by virtue of his office without voting rights

11 Benefits to Investors A transparent and fair marketplace. regulatory oversight over brokers and listed companies. A highly fair and speedier process for the remedy of investors grievances. Investors protection and education fund. Dedicated focus on investors education and awareness. Opportunities for trading in multiple asset classes. 21 Benefits to the Government Restoring trust and confidence of investors and added layer of protection through reforms in the market institutions. Positioning exchanges as the promoters of economic growth within the society. Exploiting the potential of markets to raise financing for the infrastructure projects. Using markets in the accurate pricing of debt instruments, commodity products and currency valuation for the benefit of consumers on the whole. Expanding the financial literacy and capability of the general masses. Supporting Micro SME businesses through the markets. Gaining global recognition for the best market practices as per ADB/IOSCO guidelines for demutualization

12 Thank You 23 12