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Sunday, April 19, 2009

Portfolio management limit for banks, NBFIs goes

The Financial Express

The Securities and Exchange Commission (SEC) has amended some rules meant for merchants banks and portfolio managers to gear up their activities in the share market.

Under the amended rules, the Commission has made it mandatory for the merchant banks to bring at least one new issue in two years instead of one year. The change comes into effect from January next.

A merchant bank will have to build up five additional portfolios every year besides managing their own portfolios in order to net more clients, which will ultimately help improve fund flow to the market.

Under the existing rules, no merchant bank or non-banking financial institution (NBFI) or bank is allowed to manage portfolios exceeding five times of their paid-up capital and free reserve.

NBFIs and banks have been excluded from such restriction under the amended rules. Thus, there will be no limit for the NBFIs and banks in managing portfolios.

Portfolio means a collection of investments owned by an investor, an institution or a mutual fund and portfolio manager means the entity responsible for investing a mutual fund's assets, implementing its investment strategy and managing day-to-day portfolio trading.

"The SEC has amended the merchant bank and portfolio manager rules to expedite the activities of the financial institutions in the stock market and to increase fund flow as well," Anwarul Kabir Bhuiyan, SEC executive director, told the FE.

"If they fail to bring new issues within stipulated period they will face cancellation of licence as per securities rules," he said.

The rules were amended against the backdrop of allegation that the merchant bankers generally preferred to invest in the secondary market rather than bringing in new issues after receiving their licence.

The amendment has been brought to merchant bank and portfolio manager rules in a Commission meeting held Thursday last, he said.

The Commission has overcome the quorum crisis after the government's recruitment of a member a week ago.

Since retirement of Faruq Ahmad Siddiqi as the SEC chairman, the Commission failed to convene any meeting because of quorum crisis. At least three members including the chairman are needed to Convene a commission meeting.

Currently, 30 merchant banks are operating in the market. Only a few of them are now active and most of them have shown unsatisfactory performance in the capital market, with a number of them even appeared reluctant to start operations, SEC sources said.

Responsibilities of a full-fledged merchant bank include underwriting, issue management, portfolio management and lending to stock investors.

So far, the Commission has cancelled the licences of six merchant banks because of violation of securities rules or their inaction after taking licence.

They are the First Securities Services Ltd, the Raspit Securities and Management Limited, the Pangaea Partners (BD) Ltd, the Prime Securities, and Financial Services Ltd, the Mercantile Securities Ltd, and the Equity Valuation Research and Distribution Ltd.



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