The Capital Market Stabilization Fund (CMSF) consists of unclaimed and undistributed dividends as well as an IPO subscription redemption mandate and is seen as a stabilizing force in the capital market.
Nironjan Roy, CPA, CMA / Banker. Illustration: SCT
Nironjan Roy, CPA, CMA / Banker. Illustration: SCT
BSEC estimated the initial fund size to be Tk 21,000 crore. The fund is supposed to be made up of undistributed and unclaimed dividends remaining on the books of listed companies.
These companies have reportedly already taken steps to transfer unpaid or unclaimed dividends as well as unredeemed IPO subscription money to FCBM.
It is expected that during the period, the size of this fund will increase exponentially as more and more unclaimed dividends will be deposited into this fund and the investment income will also add value.
This is of course a very good initiative because any unclaimed funds cannot remain inactive and at the same time, the funds already declared paying, belonging to other parties than the companies must not be used by the company. herself.
Therefore, this type of fund should be kept and managed by the public entity so that the protection of the fund can be guaranteed in addition to ensuring the use of the funds for the greatest benefit of the people and the country.
In this context, the constitution of the CMSF consisting of unclaimed and undistributed dividends, as well as a subscription reimbursement voucher for the IPO seems to be a laudable step by the BSEC.
Unclaimed dividend and bank deposit
At the start of the establishment of the CMSF, there was controversy and debate over the use of unclaimed and undistributed dividends, as the Bangladesh Bank vehemently opposed it.
In defense of Bangladesh Bank, they relied on the definition and use of depositor’s money in accordance with the Bank Company’s Act.
The Central Bank was trying to define unclaimed dividends as bank deposits because this money is technically kept in a bank account.
However, there is a technical aspect here that the Bangladesh Bank did not consider when determining unclaimed dividends as bank deposits.
In general, money held in bank accounts is defined as depositors’ money because the account holder deposits money into their account.
However, there are some exceptions and the retention of dividends payable in the bank account is one such exception.
The unclaimed or undistributed dividend is the part of the company’s equity from which the amount of the declared dividend is transferred to the bank account for distribution and this bank account here in question acts as an account. vehicle.
Therefore, the funds held in the dividend payable account are usually not depositors’ money, but rather part of the equity or reserve of the company.
Later, the Bangladesh Bank realized this situation and withdrew from its opposing position, which accelerated BSEC’s initiative to establish this fund.
Scope and Purpose of CMSF
The purpose and scope of the use of this fund have not yet been specified. Suddenly, we still do not know how and where this fund will be invested.
From media reports, we have learned that CMSF plans to use this fund as a safeguard to the capital market and its investors in general.
It is not clear how the capital market and its investors in general will be protected with this fund. However, we assume that this fund can be deliberately used to invest in the capital market in order to either prevent the free fall of the market price or to stop unbridled price increases and thus stabilize the market situation. .
If this is the ultimate goal and objective, the board of directors of CMSF should take a very deliberate and cautious approach, as unclaimed dividends are not the same as freehold funds, as there may be dividend claims at any time.
The stock market is speculative, so it is possible that the value of the fund will fall and if so, the claim of any dividend each time it arises cannot be satisfied.
There may be a general perception that all claims – however unlikely – will occur at the same time. This is true but does not preclude claim options and any fund bearing a claim possibility should not be directly invested in the speculative market. This is in accordance with the basic principles of the use of funds.
However, this fund can be used as a source of refinancing with callback guarantee to intermediary institutions engaged in capital market investment. Since the responsibility for the administration of this fund is entrusted to experienced and highly professional professionals, they will nevertheless take this negative aspect into account.
An easy way to honor the claim
We know that listed companies have already started to transfer unclaimed or undistributed dividends to FCBM.
However, this decision should not be an easy task, as lump sum transfer of funds into a lump sum will not serve the purpose.
The unclaimed dividend will be transferred in such a way that any claim, when filed by the true beneficiary, can be honored without any questions.
Consequently, detailed information on each unclaimed or undistributed dividend and on the initial public offering redemption certificate must be provided to the FCBM which will keep this record against receipt of funds from each listed company.
Each listed company should prepare a spreadsheet with detailed information on the individual claimants of each unclaimed / undistributed dividend, which will be reconciled with the total fund size and then transferred to the FCBM.
This spreadsheet report should be kept in the CMSF database which will verify this information. Whenever a complaint is received and if found to be correct, that complaint must be immediately honored.
This exercise cannot be done manually with precision and efficiency and therefore a complete IT application is required to manage this fund.
This application can easily be developed in-house by employing the talented computer engineers of our country who will only need proper guidance and direction.
Unclaimed dividend against unclaimed property
Besides unclaimed or undistributed dividends, there are many forms of unclaimed liquid assets in many companies and institutions which will also be consolidated and placed under single control.
Any form of cash and cash equivalents that is not claimed until a certain period is classified as unclaimed property.
The deposit remaining in dormant accounts years after years is a good example of unclaimed property. However, there is a BB rule to transfer the remaining deposits in the ten year dormant account to the Bank of Bangladesh. But this exercise seems to be an isolated gesture.
There is still plenty of cash and cash equivalents left in banks, financial institutions, and many other organizations that need to be consolidated. Govt. should establish a national entity with the responsibility to control and manage all unclaimed properties that remain on the books of any business or establishment.
There must be a rule to transfer any unclaimed property to this designated government. entity if it is not claimed for a certain period, preferably five years.
In the developed world, especially the United States and Canada, there is a law to transfer unclaimed property to the treasury if that property remains unclaimed for two years.
Establishing the CMSF with unclaimed or undistributed dividends is undoubtedly a good start and if successful the government may consider creating a larger entity to administer all kinds of unclaimed property.
Will the CMSF stabilize the capital market?
To what extent CMSF stabilizes the country’s capital market will remain to be seen shortly. However, we understand that the country’s stock market evolves in its course according to the evolution of the economic parameters of the country.
No third party intervention can bring the desired result in the long term market, although there may be short term gains.
Once ICB (Investment Corporate of Bangladesh) was established to play the role of market stabilizer. But the extent to which ICB has succeeded in stabilizing the market is known to the population.
The stock market is commonly known as sensitive and highly speculative all over the world. Investors invest with the fundamentals of the company in mind and based on a lot of math, but in reality, the fundamentals and the math don’t work in a lot of situations.
At the start of the Covid-19 pandemic, the global stock market plunged drastically but in a few months rebounded and even the stock price index hit a record high, while the global economy remained partially or fully suspended. for the last and a half years. Therefore, any interim measure may not produce the desired result of stabilizing the capital market in the long term.
Nironjan Roy, CPA, CMA is a banker, Toronto, Canada. He can be contacted at [email protected]
Warning: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.