Investor protection by securities regulators in the primary share markets in Australia and Bangladesh. A comparison and contrast
| DOI | https://doi.org/10.1108/13590790910993735 |
| Date | 09 October 2009 |
| Published date | 09 October 2009 |
| Pages | 305-333 |
| Author | S.M. Solaiman |
| Subject Matter | Accounting & finance |
Investor protection by securities
regulators in the primary share
markets in Australia and
Bangladesh
A comparison and contrast
S.M. Solaiman
Faculty of Law, University of Wollongong, Wollongong, Australia
Abstract
Purpose – The purpose of this paper is to discover the weaknesses of initial public offering (IPO)
regulation in Bangladesh in the light of the relevant law and practice in Australia.
Design/methodology/approach – A qualitative analysis of archival materials has been carried out
to achieve the objective of the paper. Two different sets of legal provisions dealing with some selected
issues relevant to the regulation primary share markets have been compared and contrasted. The level
of market development, composition and performance of securities regulators and the level of investor
sophistication have been critically in this paper in discussing aspects of regulation.
Findings – This paper finds that the IPO regulation in Bangladesh is weaker than that in Australia.
The major weaknesses may be attributed to different factors such as the adoption of the disclosure
philosophy prematurely by discarding the previous merit regulation in 1999 for a pre-emerging
securities market, lack of experienced and well-trained people in the composition of securities
regulators, lack of regulatory authority to sue for compensation on behalf of investors in the absence of
shareholders class action, lack of authority to regulate auditors and lawyers who play significant roles
in preparing defective prospectuses for public consumption. Findings also suggest that adequate
investor protection cannot be ensured by regulatory measures alone, investors should be educated to
protect themselves in the first place against the cupidity of issuers.
Originality/value – It provides an insight into an effective IPO regulatory regime. An immediate
implementation of the recommendations made in this paper may contribute to improving the legal and
regulatory regime for the primary share market in Bangladesh which may set a good example for
others.
Keywords Regulation, Investors, Shares, Bangladesh, Australia
Paper type Research paper
Introduction
One of the fundamental objectives of securities regulation worldwide is the protection
of investors from corporate misfeasance. However, the regulation in practice aims to
protect interests of both the companies and their investors, because a sound
coexistence of these two participants is essential for a securities market to operate and
flourish (Baxt et al., 2003). A primary share market is an intermediary which provides a
meeting point of two different economic agents, one needing funds for producti ve
purposes, whilst the other is the saver of surpluses. But one is paradoxically unknown
The current issue and full text archive of this journal is available at
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The author wishes to acknowledge with gratitude that this paper is made possible by a grant
under the Law Society of NSW Public Purpose Fund Legal Scholarship Support Scheme 2007.
Investor
protection
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Journal of Financial Crime
Vol. 16 No. 4, 2009
pp. 305-333
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590790910993735
and unequal to the other in respect of “information” material to investment decisions.
This inequality, where the need for regulation lies, paves the way of taking advantage
of innocence of the gullible investors by the issuers.
Giving emphasis to disclosure, it is said that securities regulation rests on the
principle that honesty and integrity of the participants and adequate information to
make informed investment decisions are critical for securities markets to function
effectively (Baxt et al., 2003). The value of the intangible rights accorded by securities
is dependent upon this crucial information about the issuer (Choi, 2004). Securities law
relating to primary share markets thus mainly concerns the regulation of this
information asymmetry. But in reality, the notion of ensuring full and fair disclosure
may seem to be largely illusive, perhaps owing to the fact that “problems at which
modern securities regulation is directed are as old as the cupidity of sellers and the
gullibility of buyers” (Loss, 1988), as observed by Professor Louis Loss, the intellectual
father of securities law in the USA (Harvard University Gazette, 2005). Generally,
investors do not behave wisely and their naivety is capitalised by their dexter ous and
adept issuers in issuing shares to the public. Which is why, the regulation of securities
market remains imperfect in terms of complete prevention or eradication of
malfeasance all over the world.
The Bangladesh securities market which began its operation more than half a
century ago remains in its embryonic form mainly because of its regulatory failure to
protect investors. Although both of the current regulators in Bangladesh and Australi a
came into being in the early 1990s, and they have been following the same philosophy
of regulation almost from the same time, the market in Bangladesh has little success in
mobilising funds from the public for securities investment compared to its Australian
counterpart. This paper intends to critically examine the current regulatory regimes for
the “primary share markets”[1] in Bangladesh and Australia with a view to providing
suggestions for reforms of relevant Bangladeshi laws in the light of their Australian
counterparts.
It is worth mentioning that, Australia and Bangladesh are not comparable in terms
of the level of their economic development. Nonetheless, securities laws of these two
countries can still be compared. This is because there should be some commonality in
the principles of securities regulation regardless of economic development of a country.
This paper thus concerns those basic legal and regulatory principles which could be
common concerns of all securities markets.
Further, both countries belong to the common law family and Australian securities
regulation arguably provides better protection to investors compared to its counterpart
in Bangladesh. Nonetheless, a wholesale importation of regulatory regime may not be
supportable, but certain general principles of Australian securities law can be adopted
into Bangladeshi law in addressing their regulatory problems.
Securities regulators in Bangladesh and Australia
Securities and Exchange Commission in Bangladesh
The Securities and Exchange Commission (SEC) is a statutory body responsible for the
regulation of both primary and secondary securities market in Bangladesh. It came
into being in 1993 under the Securities and Exchange Commission Act 1993 (SEC’93) as
the successor of its predecessor, the controller of capital issues. SEC had been
established with three specific missions which include: investor protection; developing
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