Government Regulations and Legislation of Securities Markets. The government has enacted a variety of laws applicable to the securities markets. These laws were the result of certain abuses that took place during the last decade.
The collapse of the stock market of Bangladesh in 1996 provides an impetus for the regulation of securities trading. The securities market’s regulating authority of Bangladesh along with the investors recognizes that the regulation of the securities markets is necessary in order to restore the confidence of the investors in the markets and ensure a continuous flow of capital in business.
The basic laws under which the transfer of stocks and bonds are being regulated are the Securities and Exchange Ordinance, 1969, and Securities and Exchange Commission Act, 1993. The principal objectives of these laws are to protect the suppliers of capital from fraud and to ensure that information received by investors is truthful, accurate, complete, and reliable. Laws launched and imposed by the regulating authority-SEC attempt to achieve these goals by way of disclosing all material information affecting the price of a security, controlling the insider activities, and controlling the issuance of new stocks and the trade of outstanding stocks.
Laws permitted the corporations not to hide neither favorable nor unfavorable information from the public. The actual implementations of full disclosure sometimes present problems, which must be turned over to corporate counsel. Corporate directors, officers, and major shareholders (who are called insiders) are not permitted to profit from inside information. Transactions made by such insiders must be reported to the Securities and Exchange Commission.
The SEC publishes reports of insider trading showing the names of insiders involved in trades. Corporate insiders are permitted to trade in the stock of their corporation if the comply with the reporting requirements although they are not permitted to make short-term abnormal profit by selling short.
Laws have been established to ensure that information provided to investors in prospectuses for new stocks is accurate and complete. For the sake of the investors’ protection in the securities markets, government has enacted various regulations as needed time to time. Various Act, Rules, Regulations, Orders, and Amendments promulgated time to time are presented in table-2, 3 and 4 in the appendix. Many of the regulations were enacted after the market crash in 1996.
Organized securities markets, of course, being regulated by different regulations under the purview of Securities and Exchange Commission Act. The primary objective of these legislation is to protect unwary and new investors from fraud and manipulation and to make the market more competitive and efficient by exercising sound policy regime set-up by the government.
Many fraudulent and undesirable practices occur in the securities markets-both in primary and secondary markets. To improve the stability and validity of the securities markets, more acts, rules and regulations have been legislated by the government after establishment of Securities and Exchange Commission in 1993. A tremendous development in the nature of securities markets is possible if the legislation come into effect.
Table -1 in the appendix contains a brief description of the major legislation’s regulated in the securities markets that are liable to give protection to the investors in the securities markets.
Government Regulations and Legislation of Securities Markets