Doctor of Philosophy
Faculty of Law
Solaiman, Sheikh M., Investor protection in a disclosure regime: an international and comparative perspective on initial public offerings in the Bangladesh securities market, Doctor of Philosophy thesis, Faculty of Law, University of Wollongong, 2003. http://ro.uow.edu.au/theses/1855
The Disclosure-Based Regulation (DBR), a regulatory regime useful for the developed securities markets, was adopted in 1999 for an embryonic securities market in Bangladesh. The new philosophy came into effect without any significant changes being made in the old legal and regulatory framework of initial public offerings (IPOs). Based on the structural and infrastructural growth achieved so far, the Bangladesh IPO market is unable to utilise the benefits of the DBR mainly because of the overwhelming dominance of individual small investors, a serious lack of full and fair disclosures, the non-availability and non-affordability of investment advisory services, and a critical lack of enforcement measures. Laws governing liabilities for disclosures in prospectuses are flawed in multifarious ways with weaknesses such as ambiguities and shortcomings in identifying potentially liable persons, and softness in terms of the scope for defences and the extent of penalties. Such flaws ultimately favour the wrongdoers at the expense of the investors affected by the contravention of the legal requirements of disclosures. In the absence of an effective legal framework, the weaknesses of enforcement mechanisms have increased the vulnerability of investors. The judicial enforcement measures for prospectus liabilities are so ineffective that no case law for the inclusion of misstatements or the concealment of material facts in prospectuses is found although such conduct has been legally prohibited since the inception of the market nearly 50 years ago. This prohibition was reportedly flouted on numerous occasions. The administrative enforcement of prospectus liabilities is also ineffective. As the effects of these weaknesses accumulated, the DBR has turned counterproductive. The market is suffering from a profound lack of investor confidence due to the unethical and unscrupulous practices of the market participants. This confidence is the main impetus for the market. Providing legal protection to investors is the most accepted practice of fostering such confidence. This study attempts to identify and to remedy the drawbacks of the legal and regulatory framework of the IPO market and its enforcement mechanisms from the perspective of investor protection. The legal provisions in Bangladesh which are relevant to the weaknesses mentioned above are examined in the light of their equivalents in some other selected jurisdictions as well as the principles of securities market regulation formulated by the International Organisation of Securities Commissions. Findings in this thesis suggest that although the DBR relies more on 'cure' than 'prevention', both the liabilities and enforcement regimes governing disclosures in prospectuses are ineffective in protecting investors from the misfeasance of other participants in the market. At the same time, preventive measures to combat such impropriety are virtually useless. In such a situation, the present study comes up with a number of specific suggestions for reinforcing the investor protection regime in the IPO market by strengthening the liabilities and enforcement regimes.
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