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Chapter One
INTRODUCTORY ANALYSIS

Introduction
Objectives of the study
Importance of the study
Methodology of the study
Limitations of the study

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INTRODUCTION

Stock market is an essential part of capital market. The economy of a country depends
on a well-built capital market. Contribution of any stock exchange generally leads to
economic growth by increasing the funds to finance industry and other enterprise.

Stock exchange is an independent company formed by shareholders. It can take various

decisions independently. The objective of Chittagong stock exchange is to afford a
market place along with conveniences for together the buyers and sellers of securities
promote just and equitable principles of trade to protect the interest of the investors.

A complete automation project of Chittagong stock exchange is on full swing. The

important role of Chittagong stock exchange in the development of capital market of
Bangladesh, an effort, has been emphasized in this report to study the contemporary
practices of stock trading in Chittagong stock market.

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OBJECTIVES OF THE STUDY

Although this study is an academic requisite of my M.B.A. Program, the principal

objectives of this study is to get hold of an effectual, proficient contribution & position
of CSE on capital market of Bangladesh on my part.

The objectives of my study are stated in the bellow:

1. To have a clear idea about the developed and strong platform of capital market of our
country.

2. To know about the full automated trading system with most modern amenities.

3. To realize the role and importance of CSE in the economic development.

4. To analyze the functions of stock exchanges

5. To acquaint with the services and facilities provided by CSE.

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IMPORTANCE OF THE STUDY

While studying anything, some reasonableness has been work forced. Following are the

rationalities of this study are as follows:

1. To realize the practical field of research.

2. To study report in the better way.

3. To understand and realize management practices.

4. To gather experience for the betterment in the job.

5. To be skilled in the respective field.

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METHODOLOGY OF THE STUDY

The information of this internship report is mainly based on working at the CSE and has

been collected through primary and secondary sources. Most of the data have been

collected from secondary sources.

The primary data had been collected by direct interviews and discussions with
executives of various departments of CSE that provides me some insights into the
problems and issues of the study. All the secondary information is collected from
various books, financial papers, documents and articles related with the capital market,
stock exchange, and security & exchange commissions etc. The collected data and
information have been tabulated, processed and analyzed carefully. During the study
period, I tried my best to be acquainted with all the sections and departments of this
organization. I have examined the various impact of existing automation trading system
of CSE. Annual reports of CSE provided me valuable information about the Accounting
practices. The exploratory research method has been mainly followed. The collected
data & information has been, according to chronology, processed and analyzed carefully
to prepare report

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LIMITATIONS OF THE STUDY

Apparently, the study is far from being perfect. Some of the limitations were obvious.
They are as follows:

1. Primary and Secondary data were not available in organized form.

2. A self-financed study.
There is the shortage of collection of literature about the activities of stock exchange in
the CSE library.
3. Due to the time limitation, I could not collect enough necessary data/information
about the study
4. Study was confined to CSE.

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Chapter Two
INTRODUCTION TO CSE

Historical background of CSE

Mission of CSE
Objectives of CSE
Organ gram of CSE
Board of Directors

HISTORICAL BACKGROUND OF CSE

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The Chittagong Stock Exchange (CSE) is a non profit making organization. It was
incorporated on 1st April 1995 as a limited company by guarantee. After six month, on
10th October 1995 floor trading was started with open cry- out auction system. In the
backdrop of a strong need to institute a dynamic automated and transparent stock
exchange in the country, seventy reputed business personalities under the leadership of
Mr. Amir Khosru Mahmud Chowdhury MP, the founder president established this
bourse in the commercial capital Chittagong. Only 30 securities were listed on the first
day trade when market capitalization stood at US$ 0.2 Billion. Now CSE is a
completely automated exchange with screen based trading facility on countrywide
communication network.
The Chittagong stock exchange will create an effective, efficient and transparent market
of international standard to save and invest in Bangladesh in order to facilitate the
entrepreneurs to raise capital and accelerate industrial growth for overall benefit of the
economy.

MISSION OF CSE

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To create an effective, efficient & transparent market atmosphere of international

standard, the Chittagong Stock Exchange believes that a dynamic, automated,
transparent stock exchange is needed in Bangladesh. It works towards an effective,
efficient and transparent market of international standard to serve and invest in
Bangladesh in order to facilitate the competent entrepreneurs to raise capital and
accelerate industrial growth for overall benefit of the economy and keep pace with the
global advancements.

OBJECTIVES OF CSE

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The objectives of CSE are:

1. To develop a strong platform for the entrepreneurs for raising capital.
2. To provide an investment opportunities for small and large-scale investors.
3. To provide a transparent market ensuring investor’s interest.
4. To provide a fully automated trading, clearing and settlement system to ensure quick,
easy accurate and easy accessible to all transactions.
5. To attract non-resident of country to invest in Bangladesh Stock market.
6. To develop a corporate culture through mandatory corporate membership.
7. To develop a research cell for analyzing status of the market and economy.

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ORGAN GRAM OF CSE

CEO

Secretaries Internal
Grade 1 &2 Audit Grade

Corporate
Compan IT Operatio Surveillanc Div.
y ns e
Secretar

IT Research
Clearing Trading and
Finance Corporat
and Surveillanc Publicatio
e
Settleme n

Personn New
el Marketin Member
IT Listing
g Inspectio
Regional
Operatio n
Office

Legal PR and
Clearing Continuo Training
and us
Settleme Listing

Library
Membershi
p

BOARD OF DIRECTORS
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Chittagong Stock Exchange Ltd. (CSE) has a policymaking body of 24 members, of

whom 12 are elected and 12 are non elected. This board comprises of one President,
three Vice Presidents and 19 Directors. There is an independent secretariat headed by
a Chief Executive Officer (CEO).

1. Mr. Nasiruddin Ahmed Chowdhury President

2. Mr. Fakhor Uddin Ali Ahmed Vice-President
3. Mr. Al Maruf Khan Vice-President
4. Mr. A.Q.I. Chowdhury Vice-President
5. Mr. Abu Sayed Md. Shahidullah Director
6. Mr. ASM Nayeem Director
7. Mr. Bijan Chakroborty Director
8. Mr. Mirza Salman Ispahani Director
9. Mr. M.K.M. Mohiuddin Director
10. Mr. Mohammad Fakhruddin Director
11. Mr. Md. Siddiqur Rahman Director
12. Mr. Tareq Kamal Director
13. Dr. A. Majeed Khan Director

14. Director
Prof. Abu Ahmed

15. Director
Mr. Aftabul Islam LLB,FCA
16. Director
Engr. Ali Ahmed
17. Mr. Amir Humayun Mahmud Chowdhury Director
18. Mr. Anis A. Khan Director
19. Mr. Farooq Sobhan Director
20. Mr. Mamun Rashid Director
21. Mr. Md. Sarwar-E-Alam Director
22. Mr. Mohd. Safwan Choudhury Director
23. Prof. Rabiul Husain Director
24. Mr. Waliur Rahman Bhuiyan Director

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SEVERAL COMMITTEES

The following committees are working in CSE for smooth running of the organization.
 Administrative Committee.
 Trading Committee.
 Finance Committee.
 Listing Committee.
 Surveillance Committee.
 Arbitration Committee.
 Human Resource Committee.
 Automation Committee
 Land and Building Committee.

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VARIOUS DEPARTMENTS IN CSE

Compliance Section:
This section deals with-
 Listing and Membership Department
 Market Operation Department (MOP)
 Surveillance Department
 Inspection and Auditing

Others Sections:
 Systems department (IT)
 Clearing and settlement department
 Accounts and finance department
 Research and developments and public relation department.

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FUNCTIONS OF LISTING & MEMBERSHIP

DEPERTMENT

Every company must be listed in the stock market for working thereon & they have to
fulfill various formalities, they are given below:

Eligibility for listing:

1. The company must be a registered public limited company & incorporated in

Bangladesh under the Companies Act. 1994.
2. It must have a minimum paid up capital of Tk. 10 million.
3. Shares to be subscribed by a minimum of 250 numbers of subscribers.
4. Shares of a listed company can be issued through primary or secondary market.

Listing fee:
1. Initial listing fee is an amount equivalent .25 percent up to 10 corers of paid up
capital & .15 percent for the rest amount.
2. Annual listing fee is 1 lakh only.

Membership fee:
Initially the membership fee was Tk. 300000 only. But, thereafter this has been
enhanced from Tk. 300000 to Tk. 500000 (Face value Tk. 30000, Admission fee Tk.
70000 & premium Tk. 400000) only.

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Chapter Three

PRACTICAL ASPECTS OF CSE

Definition of Stock Market

Types of Stock Market
Categories of Companies
At a glance of CSE
Some current information of CSE

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STOCK MARKET
Stock market is an essential part of capital market. The economy of a country largely depends
on a strong capital market. The participation of stock market in the collection & allocation of
the funds to finance industry & other enterprises largely influence the economy. Stock
exchange is an independent company formed by shareholders & members. The purposes of
stock exchange is to provide a market place as well as facilities for bringing together the
buyers & sellers of securities, promote trade of the product & work for the interest of the
investors.

TYPES OF STOCK MARKET

There are two types of stock market:

PRIMARY MARKET
The primary market is that market in which the companies issue their shares. The primary
market helps a firm to form their capital by selling their securities. It’s serves as the conduct for
funds from the investors to the firms. The primary market is basically a market of new issue. In
this case the share issuing companies sell their shares to the public through the underwriters.
Once the shares traded the functions of the primary market comes to an end. In this market
there is no existence of the brokers.

SECONDARY MARKET
In this market the brokers play an important role. There is no interference of the underwriters
in this market. In this market the shares which are issued in the primary market are traded
through the brokers. An example of this sort of market is the organize stock exchange like
Dhaka Stock Exchange & Chittagong Stock Exchange. The shares issuing firm doesn’t get any
direct benefit from this market. But it helps to determine the probable price of the new issue
and its demand to investors. The functions of the market are controlled and regulated by the
security exchange commission which guided by security and exchange commission Act 1993.

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There are four types of the secondary market:

First market:
Organized Stock Exchange is the example of the market. In this market only the stocks of the
listed companies traded through brokers. There is a fixed place for transactions.

Second market:
Securities of both listed and unlisted companies are traded here through the brokers. There is
no fixed place for transactions. It involves electronic communication network.

Third market:
There is also no fixed place for transaction. It is a type of over the counter market. But it
involves the transactions of the securities of the listed companies through the brokers.

Fourth market:
It involves the direct transactions of the securities of both listed and unlisted companies
between buyer and seller. There is no existence of the brokers in this market.

CATEGORIES OF COMPANY’S IN CSE

There are some categories of Company’s in CSE:
A- Category Companies
B- Category Companies
G- Category Companies
N- Category Companies
Z- Category Companies

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These are briefly discussed below:

A- Category Companies
Companies, which are regular in holding the current annual general meetings and have
declared dividend at the rate of ten percent of more in the last English calendar year:
(1) Provided however that transaction for odd lots or multiple of market lots and big lot (single
or more certificates containing multiple of market lots in each certificate) may be kept outside
the adjusted due position mechanism for settlement.

(2) Transaction of shares ( other than those of Mutual Funds ) of the following category of
companies, which shall be described as B- category companies , shall be kept outside the
adjusted due position mechanism for settlement

B- Category Companies
 Companies which are regular in holding the annual general meetings but have
failed to declared dividend at least at the rate of ten percent in the last English
calendar year.

 In case of the newly listed securities, the rate of earning per share (EPS) based on
the audited account of a full year of twelve months, as contained in the prospectus of
the concerned companies, shall be treated as substitute of the rate of dividend
applicable for “A” and “B” category of companies if no dividend were declared by
such companies in the last English calendar year:

 Provided, however , that the net profit after tax or net profit after adding back the
tax holidays provisions , as the case may be shall be the basis for calculating the
EPS.

 Transaction of shares( other than those of Mutual Funds ) of the following

category of companies, which shall be described as Z- category companies , shall be
kept outside the adjusted due position mechanism for settlement-

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Z- Category companies

Companies which failed to hold the current annual general meetings or have failed to
declare any dividend or which are not in operation for more than six months or whose
accumulated loss after adjustment of revenue reserve, if any, is negative and exceeded
its paid-up capital.
Provided further that the words” or whose accumulated loss after adjustment of revenue
reserve, If any, is negative and exceeded its paid-up capital shall not be applicable for
the companies which have declared dividend out of the current profits in the last English
calendar year and held annual general meeting(s) relating to all outstanding financial
year(s) despite having such accumulated loss exceeding the paid up capital.

G- Category Companies:

G- Category Companies are basically Greenfield companies. The companies which are
not started its operation but call subscribers to invest to their Company. They basically
call for capital in primary market.

N- Category Companies:
The Companies which are already in operation and enters into primary market to collect
money, falls into N- Category Companies. Provided that the chief executive officer of
the exchange may bring any other company under this category, if deemed necessary,
with the prior written consent from the Commission.

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AT A GLANCE OF CSE

Types of Organization: Public Company Limited by guarantee

having share capital.
Registered Address: Chittagong Stock Exchange
1080, Sheik Mujib Road,
Agrabad C/A
Chittagong, Bangladesh.
Date of Establishment: 1st April 1995
Authorized Capital: Tk 150 Million
Paid up Capital : Tk 40.5 Million
Trading Days : Sunday to Thursday
Number of Members: 136
Administration : 24 members Board of Directors.
Independent Secretariat: A statutory position for the CSE.
Settlement: Daily netting system
Index : All Share Price

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Some current information of CSE

The regional efficiency of transaction in CSE (2008)

Transaction according to category (2008)

Market Statistics (2008)

Listed securities--------231
 Company----------------216
 Mutual Fund------------14
 Debenture---------------01

Tk (crore) Change (+ / -) Change (%)

Total Paid up 9853.96 151.84 1.57
Capital
Total Market 77681.54 4038.46 5.48
Capital

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Transaction (2008)
Trading day ------------------------------19
Total transacted money-----------------885.33 (crore)
Daily average transacted money------46.60 (crore)

Total transacted share-------------------67887.30000

Daily average transacted share--------3573.02000
Total transacted company--------------203
Price increased company----------------113
Price decreased company--------------- 90

Market Capital according to category of share (2008)

Transaction value of CSE on the basis of various sectors (2008 )

Leasing and
Finance 13.40%
Information and
Communication 0.99%
Ciramic 0.03%
Banking 27.78%
Mutual Fund 8.61%
Fuel and Power 14.48%
Paper and Printing Inndustry 0.03%
Service 0.64%
Leather industries 2.74%
Engineering 3.6%
Cement 3.53%
Food 0.82%
Medicine 12.33%
Garments 3.65%
Insurance 4.03%
Corporate bond 0.64%
Others 2.69%

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Top 10 Active Members of CSE (2008)

Name of the Position in Position in Membership code

members current month previous month
Lanka Bangla 1 1 91
Securities Ltd
2 2 22
Salta Capital Ltd

International 3 3 96
Securities
Company Ltd
4 6 76
Sohel Securities
Ltd
Arab Bangladesh 5 4 101
Bank Foundation

Minhar Securities 6 3
Ltd

Royal Capital Ltd 7 53

Associated Capital 8 53
Securities Ltd

Mona Financial 9 9 103

Consultancy Ltd

R.R. Securities 10 10 42
Ltd

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Chapter Four
FUNCTIONAL PERFORMANCE

Introduction
Functional Performance
Market capitalization and GDP of CSE
Yearly Turnover
Price Earning Ratio
Stock Index
Performance of CSE at a Glance

INTRODUCTION

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The activities which incorporate the overall recital of CSE are considered in measuring the
functional performance.
We can measure the functional performance by using different statistical tools and
graphical presentation which includes:

 Average
 Standard Deviation
 Index
 Correlation Coefficient
 Different Ratios etc.

FUNCTIONAL PERFORMANCE

Statement of Listings of CSE

Listed Securities Delisted Securities
Serial no. Year No. Index % No. Index %
( 2004 as ( 2004 as base)
base)
1 2004 198 100 6 100
2 2005 210 106.06 2 33.33
3 2006 227 114.65 6 100
4 2007 213 107.58 0 0
5 2008 238 120.20 6 100
6 2009 250 126.26 4 66.67
7 2010

Graphical Presentation of Listed Securities’ Growth

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1: Growth of Listed &

Analysis: From the above figure we see that the trend of listed securities is almost increasing
over time. It is clear that fluctuating by turns.

MARKET CAPITALIZATION AND GDP OF CSE

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We can measure the relationship between Market Capitalization and GDP by using
Correlation Coefficient which is as follows.

Seria M/Cap % to
l no. Year Market Cap (Mln Taka) GDP GDP
1 2004 215011 3832634.00 5.61
2 2005 219942 3421627.32 6.44
3 2006 270510 2865580.00 9.44
4 2007 612479.16 5314436.36 11
5
2008 807875.30 6214425.39 13
6 2009 1031971.66 7371226.14 14

Figure: Ratio of Market Capitalisation to GDP

= 0.88 (By using Microsoft Excel)

Comment: In the above figure we see that the relationship between market capitalizations
to GDP is highly correlated. So, the change in GDP is very much depended on the changes of
market capitalization.

YEARLY TURNOVER

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The yearly turnover information from 2000 to 2006 is presented below by using index and
graph.
Serial no. Year Turnover Index
1 2004 14807.75 100 %
2 2005 14045.12 94.85 %
3 2006 16717.15 112.89 %
4 2007 52363.15 353.62 %
5 2008 100747.00 680.37 %
6 2009 113120.15 763.93 %

Figure: Turnover

In the last few years, we observed that annual turnover of CSE were increasing.

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PRICE/ EARNINGS RATIO

The yearly P/E ratio from 2002 to 2007 is presented below by graph.

Serial no. Year P/E

1 2004 18.65
2 2005 15.76
3 2006 14.31
4 2007 18.90
5 2008 20.52
6 2009 21.90

Figure: Price/ Earnings Ratio

STOCK INDEX

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The yearly stock index from 2000 to 2007 is analyzed below.

Serial no. Year Index

1 2004 3345.2936
2 2005 3378.6776
3 2006 3724.3863
4 2007 5292.2900
5 2008 8692.7500
6 2009 10650.6400

Figure: Stock Index

From the stock index information of CSE for the last few years, we can say that stock
index of CSE is increasing day by day. From 2006 we observed that CSE is in booming
position. The percentage change in stock index in 2007 is 42.10 to 2006. We can anticipate that
in future CSE will stay in moving position.

PERFORMANCE OF CSE AT A GLANCE

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Particulars 2008 2007 2006 2005 2004

Operating 8050213 450039 373 289610
Income 124885616 6 73 00757 10
Other Income 64877717 54644193 29763266 22679185 17777495
18976333 13514632 7476723 5997994 4673850
Total Income 3 9 9 2 5
Operating 4938951 437 39437 30375
Expenditure 61859317 4 39934 327 511
Depreciation & 500671 44299 4527 6158
Amortization 6644434 1 12 450 129
Total 5439622 4816 4396 3653
Expenditure 68503751 5 9846 4777 3640
Excess Income 160 10
Over 12125958 80750104 2659739 15165 204865
Expenditure 2 3
Total Reserves 44451267 27225 245660 2296
& Funds 722894878 4 7570 177 45012
Investment in 18000020 150000 12141500 10950
FDR 405000000 0 000 0 0000
Paid Up 4020000 387000 3870 3870
Capital 40500000 0 00 0000 0000
Number of 5
Employee 68 8 58 66 60

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Chapter Five

EFFICIENCY OF CSE TO BUILD UP INDEX

Construction of Index
Factors consideration for construction of Index
Criteria of listed companies for inclusion in the selective
Index (CSE -30)
Stock Index information
Sector wise performance in 2009

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EFFICIENCY OF CSE

CONSTRUCTION OF INDEX

Index construction is the important aspect of stock exchange. Index should reflect the
real picture of the capital market & economy. Alternative methods are available for
constructing the index. But CSE follows the standard method, Laspayers Index. It
evaluates the performance of a portfolio of securities. Some adjustments need to be
made due to changes in market capitalization of the portfolio's constituent stocks.

To compute stock index let us assume that the index is composed of only three stocks:
A, B and C.

Day 1 (Base day)

Market data of Constituent Stocks on Day 1
Stock Shares Outstanding Closing Price Market Value
A 20 15 300
B 10 10 100
C 15 5 75
Aggregate Market Value (AMV) = 475
z
The product of the number of shares outstanding and the closing price gives the market
value of each stock at closing. For stock A, for instance, it is 20 shares & Tk.15 which
yields Tk.300 the aggregate market value (AMV) of all constituent stocks is the sum of
the market value of each stock. The AMV of day 1 is Tk.475. Day 1 will be taken as the
base day on which the index is set at 1000.

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Day 2
Market Data of Constituent Stocks on Day 2:
Stock Shares Outstanding Closing Price Market Value
A 20 15 300
B 10 12 120
C 15 5 75
Aggregate Market Value (AMV) = 495

As there is no change in capitalization, no adjustment is needed on Day 2. The AMV is

equal to Tk.495. The computation of the index on Day 2 follows the procedure below:

Day 2's AMV

Day 2's index = ------------- * Day 1's index
Day 1's AMV

495
= ----- * 1000
475

=1042.11
It should be clear that the change in the index value shows the relative change in the
aggregate market value of the constituent stocks. There is a 0.04211% (=
{1042.11/1000}-1) increase in AMV on Day 2 relative to Day 1 (the base day).

Adjustment to Changes in Capitalization

Adjustments need to be made from time to time as a result of changes in capitalization
of the constituent stocks. They are discussed in detail below:

Day 3 (Ex-Bonus)
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Company an issues bonus shares. Its shares are to be traded ex-bonus at the ratio of "1
for 2", i.e., one share will be given as bonus for every 2 shares held. This issue of shares
is going to change the total number of shares outstanding on Day 3. The adjustment is
shown below:

20(1+2)
New Total Number of Shares Outstanding = ---------
2
= 30
Market Data of Constituent Stocks on Day 3
Stock Shares Outstanding Closing Price Market Value
A 30 7 210
B 5 9 45
C 10 5.5 55
Aggregate Market Value (AMV)=310
Therefore,
Day 3's AMV
Day 3's index = -------------- * Day 2's index
Day 2's AMV
310
= ----- * 1017.24
295
= 1068.96

Day 4 (Ex-Rights)
Stock C is planning rights issues at the ratio of "2 for 5" at Tk.1.50 per share. The offers
expire on Day 4 (i.e. ex-rights). As mentioned earlier, it is useful to treat the constituent
stocks as a portfolio held by an investor. In the computation of the index on Day 4, the

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investor is assumed to exercise the rights. Therefore, the new number of shares
outstanding for stocks C is given by:
10(2+5)
New Number of Shares Outstanding for Stock C = ----------
5
= 14
Market Data of Constituent Stocks on Day 4

Stock Shares Outstanding Closing Price Market Value

A 30 6.5 195
B 5 9.2 46
C 14 4.5 63
Aggregate Market Value (AMV)=304
Since all rights are exercised, capitalization adjustment needs to be made on Day 3. The
number of shares outstanding increases by 4. This will cause an increase in
capitalization by Tk.6 (=4*1.50) on Day 3. The adjusted AMV on Day 3 in the index
computation on Day 4 will be:
310+6=316
Therefore,
Day 4's AMV
Day 4's index = ---------------------- * Day 3's index
Adjusted Day 3's AMV

304
= ------ * 1068.96
316
= 1028.37

1028.37 - 1068.96
Percentage change = --------------------- * 100%
1068.96
= -3.8%
The index dropped from 1068.96 to 1028.37. This can be interpreted as a 3.8% decrease
in AMV.

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Day 5 (Replacement)
Stock B is replaced by stock D, which has a closing price at Tk.11.5 on Day 4 and its
number of shares outstanding is 20.
Market Data of Constituent Stocks on Day 5

Stock Shares Outstanding Closing Price Market Value

A 30 7 210
D 20 12 240
C 14 5 70
Aggregate Market Value (AMV) = 520

The adjustment on Day 4's AMV in computing Day 5's Index follows a procedure
as if the stock replacement had taken place on Day 4. The adjusted AMV on Day
4 is given as:
Stock Shares Outstanding Closing Price Market Value
A 30 6.5 195
D 20 11.5 230
C 14 4.5 63
Aggregate Market Value (AMV) = 488

Therefore,
Day 5's AMV
Day 5's index = ----------------------- * Day 4's index
Adjusted Day 4's AMV
520
= ----- * 1028.37
488
= 1095.80
Day 6 (Addition)
Stock E is added to the index as a constituent stock on Day 6. Stock E has a closing

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price of Tk.4 and the number of shares outstanding is 40 on Day 5.

Market Data of Constituent Stocks on Day 6

Stock Shares Outstanding Closing Price Market Value

A 30 7.2 216
C 14 4.8 67.2
D 20 12.3 246
E 40 4.5 180
Aggregate Market Value (AMV) = 709.2

Since the number of stocks has changed, we need to compute the adjusted AMV for Day
5 in computing Day 6's index. Day 5's adjusted AMV will be equal to the original AMV
plus the market value of stock E on Day 5. This is equal to Tk.520 + 160 = 680.
Day 6's AMV
Day 6's index = ----------------------------- * Day 5's index
Adjusted Day 5's AMV
709.2
= ------- * 1095.80
680
= 1142.85

Any new issue (IPO) should not be considered in the computation of index for x days
from the date of first trade. X should be double digit parameter same for all scripts. Ex.
x = 4, x = 5 or x = 6 days.
Day 7 (Deletion)
Stock C is deleted from the index's constituent stocks. The new total number of stocks is
reduced to 3.
Market Data of Constituent Stocks on Day 7
Stock Shares Outstanding Closing Price Market Value
A 30 7 210
D 20 12.5 250
E 40 5 200
Aggregate Market Value (AMV) = 660

The adjusted AMV on Day 6 will be a reduction by the amount of market value of stock C on

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Day 6. Day 6's adjusted AMV will be equal to Tk 709.2 - 67.2 = 642.
Day 7's AMV
Day 7's index = ---------------------- * Day 6's index
Adjusted Day 6's AMV

660
= ----- * 1142.85
642
= 1174.89
Day 8 (Ex-Dividend)
Cash dividends of Tk .50 per share are declared for stock E and Day 8 is to be ex-dividend.
Market Data of Constituent Stocks on Day 7

Stock Shares Outstanding Closing Price Market Value

A 30 7.2 216
D 20 12.5 250
E 40 4.6 184
Aggregate Market Value (AMV) = 650

No adjustment is needed, as there is no change in capitalization.

650
Day 8's index = ----- * 1174.89
660
= 1157.09
Note that the price of stock E drops. This is a normal phenomenon as a stock goes ex-dividend.

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FACTORS CONSIDERED FOR THE CONSTRUCTION OF

INDEX
The following conditions must be considered in constructing the All Share Price
Index:
1. Only the active scripts will be considered for calculating the index.
2. Mutual Funds and Debt securities will not be considered in calculating index.
3. Newly listed scrip will be included in the index after five consecutive trading
days.
4. No changes in number of shares will be allowed during VECTOR session.
5. Index committee will review the index – its criteria, performance, and calculation
method after every six month.
6. Base Day index 1000.
7. All the listed stocks should be considered for calculating the index. Inactive
stocks not being traded for consecutive six months will not be considered in the
calculation.

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8. All share price index will be calculated only once in a day – after the trading hour
in the on line system.
9. Only normal trades should be considered in calculating index.
10.Index Base Date is 30th December 1999.

Criteria of listed companies for inclusion in the

Selective Index (CSE-30)
Two layer methods are followed for selection of listed companies in the CSE-30 Index.
In the first layer method, basic criteria are considered for primary selection.
BASIC CRITERIA
1. Must be listed with the Chittagong Stock Exchange.

2. In case of IPO / New Issue, this should be on listing either with DSE or CSE for a
minimum period of 2 years or remained in Commercial Production for the minimum
same period prior to its listing.

3. Companies that did not hold their Annual General Meetings regularly will not be
considered.

4. Minimum market capitalization must be TK. 200 million.

5. Must have at least 20% free floating share capital. Free floating share capital shall
mean the share capital which will exclude Govt.'s holding (other than ICB),
Sponsors/Directors & their Associates' holding plus other locked-in portions.

6. Must have positive revenue reserve/ retained earnings.

7. Must be traded for at least 20% days in trading.

8. Paid dividend in any of the last 2 years.

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9. Company having negative Earning per Share (EPS) for last two consecutive years
will not be considered.

10.Financial Institution falling under the problem list of Bangladesh Bank will not be
considered provided such information is available from an acceptable source.

11.Company failing to pay the listing fees and/or penalty imposed under the Listing
Regulations of CSE for a period of 2 years will not be considered.

12.At least one company from each sector will be taken in the index if the scrip
satisfies the above criteria and achieves the minimum point as evaluated on the
basis of the following Selection Criteria.

On being qualified on the basis of the Basic Criteria, the companies are required to meet
the following further Selection Criteria to have the final berth in CSE-30 Index.

SELECTION CRITERIA

1 Higher Net Assets Value (NAV) per share

2. Higher rate of Earning Per Share (EPS)
3. Higher rate of dividend
4. Higher rate of free floating in equity
5. Larger number of shareholders.
6. Higher liquidity in terms of trading day.
7. Higher percentage of market cap in terms of Paid-up Capital.
8. Longer duration of continuous remaining in the CSE-30 Index.
9. Regular payment of listing fees.

STOCK INDEX INFORMATION

CSE – 30 (for last six years in million):
2004 2005 2006 2007 2008 2009
3463.76 3159.56 3342.46 6935.49 7566.95 8105.29

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SECTOR WISE PERFORMANCE IN 2009

No. of % of
Company Turnover Value Total
S.L. Sector Name Traded (Tk.) Turnover
1 LIFE INSURANCE 10 151559050.50 040
2 GENERAL INSURANCE 26 1274164826.00 3.40
3. TEXTILE & CLOTHING 31 4904762257.50 1308
PHARMA &
4. CHEMICALS 19 4257239735.25 11.36
FOODS & ALLIED
5. PRODUCTS 18 368961992.50 0.98
6. CEMENT 8 437597305.00 1.17
7. ENG. & ELECTRICAL 20 1707201637.50 4.55
LEATHER &
8. FOOTWEAR 6 259932925.00 0.69
SERVICES & PROPERTY
9. DEVELOPMENT 3 905038397.50 2.49
PAPERS, PRINTING &
10. PACKAGING 7 185462950.00 0.49
POWER FUEL &
11. ENERGY 8 3423620402.50 9.13
12. MUTUAL FUNDS 18 4194810387.50 11.19
13. BANKING 29 7364646440.00 19.65
14. CERAMIC 5 684164546.25 1.83
15. ICT 6 1007425700.00 2.69

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16. LEASING & FINANCE 20 2132585139.75 5.69

17. MISCELLANEOUS 14 4156482741.25 11.09
18. CORPORATE BOND 1 71191647.50 0.19

SECTOR WISE PERFORMANCE IN 2009

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Chapter Six

RULES &REGULATIONS ESTABLISHED AND

IMPLEMENTED BY CSE TO DEVELOP THE CAPITAL
MARKET IN BANGLADESH

Listing procedure of a company to be included

in market operations in CSE
Distribution system
Clearance system

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Settlement system

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LISTING PROCEDURE OF A CO. TO BE INCLUDED IN

MARKET OPERATIONS (MOPS) IN CSE
Listing Requirements

An applicant company is expected to meet the following basic requirements for the
listing of securities:
 The Company has to be a registered Public Limited Company
 The minimum paid –up capital has to be BDT 10 million (US$ 0.20 mil )
 Share subscription must be at least 250.
 Submission of the following is required:

i. Memorandum and Articles of Association

ii. Certificate of Incorporation

iii. Prospectus

iv. Audited accounts for the last 5 years or for the whole of the life of the
company if less than 5 years old.

v. A brief history of the Company since incorporation giving details of its

activities including: re-organization, changes in capital structure and
borrowings

vi. A statement showing dividends and cash bonuses and / or bonus shares or
right shares issued during the last 10 years.

vii. A copy of agreements or other documents relating to arrangements with

intermediaries

viii. A statement containing particulars of material contracts (e.g. for technical

advice and collaboration), name and address of the Directors and persons

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holding 10% or more of the equity security on the date of application

together with the number of shares or debenture held by each.

DISTRIBUTION, CLEARING AND SETTLEMENT

Distribution

Within 10 days of publication of the prospectus the company applies for listing on a
stock exchange. In the case of over- subscription, a lottery takes place. The company
issues Allotment Letters to the successful applicants and returns money to the
unsuccessful applicants within 40 days from the closing subscription date. Share
Certificates are issued within 90 days of issuance of allotment letter.

Allotment Letters are tradable on Stock Exchange as soon as the company is listed. The
holder of an allotment letter may renounce it in favor of another person within 30 days
of allotment.

Orders

Orders are matched with opposite orders of the best price. Waiting orders are matched
in the following sequence:

i. Best Price
ii. Within Price, by time priority.
The best buy order will match with the best sell order. The best buy order for a seller is
the one with highest price and the best sell order for a buyer is the one with lowest price.
An order may match partially with another order resulting in multiple trades.

Limit Order

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With a Limit Order, the buying price or selling price for a certain quantity of particular
security is specified.

Market order

Market Order is an order to buy or sell a certain quantity of particular security at the
best price or prices prevailing in the market at that time.

Match at Closing Price Order

A ‘Match at Closing Price’ Order allows the Member to specify that the order is
executed at Closing Price.

CLEARANCE SYSTEM
Daily Netting

The Clearing House works out the due position of every member in each scrip in which
the member has dealt on that day. This is done by comparing the total buy with the total
sells of each scrip. The clearing house also ascertains the net balance receivable from
and payable to each member for the trading day. Every member is notified of the due
position and net balance within the subsequent day.

SETTLEMENT SYSTEM

Settlement Period
T+O
T+1

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T+2
T+3
Where, T = Trading
0 = Share Purchasing Day
1 = Pay in Day
2 = Internal Process e g checking the share, verify the cheque by the BDG bank
3 = Pay out Day i e hand over the share to the buyer

Transfer of Securities

The Stock Exchange receives securities at the Clearing House on the Settlement day.
Settlement day is T+1. The buyer receives the securities certificates from the Clearing
House on T+3 if there is no receivable money pending from them.

Transfer of Funds

The Stock Exchange receives cheque at the Clearing House on settlement day.
Settlement day is T+1. The seller receives a cheque from the Clearing House on T+3, if
there are no receivable securities pending. Electronic funds transfer has recently been
introduced and is being encouraged among members.

Failed Trades

If a member fails to deliver securities or payment not make within the settlement day,
the stock exchange automatically squares-up the unsettled transaction. This is done by
buying-in or selling- out, as required on T+3 on the risk and account of the defaulting
member. No notice is given. The defaulting member is not allowed to carry out trading
from the day after settlement day until payment of the outstanding money and a fine of
BDT 1,000 is made to Stock Exchange.
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Chapter Seven

ROLE OF CSE IN THE DEVELOPMENT OF

CAPITAL MARKET IN BANGLADESH
Introduction
Contribution of capital market
Market analysis & initiatives taken by the CSE to
develop the capital market in Bangladesh
Analysis of the findings of the study
Problems faced by the CSE in the context of
performance evaluation & the development of
capital market in Bangladesh
SWOT analysis of the problems
Recommendations to overcome the problems

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Conclusion
Bibliography

INTRODUCTION

The capital market is a market for long-term funds. It facilitates an efficient transfer of
resources from savers to investors and becomes conduits for channeling investment
funds from investors to borrowers. The capital market is required to meet at least two
basic requirements: (a) it should support industrialization through savings mobilization,
investment fund allocation and maturity transformation and (b) it must be safe and
efficient in discharging the aforesaid function. It has two segments, namely, securities
segments and moments.

The government of Bangladesh in the last one and a half decade made reforms aim at
macro economic stabilization in a free market economy, where stock market reform and
development can play a vital role. In order to support the stock market activity towards
growing liberal policy for investment and as a vehicle for effective privatization,
understanding prevailing stock price behavior and the requirements of making securities
market effective one in terms of liquidity and competitiveness is a must.

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CONTRIBUTION OF CAPITAL MARKET

An understanding of the role of equity market may be conceived by examining its
relative contribution in resource mobilization. This segmentation of the markets is
unlikely to be conducive to securities market development.
The contribution of the equity markets to financial development represented by the ratio
of new issues to gross investment as well as national saving has not been significant
(less than one per cent) as against more than 10 per
cent for developed stock markets. Many of the constraints associated with equity
markets are concerned with the overall development of the country and hence
investment in equities is likely to continue to be some highly risky affairs for a great
many potential investors with pronounced risk aversion attitudes. On the other hand,
mechanisms that are designed to force Industrial Corporation to resort to the new issue
market are of questionable effectiveness in view of relative difficulties to implement
them. Under these circumstances, equity markets of Bangladesh are likely to be
restrained, despite enthusiastic efforts for its rapid development. Consequently,
transformation of short-term deposits into instruments of long-term debt and ownership
need to be entrusted to a set of different institutions pending the eventual development
of the securities markets of Bangladesh for a while Bangladesh also offers an optimistic
ground for effectively cultivating and developing the capital market for industrial
financing. The stock market in Bangladesh has grown enormously during the last few
years. Especially the years from 1994 to 1996 experienced significant growth. However,
since the index crash at both Dhaka and Chittagong stock exchanges in mid-November
of '96, the stock market appears to have been hurdling problems to regain its normal
pace. But in the last year our stock market was gained boom position for stable political
situation. This has contributed significantly to the present picture of the capital market.
As the table below shows, the depth and breadth of the Bangladesh capital market still
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needs to develop substantially for improving operational efficiency compared to that of

other emerging markets in Asia.

(US$
Table-1: Emerging Stock Markets' Performance, 2006-07 Million)
Indicators Mkt. Turnover Turnov % Price/ Div. Number Mkt.
Country Cap. er Change Earning Yield of Cap. As
Ratio in Index Ratio Listed a % of
Companies GDP
Banglade 8472.29 239.5652 63.0 0.42 18.40 3.7 225 11.0
sh
China 231322 284766 130.1 -4.0 23.8 0.9 853 24.07
India 105188 64498 56.0 -11.4 13.5 1.9 5860 27.43
Indonesia 22106 9709 59.4 -0.9 -106.2 0.8 287 22.96
Korea 114593 137859 184.7 49.5 -47.1 0.9 748 38.47
Malaysia 98557 29889 30.9 -1.4 21.1 2.5 736 138.22
Pakistan 5418 9102 108.2 -46.1 7.6 13.0 773 12.0

Philippin 35314 9992 31.1 5.3 15.0 0.8 221 54.25

es
Sri Lanka 1705 281.0 14.8 -13.6 7.7 4.5 233 14.2

Taiwan, 260015 884698 333.2 -21.6 21.7 0.7 437 99.45

China
Thailand 34903 20734 71.2 -4.5 -3.6 0.6 418 22.68

Note: Figures relate to the country's major stock exchanges. The average size of
companies has been measured in terms of market capitalization.
[Source: IFC Emerging Stock Markets Fact book, and the World Bank.]

As the table shows the total market capitalization of Chittagong Stock Exchange is US$
8472.29 millions in 2007( upto sept) compared to US$ 150188 millions in India, US$
20154 millions in Pakistan, US$ 32185 millions in Indonesia and US$ 115750 millions
in Malaysia. The Bangladesh stock market is very small and far behind the other South
East Asian markets in terms of the size of economy. Market capitalization in Bangladesh
was only 11.0 percent of GDP in 2006-07 as against 27.43 percent in India, 12.0 percent
in Pakistan 22.96 percent and 138.22 percent in Indonesia and Malaysia respectively. In
fact, Bangladesh has the lowest ratio of market capitalization to GDP among the

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countries under study. Bangladesh could not have a position in terms of market
capitalization among the 40 countries listed by International Finance Corporation (IFC)
in 2006.

MARKET ANALYSIS & INITIATIVES TAKEN BY THE

CSE TO DEVELOP THE CAPITAL MARKET IN
BANGLADESH
A. BACKGROUND:
In the backdrop of a strong need to institute a dynamic, automated & transparent stock
exchange in the country, a group of seventy very reputed business personalities of
Bangladesh established CSE in 1995 in the commercial capital, Chittagong. CSE has
always been very focused in developing a strong capital market in the country. It
endeavors to improve its internal organizational capacities to make CSE a transparent ,
accountable & dynamic capital market institution. Externally, it also gives its best
efforts to develop a balanced & vibrant capital market through empowering the other
market participants & the investors. CSE will continue to develop itself in attaining
these objectives to be able to contribute to the industrial & economic development of
the country.

B. CENTRAL DEPOSITORY SYSTEM:

While establishing Chittagong Stock Exchange in 1995, we felt the need for a central
depository in the country and have since been working on a CDS. Now, very fortunately
after a good five years, we are close to forming a CDS company. Isn’t it too long a time?
Can we afford it? A CDS is an indispensable part of a stock market. We automated our
trading system more than two years ago. Without a CDS, the full benefits of automation
cannot be reaped. It would have been nice if we could have started a CDS
simultaneously with the trading system automation. Sri Lanka had started their CDS

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even before automating their trading system. India and Pakistan had established their
CDS long ago. This is a G-30 recommendation, which has already been implemented by
almost all the emerging markets of the world. But we are wasting time some
unnecessary issues and trailing behind. We require a sophisticated system in accordance
with the need of our market and at the same time this system should be scalable to
accommodate the future needs of the market. This system should be run on a state-of-
the-art technology as we went ahead while implementing our trading system. Procuring
a software system for CDS is not the whole gamut of the game. This is only a part.
Educating the users of this new method of transaction settlement, dematerialize the
physical form of securities, bringing all the relevant parties into confidence, and so on
and so forth are all a very intricate and difficult job to perform before the whole system
can be made operational. If we cannot reach a consensus at this very initial stage of the
project, I am afraid we would never have a CDS in our market.

C. RESEARCH & INFORMATION DEVELOPMENT

Research & Information development are essential pre-requisites for effective functioning
and development of any stock exchange. Chittagong stock exchange has research and
information department. This section deals with research and development, library and
public relation of the organization.

Research is a foremost necessity for any stock exchange. In I order to fulfill the need CSE
has established a research center and are keeping close contacts with the UN bodies ,

D. CSE- THE FIRST AUTOMATED & MODERN TRADING BROUSE IN

THE COUNTRY:
Introduction of automated trading system in June 1998 replacing the practice & culture
of age old manual cry-system of trading in the stock market of Bangladesh was a
revolutionary step made by the CSE in the history of the country’s capital market. The
achievement that CSE made through automation transformed the entire dynamics of the
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country’s stock market. This automation ushered in many positive changes in

Bangladesh stock market, which helped grow the market gradually protecting the
investors’ interest to the maximum extent possible.

E. PROFESSIONALISM IN BROKERAGE BUSINESS & SUSPENSION OF

BROKERS:
Brokerage business all over the world has reached its pinnacle. Now we can see that
quite a great many brokerage houses are much bigger than many big stock exchanges.
They are innovative, aggressive and doing their business professionally. Their services
range from investment advice to the clients to asset management, investment banking to
portfolio management and what not. Broker / Dealers in our country should consider the
whole gamut of the financial services needed in the investment arena. They should
diversify their business and create professionalism in their services. Development and
reconstruction of our vulnerable market mostly depend on their professionalism and
commitment.

Depending on seriousness of irregularity noticed in a members trading, trading terminal

is suspended until such time the issue is resolved.
The other activity of this department is:
1. Watching net high-low position
2. Taking disciplinary action
3. Investigation into specific deals of brokers / dealers.

F.EXPANSION OF CSE NETWORK:

Stock investment had been confined to Dhaka since the early 50s until CSE came up &
opened up wide avenues of investment through wide area telecommunication network in
1998 connected to Dhaka, Chittagong & Sylhet simultaneously. It was truly a giant leap
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forward in providing the millions of common people a gateway of investment in stocks

through the CSE trading network. CSE trading network now connects12 major cities of
Bangladesh. Recently the network has been extended up to Uppazilla & Pouroshava
level facilitating the remote investors. CSE views to bring other important places &
cities under the investment net with its member brokers. Expansion of CSE network is
very much in line with the CSE’s vision to bring the share market to the general
investors’ doorstep. With its geographically neutral wide area network, CSE can operate
practically from any district of the country.

G. INCENTIVES FOR FOREIGN PORTFOLIO:

Bangladesh Govt. took a number measures to encourage foreign and local investors to
invest in the securities market.
Foreign portfolio investment exerts a profound impact on any stock market and helps
ease a country’s resource constraints for development finance. Portfolio investment
contributes towards creating additional funds for industrial finance, providing stock
market liquidity, modern management skills and technology. Though it was never too
high, the inflow of portfolio funds has been tapering off in our market ever since 1996.
If we want to attract them and maintain a continuous inflow of portfolio funds, we have
to make our market stable, create market depth and ensure a congenial business
atmosphere in the country. CSE
Allows foreign investors to participate in IPO and right issue without any regulatory
restriction & withdrawal of all regulatory restrictions on international portfolio investors
for investing in the secondary securities market

H. MARKET RULES AND OPERATIONS:

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As the market demands, it is natural to frame new rules of market operation and amend
the existing ones from time to time. These rules should be aimed at easing the
operations of the exchange, protecting the interests of the respective parties, and
maintaining a balance among the markets. Recently three different boards for the listed
companies have been introduced in the exchanges, and the settlement of trades of those
category shares has been made unique too. For the "Z" category of shares, the T+1
settlement system has been prescribed by SEC, which is not practicable for CSE
brokers. Because CSE transactions are settled in three different places - Chittagong,
Dhaka and Sylhet. CSE has planned to expand its trading network to more cities in the
northern parts of the country. It is the mission of CSE to create investors country-wide
and bring millions of them under the trading network of CSE in the long run. We hope
that thus we could develop a capital market, which will eventually contribute to rapid
industrialization in the country.

I. INTERNATIONAL RELATIONS OF CSE:

CSE is the first bourse in the region that felt the need of regional cooperation in the
purpose of cross border listing & trading. Under the initiative of CSE, bourses from
South Asia formed SAFE- the South Asian Federation of Exchanges in 2000 to promote
the development of security market in the region. CSE is one of the founder members of
SAFE and currently representing the position of Vice-chair in the SAFE Executive
Committee. Since long we are maintaining our representation at the World Federation of
Exchange (WFE) as its corresponding member. CSE is now representing at the OIC
Member States’ Stock Exchange Forum.

J. TRANSPARENCY AND ACCOUNTABILITY

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Mainly transparency signifies the disclosure of all relevant, reliable and material
information in an appropriate and objective manner. Now a days CSE authority under
the supervision of SEC placed rules and strictly enforced without fear so that the
companies are fair and square in their disclosures to investors and concerned parties.

K. SECURITIES TRAINING INSTITUTE:

Establishment of a Securities Training Institute in the country is also CSE’s brainchild.
Now CSE is working to establish the institute, which will produce professional
securities analysts, brokers & advisers.
Book Building Method: The much awaited Book Building Method for IPO price
discovery- one of the brainchild of CSE, finally got the approval of SEC. The
Commission recently amended the Public Issue Rules to incorporate Book Building
Method apart from existing Fixed Price Method. We believe that the method would
encourage the heavyweight companies to go public & we understand that a few are
already in the CSE’s pipeline.

L. CSE AS MIDDLEMAN

As this stage, it may be pertinent to keep in mind the key difference between capital
market and financial intermediaries such as bank or life insurers. Capital markets cut out
middleman by bringing savers and borrowers face to face. But bank institutions stand
between savers and investors in directing the flow of resources. There are two main
types of capital markets. Firstly, equity markets, which are used for trading, company,
shares. Secondly, bond markets were the debt of companies and governments are traded.
Both equity and debt markets perform important functions in the economy by moving

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resources across space and time from where they are in surplus to where they are
needed most, and by producing valuable information throw the prices they set, to firms
households, and government to use and manage resources better.

M. OVER THE COUNTER MARKET:

Over the counter market is a new facility launched by CSE, unlike in other stock
exchange in the country, for the issuers, investors, capital market and the nation at large
to assist in efficient capital formation by developing vibrant dynamic &self regulated
capital market. 6.7OTC has been established with a specific mandate to service small &
medium innovative &high growth enterprises in raising resources efficiently through the
capital market.

N. SYSTEM UPGRADATION & INTERMENT TRADING SERVICE:

In the strategic front, among the major steps & plans, CSE has taken various initiatives
to meet the present challenges. For smooth trading operation CSE has already installed
modern server in its existing engine. Accordingly the Trading Software has also been
upgraded. You will be happy to know that the upgraded version of the Trading Software
has gone live at the exchange on 12 July 2009. In the new upgraded version of CSE
Trading Software, we have incorporated various added functionalities & contemporary
requirements in order to make our trading software more effective, transparent & most
importantly user friendly. With the Upgraded Trading Software, the existing Internet
Trading Service(ITS) module has been updated as well. CSE also developed the system
for bidding under Book Building Method to discover the issue price. In the mean time
the mock test of the system has been completed successfully and the system is ready to
go live anything.

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O. MANAGEMENT INFORMATION SYSTEM (MIS):

The idea behind establishment of computer based management information system at

SEC is to achieve better efficiency and accuracy in day to day office work as well as
capital market supervision and monitoring .The Securities and Exchange Commission
Automated System (SECAS) project was initiated in September, 1998 under ADB
technical assistance. The project includes establishment of LAN cable system and
installation of local area network among all the workstations at SEC and development of
MIS software to meet automation needs of its different departments. Major activities of
the project implementation occurred during June -July 2000.These activities are listed
below.

 LAN cables system acquisition, its installation and

testing.
 LAN hardware and networking system acquisition, its
installation, testing and commissioning.
 Customized MIS software system acquisition and its
development, debugging and testing.

P. AWARENESS DEVELOPMENT, MARKET PROMOTION & CAPITAL

MARKET FAIR:
CSE has been providing untiring efforts since its inception in 1995 to create investment
awareness among the general public. As the participation of investors in the market is
the whole ambit of the business, CSE is always enterprising in promoting the idea of
stock investment among the various classes of people in the society. Besides organizing
seminars, workshops, trainings & publishing informative newsletters, journals, leaflets

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etc. which are among some of the important activities of the Exchange throughout the
year, CSE- the first automated bourse of the country came up with this unique concept
of Capital Market Fair- a road show that allows the market operators, regulators, broker
firms & intermediaries, the general investing public & the new prospects to come under
the one roof- offering a unique opportunity for information sharing, marketing &
capacity building. The overwhelming success of the 1st Capital Market Fair at
Chittagong in 2005 during the 10th Foundation Anniversary celebration of CSE inspired
to decide to hold the 2nd Capital Market Fair at Sylhet. And now we are organizing the
3rd Capital Market Fair at Chittagong.

Q. ROAD SHOWS FOR ATTRACTING NRBs & FOREIGN PORTFOLIO

INVESTMENTS:
Non resident Bangladeshis have been contributing significantly to the economy of
Bangladesh. Unfortunately, most of those funds are being utilized for consumption
purpose & real estate investment, while only an insignificant portion of those funds are
being used in the financial market for economic activities. Like other neighboring
countries our NRBs should also be encouraged to place their fund directly in the capital
market which will certainly strengthen our overall financial market. CSE is actively
considering to launch some road shows to attract our NRBs in UK, Middle East & other
countries very soon.

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ANALYSIS OF FINDINGS

1. The country networking warranted regional settlement of securities and

accordingly CSE has been settling transaction at all its trading region from the
every first day. The current settlement system of daily meeting on rolling
settlement T+3, however, is a severe hindrance to this regional settlement despite
this fact CSE has been rendering this service till today at the expense of
boundless hardship particularly in transporting millions of shares between three
region everyday.

2. The automation of CSE trading system was the biggest event of the year 1997 for
this institution. The most significant feature of the CSE trading system is its
widen-area network which enable the CSE members to do on-line real time
trading from three places-namely Chittagong, Dhaka and Sylhet- by logging in
trough normal telephone facilities at the cost of a local phone all charge only with
the opportunity to expand to anywhere I the country in the fact the CSE’s
communication network thorough the satellite is capable of supporting trading
from any corner of the world and it has been discreetly installed upon the prudent
decision of the CSE board in view of the growing future trends of interaction
between the global capital markets. The second most important feature of this
system is that dealers/brokers can trade from multiple terminals using a single

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phone line through LAN or WAN network within their officers or beyond. These
two outstanding features of the CSE present trading system have added a new
dimension to stock-trading in Bangladesh with the result of reaching the benefits
of the most modern technology of stock investment in the present day world to
the door-steps of millions of investors.

3. The activities of the research cell have considerably improved during the last
year. Portfolio is being published regularly with increasingly better content,
sharper analysis and greater quality. The initiative of publishing such a journal
has been appreciated by almost all the quarters of the capital market.

4. A CSE web site has already been launched on the internet where the CSE, rules
and regulations, regulations information regarding trading listing, settlement,
listed company financial performance and the like have been trained in the CSE
Automated trading System and in the investors to get the information on real time
movement of stock prices.

5. The CSE Board has earmarked the development of human resources as a top
priority on the CSE agenda, Dealers/ Brokers have been trained in the CSE
Automated trading system and in the MINTS, the brokerage back office software
had been installed I the member’s officers by CSE.

6. In 1998 CSE has consolidated the system by making all necessary alterations to it
and promptly upgrading sit as and when new SEC rules called for adaptation or
turning CSE automated the settlement system to a great extent in so far as the
regional settlement in concerned. CSE made the whole system Y2K compliant
both front and back ends at the same assisted the members regarding their Y2K
compliance.

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7. CSE has incurred loss 1998 and unless the turnover increases it will have to face
financial hardship in the coming years. There is no alternative of increased of
increased turnover for an exchange to survive and reach a solid level.

8. CSE experienced a smooth operation of its newly established screen based trading
system to date since its installation in June 1998. Given the state of
telecommunication infrastructure in the country, the extent of experience in
operating a sophisticated computerized system on a country wide area network
and level of management standard in a developing country, CSE’s performance
can be said to have been just super beyond expectation.

9. CSE Board in its meeting on May 22, 1999 decided to reduce the contact charge
for its broken from TK.5 to TK.3 per contact effective from 1st June 1999.

10.A close price trading session has been introduced I the trading system, so that the
brokers can trade days closing price immediately after closing session ends in the
system.

11.CSE provide additional technical capacities to the Dhaka and Sylhet stations of
CSE in order to accommodate increased transaction from the CSE dealers
operating from those places. A change in regional contributions to the CSE
turnover is conspicuous. It reveals that in September’99 CSE member I Dhaka
had increased to 18% to 8%. The Dhaka based members have got relatively great
potential to contribute a larger part to the CSE turnover.

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PROBLEMS FACED BY THE CSE IN THE CONTEXT OF

PERFORMANCE EVALUATION & THE DEVELOPMENT OF
CAPITAL MARKET:

1. Most of the members of CSE are not rendering optimum services to the
investors.
2. Some stock exchange members also serve as directors of listed companies.
This can lead to the chance of insider trading specially in such a poorly
regulated market.
3. Some stock exchange members act only as brokers, i.e. they buy & sell on
behalf of the clients on receipt of specified trading commission. They don’t
undertake the market making roles.
4. Stock market efficiency depends upon the availability of reliable & unbiased
information about the capital issued & companies. Though existing provisions
in the companies act ensure disclosure of adequate information through
prospectus but several defects are noticed in practice.
5. Raising the number of curb operation.
6. There has been general allegation by the investors that there has been some
fraudulent acts insider trading which may have contributed to the abnormal
fluctuation the pries of transparency, systematic deficiency & management
inadequacies in the conduct of trade by the stock exchange.
7. Lack of proper adequate disclosures.
8. Lack of enforcement with the compliance of rules & regulations.
9. Certifiers of financial statements & property values of the company are
identical.
10.Management & owners of CSE are entwined.

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SWOT ANANLYSIS OF PROBLEMS OF CSE IN THE

DEVELOPMENT OF CAPITAL MARKET IN BANGLADESH

STRENGTH

 Professional & well educated workforce

 There is an investor’s information cells from which an investor can get
information about investment related feature.
 Electronic trading and support system
 Most advanced trading system
 Initiative governance.

So an investor, before making an investment can get a through knowledge about

investment as such how to purchase a share from a company & how he can sell it in the
secondary market.

WEAKNESS

 It takes a lot of time to open a BO- A/C

 Small number of listed companies
 Lack of professionalism of members
 Relatively new
 Regional image
 Low trade volume

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OPPORTUNITIES

 Investors are now more conscious about investing their money in the shares of the
companies
 After, 1996s incidence, now securities & exchange commission (SEC) authority
is very much experienced about the manipulators
 The number of internee user is increasing
 The government’s policy is changing
 Commercial banks reluctant to provide long term loans
 SAFE (South Asian Federation of Exchange )

So now the close monitoring the market operating to find out whether there is any
manipulation is going on. Because of strict rules & regulation, imposed by SEC &
Implement by CSE, investors are now getting the lost confidence & share market are
rising accordingly.

THREAT

 After, 1996 incidence, investors still fear to invest their money in share of the
companies
 Regulatory body’s (SEC) regulation
 BTTBs monopolistic attitude
 Bargaining power of listed companies
 The lion share of DSE

Loan benefit has suspended by SEC to control the share market; to control the uprising
trend of share market SEC has reduced the benefits of liquidity.

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RECOMMENDATIONS TO OVERCOME THE CSE’S

PROBLEMS:

a. Market makers create both demand for & supply of securities and to
the consistency in the prices. So it is recommended to make necessary
provisions in stock exchange by laws for permitting market maker’s
activities.
b. To minimize the chances of insider trading legal provisions should
be made that, no stock exchange member would be allowed to become
directors of any listed company.

c. The dormant members of stock exchange should be surveyed very

strictly. Such members should be compelled to either trade or give up their
membership.

d. In Bangladesh, we should follow the practices of developed capital

markets & not allow curb market anywhere.

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e. Credit rating enables the investors to judge the viability of the

company for investment. Bangladesh capital market can accommodate some
credit rating agencies

f. The average investor must have access to all information that might
help the right investment decision. SEC can institute either a set up or to
encourage the formation of investors associations under its umbrella.

CONCLUSION:
Steady development & efficient operation of the capital market are fundamental to the
accelerated economic growth of a country. The capital market is the intermediary
through the surplus money of the society can be mobilized and then channeled into
productive investments with the eventual aim of fostering industrial development, which
will in turn lead the country to the target economic growth. Realizing the fact,
Bangladesh undertakes economic reform programs & giving up the past systems of
economic reform programs, stock market in Bangladesh have great potentially to
become successful.

Actually no better alternative way is suitable like a stock market to strengthen the
financial base of a country, to rise up its development of stock market. CSE offers an
optimistic ground for effectively developing the capital market for industrial financing.
The stock market in Bangladesh has grown enormously during the last few years.

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Chittagong Stock Exchange limited was formed ad registered of joint stock companies
in Bangladesh on 1st April 1995 as a public limited company by guarantee with an
authorized capital of TK 150,000,000 dividend into 500 shares of TK 300000 each.

Chittagong Stock Exchange recently has taken some initiatives to promote the
development of stock market. CSE offers an optimistic ground for effectively
developing the capital market for industrial financing. The stock market in Bangladesh
has grown enormously during the last few years.

The exchanges a non- profit making organization and all surpluses would be entirely
spent towards the promotion of the exchange. No promotion of such surplus will be
payable directly or indirectly by way of divided or bonus or profit or otherwise to
the members. The principal activity of the exchange is to conduct, regulate and control
the trade or business or buying, selling, dealing and settlements paper and order share,
stock, bonds debenture, government paper and loan and other instruments and securities
of lime nature. It is also involved in disseminating information to investors by
publishing quarterly PORTFOLIO, monthly BAZAR and other necessary publication.
The exchange is also involved in research ad development activates regarding capital
market including maintaining a library.

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BIBLIOGRAPHY

1. www.cse bd.org.
2. CSE Bazar Porikroma” –2008-2009
3. “Portfolio” of Chittagong Stock Exchange. (July-September 2009)
4. Annual Report and monthly Review of CSE, various issues;
5. SEC Quarterly Review and Annual Report, various issues;
6. "Foreign Investment in Asian Stock Markets" ESCAP, Monograph No. 8,
2008;
7. Annual Report of Bangladesh Bank, Various issues.
8. Bangladesh Economic Review, 2007 & 2008
9. “Bangladesh Capital Market” – A publication of Chittagong Stock Exchange
March –2009.
10. Annual reports of 2006, 2007, 2008 of Chittagong Stock Exchange.
11. “Share-e Binioge” –A publication of Chittagong Stock Exchange.

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