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(This term paper is submitted for the partial fulfillment of the degree of bachelor of
business of administration with major in finance)
Submitted to:
Submitted by:
Md Abdulla Al Naym
ID: 12-026-1-01-05960
Major: Finance
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Letter of Transmittal
Dear Madam,
With due respect and honor submission that my term paper report on “ROLE OF CAPITAL
MARKET IN BANGLSDESH”. I tried my best to gather relevant information for preparing a
complete report on this topic. Without the sincere co-operation and proper guidance of you, it
would not be possible for me to prepare the report. For this act of kindness I am grateful to you.
This report is not totally free from the mistakes due to some unavoidable limitations.
Yours Sincerely,
____________________
(Md. Abdulla Al Naym)
Department of Finance
8th semester,
Section: B
ID No: 12-026-1-01-05960
26th Batch, BBA
Premier University Chittagong.
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ACKNOWLEDGEMENT
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Table of Contents
Page no.
Chapter 01 Introductory Aspects 7
1.1 Background of the Study 8
1.2 Objectives of the Study 9
1.3 Scopes of the Study 9
1.3 Methodology of the Study 10
1.4 Limitations of the Study 10
Chapter 02 Theoretical Aspects 11
2.1 Definition of Capital Market 12
2.2 Types of Capital Market 12
2.2.1 Primary Market 13
2.2.2 Secondary Market 14
2.3 Functions of Capital Market 15
2.4 Participants in Capital Market 16
2.5 The Role of Capital Markets in an Economy 17
2.6 Capital Market Instruments 17
2.6.1 Stocks 18
2.6.2 Bonds 18
2.6.3 Debenture 19
Chapter 03 Practical Aspects 20
Part-A
3.1 Financial Markets in Bangladesh 21
3.1.1 Money Market 21
Money Market Instruments 21
3.1.2 Capital Market 22
3.1.3 Taka Treasury Bond Market 22
3.1.4 Foreign Exchange Market 22
3.2 Brief History Of Capital Market 23
3.3 Capital Market Segment of Bangladesh 23
3.4 Management of Stock Exchanges 24
3.4.1 Criteria of the Share Category 24
3.4.2 Categorization of Listed Company 24
3.5 Regulatory Bodies of Bangladesh Capital Market 25
3.5.1 Bangladesh Securities and Exchange Commission (BSEC) 25
3.5.1.1 Mission of the BSEC 25
3.5.1.2 Functions of BSEC 26
3.5.2 National Board of Revenue 26
3.5.3 Bangladesh Bank 26
3.5.4 Central Depository Bangladesh Limited (CDBL) 27
3.5.4.1 Vision of CDBL 27
3.5.4.2 Mission of CDBL 27
3.5.4.3 CBL Milestones 428| P a g e
3.5.5 Dhaka Stock Exchange(DSE) 29
3.5.5.1 Brief History of DSE 29
3.5.5.2 Mission of DSE 29
3.5.5.3 Vision of DSE 29
3.5.5.4 Objectives of DSE 30
3.5.5.5 Legal Control of DSE 30
3.5.5.6 Functions of DSE 31
3.5.5.7 DSE at a Glance 31
3.5.5.8 Recent Development in DSE 32
3.5.6 Chittagong Stock Exchange (CSE) 33
3.5.6.1 Brief History of CSE 33
3.5.6.2 Vision of CSE 33
3.5.6.3 Mission of CSE 33
3.5.6.4 Objectives of CSE 33
3.5.6.5 Functions of CSE 34
3.5.6.6 Legal Basis of CSE 34
3.5.6.7 Internet Trading Services of CSE 34
3.6 Regulatory Framework of Bangladesh Capital Market 35
3.7 Bangladesh Capital Market Regulatory Structure 36
3.8 Listing Process (IPO) at DSE & CSE 37
3.9 General Stages and Relevant Process of Listing in DSE & CSE 37
3.10 Bonds Market of Bangladesh 39
3.10.1 Corporate Bonds Market of Bandladesh 40
3.11 Bangladesh Shilpa Bank 41
3.11.1 Historical Background of BSB 41
3.11.2 Mission of BSB 41
3.11.3 Function of BSB 41
3.12 Bangladesh Shilpa Rin Sangstha 42
3.12.1 Company Overview of Bangladesh Shilpa Rin Sangstha 42
3.12.2 Role Played by BSRS 42
3.13 Investment Corporation of Bangladesh 43
3.13.1 Objectives of ICB 43
3.13.2 Basic Functions of ICB 43
Part- B
3.14 Capital Market Development in Bangladesh 44
3.15 Market Capitalization 44
3.16 Debacles in Bangladesh Capital Market 45
3.16.1 Debacle During 1996 45
3.16.2 Debacle During 2010 45
3.17 Reasons Behind the Two Major Debacles 46
3.17.1 Political Economy Inducing Demand Since 2007 46
3.17.2 Macro-Economic Factors Inducing Excess Savings 46
3.17.3 Gas and Power Sector Shortage and Idle Business Funds 46
3.17.4 Excess Liquidity in Financial Sector in 2009 47
3.18 Reform of the Capital Market After the Disorder 47
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3.19 Findings and Analysis 48
3.20 SWOT Analysis 54
Chapter 04 Conclusion Aspects 59
4.1 Recommendations 60
4.2 Conclusion 62
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1.1 Background of the Study
Capital markets are markets for buying and selling equity and debt instruments. Capital markets
channel savings and investment between suppliers of capital such as retail investors and
institutional investors, and users of capital like businesses, government and individuals. Capital
markets are vital to the functioning of an economy, since capital is a critical component for
generating economic output. Capital markets include primary markets, where new stock and
bond issues are sold to investors, and secondary markets, which trade existing securities. The
capital market is the market for securities, where companies and governments can raise long
term funds. The capital market includes the stock market and the bond market. Capital markets
promote and keep capitalism alive. The markets are a critical piece to may country’s economies
and the bigger the markets the more potential for economic growth. It allows for consumers and
businesses to have a share in the nation’s wealth. The availability of several ways to raise money
needed is attractive because they can continue to strike into new sources of money over time.
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1.2 Objectives of the Study
The prime purpose of the study is to fulfill the academic requirements of BBA program. The
objective of this study is to look into every aspect of Bangladesh capital market & evaluate the
prospects, possibility & future of Bangladesh capital market. The specific objectives of this study
are:
1. To have an overall idea about the capital market-its structures, functions, importance, etc.
2. To study the functional procedure of capital market.
3. To study the organizational structure of capital market.
4. To identify various rules & regulation of capital market.
5. To identify the roles played by capital market in Bangladesh economy.
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1.3 Methodology of the Study
The secondary data were collected to clarify different conceptual matters from internet and
annual report used. Sources of secondary data are:
Different papers
Websites
An intensive literature survey was required to acquire relevant knowledge. Relevant literature
like published and unpublished thesis, books, reports etc. have been reviewed with a view to
increase the knowledge and regarding the issue. Above all the storehouse of knowledge, “the
internet” will also be a big part of the literature review.
Due to the time limitation, I could not collect enough necessary data\information about the
study.
Primary and Secondary data were not available in organized form.
It was my first time, doing a report on a practical corporate life. So my limited experience
was the main obstacle of this study.
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2.1 Definition of Capital Market
Capital market is a mechanism to flow fund from the hands of small savers (individuals and
institutions) at low costs to those entrepreneurs who do need fund to start business or to business.
In the other words, capital market mechanism gives a part ownership of big
companies/corporations to small savers like you and me. In simple term, it is a globally accepted
scheme to share ownership of economic development with general public.
Capital markets are a broad category of markets facilitating the buying and selling of financial
instruments. In particular, there are two categories of financial instruments that capital in which
markets are involved. These are equity securities, which are often known as stocks, and debt
securities, which are often known as bonds. Capital markets involve the issuing of stocks and
bonds for medium-term and long-term durations, generally terms of one year or more.
The capital market is the market for securities, where companies and governments can raise
long-term funds. It is a market in which money is lend for periods longer than a year. The capital
market includes the stock market and the bond market. Capital market is the group of interrelated
markets, in which capital in financial form is lend or borrow for medium and long term and, in
cases such as equities, for unspecified periods. Capital market is a market in which individuals
and institutions trade financial securities, organization/institutions in the public and privet sector
also often sell securities on the capital markets in order to raise funds. Thus, this type of market
is composed of both the primary and secondary markets.
Capital market is divided into Primary Market & Secondary Market. The primary market is designed for
the new issues and the secondary market is meant for the trade of existing issues. Stocks and bonds are
the two basic capital market instruments used in both the primary and secondary markets.
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2.2.1 Primary Market
The primary capital market is concerned with the new securities which are traded in this market.
This market is used by the companies, corporations and the national governments to generate
funds for different purpose. The primary capital markets are also called the New Issue market.
The securities which are introduced in the market are sold for first time to the general public in
this market. This market is also known as the long term debt market as the money rose from this
market provides long term capital. The process of offering new issues of existing stocks to the
purchasers is known as underwriting. At the same time if new stocks are introduced in the
market, it is called the Initial Public Offering.
The act of selling new issues in the primary capital market follows a particular process. The
primary issues which are offered in the primary capital market provide the essential funds to the
companies. These primary issues are used by the companies for the purpose of setting new
businesses or to expanding the existing business.
At the same time, the funds collected through the primary capital market, are also used for the
modernization of the business & also involved in the process of creating capital for the
respective economy.
There are five ways of offering new issues in the primary capital market. These are:
1. Public Issue: Securities are issued to the all the members of the public who are eligible to
participate in the issue.
2. Private Placement: The sale of securities to a relatively small number of select investors as a
way of raising capital. This is a wholesale issue of securities to institutional investors by an
unlisted company.
5. Rights and Bonus Issues: Securities are issued to existing investors by offering them to buy
more securities at a pre-determined price (rights) or get an allotment of additional free shares
(bonus).
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2.2.2 Secondary Market
The secondary markets play a market place that is already issued in the primary market. The
secondary debt market deals with the debts and hence is also known as the debt or credit market.
The secondary bonds market handles the reselling of bonds by investors.
The money that is paid for bonds in the secondary market goes to other investors but not to the
issuers. On the other hand in case of the primary market the money paid by the investors goes
directly to the issuer companies. When the investors purchase bonds, they can either hold it until
its maturity date. The investor can thus receive regular interest payments and the principal as
well at its maturity.
On the other hand, the investor can also sell it before the maturity date in the secondary bond
market. The new owner of the bond now will be eligible to receive the regular interest payments
and also the principal at the end of bond’s maturity period.
The resale value of a bond in the secondary markets differs from that of the face value. The The
resale value of the bond is based on the interest rate of the day when the transaction is carried
out. With the rise or fall of the interest rate, the value of bond also rises or falls accordingly.
Trading in the secondary bond market is important for both the capital market and economy.
Hence it is necessary that the secondary market be highly transparent and liquid in nature.
1. Organized Exchange: It has a physical existence for trading of securities. Example: DSE,
CSE.
2. Over the Counter Market: It has no physical trading facility but a far-flung collection of
securities brokers-dealer who participates in arranging transactions of unlisted securities.
3. Third Market: Trading of listed securities in the OTC market is called third market.
4. Fourth Market: The direct trading of stocks between two transactors without the use of
brokers is called the fourth market.
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Capital Market
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2.4 Participants in Capital Market
Participants in Capital market may be discussed in groups because of their similar activities,
Groups or cluster of the participants are discussed below
i. Lone Providers:
These types of organization provide loans to the capital market other can take loan from the loan
providers such as saving organizations etc.
ii. Loan Takers:
A huge number of organizations want to take loan from the capital market. Among them
following are prominent as Govt. organizations, corporate bodies, Non-profit organizations,
Small business and Local authorities.
iii. Financial Intermediaries:
Financial intermediaries are media between loan provider and takers. The financial
intermediaries are Insurance organizations, Pension funds, Commercial banks, financing
companies, saving organizations, Dealers, Brokers, Jobbers, Nom-profit organizations.
iv. Service Organizations:
Service organization help to run capital market perfectly. These firms, in one hand, help issuer or
underwriters to sell their instruments with high value and in other hand help sellers and buyers to
transact easily. These are mainly service Organization-Investment banks, Brokers, Dealers,
Jobbers, Security Exchange Commission, Rating service, Under Writers.
v. Regulatory Organizations:
Regulatory organizations are mainly Govt. authority that monitors and controls the capital
market. It secures both the investor and corporations. It strongly protects forgery in stock market.
Regulatory organization controls the margin also. Central bank on behalf of Govt. generally
controls the financial activities in a country.
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2.5 The Role of Capital Market in an Economy
Stocks
Bonds
Debentures etc
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2.6.1 Stocks
Stock is a type of security that signifies ownership in a corporation and represents a claim on part
of the corporation's assets and earnings. There are two main types of stock: common and
preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to
receive dividends. Preferred stock generally does not have voting rights, but has a higher claim
on assets and earnings than the common shares. For example, owners of preferred stock
receive dividends before common shareholders and have priority in the event that a company
goes bankrupt and is liquidated. There are four main types of shares:
Common: Common shares are standard shares with no special rights or restrictions. They have
the potential to give the highest financial gains, but also have the highest risk. Ordinary
shareholders are the last to be paid if the company is wound up.
Preference: Preference shares typically carry a right that gives the holder preferential treatment
when annual dividends are distributed to shareholders. Shares in this category receive a fixed
dividend, which means that a shareholder would not benefit from an increase in the business'
profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the
business is in trouble. Also, where a business is wound up, they are likely to be repaid the par or
nominal value of shares ahead of ordinary shareholders.
Cumulative Preference: Cumulative Preference shares give holders the right that, if a dividend
cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative
preference shares must be paid, despite the earning levels of the business, provided the company
has distributable profits.
Redeemable: Redeemable shares come with an agreement that the company can buy them back
at a future date - this can be at a fixed date or at the choice of the business. A company cannot
issue only redeemable shares
2.6.2 Bonds
A bond is a debt investment in which an investor loans money to an entity (typically corporate or
governmental) which borrows the funds for a defined period of time at a variable or fixed interest
rate. Bonds are used by companies, municipalities, states and sovereign governments to raise
money and finance a variety of projects and activities. Owners of bonds are debt holders,
or creditors, of the issuer.
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Types of Bonds:
On the Basis of Variability of Coupon;
Zero Coupon Bonds are issued at a discount to their face value and at the time of maturity,the
principal/face value is repaid to the holders. No interest (coupon) is paid to the holdersand hence,
there are no cash inflows in zero coupon bonds. The difference between issueprice (discounted
price) and redeemable price (face value) itself acts as interest to holders.
2. Floating Rate Bonds
In some bonds, fixed coupon rate to be provided to the holders is not specified. Instead, the
coupon rate keeps fluctuating from time to time, with reference to a benchmark rate. Such types
of bonds are referred to as Floating Rate Bonds.
1. Callable Bonds
These securities have provisions allowing the issuer to redeem the issue prior to the scheduled
maturity date
2. Puttable Bonds
The holder of a puttable bond has the right (but not an obligation) to seek redemption(sell) from
the issuer at any time before the maturity date. The holder may exercise put option in part or in
full.
3. Convertible Bonds
The holder of a convertible bond has the option to convert the bond into equity (in the same
value as of the bond) of the issuing firm (borrowing firm) on pre-specified terms.
1. Amortizing Bonds
Amortizing Bonds are those types of bonds in which the borrower (issuer) repays the principal
along with the coupon over the life of the bond. For example - auto loans, home loans, consumer
loans, etc.
2.6.3 Debenture
A debenture is a type of debt instrument that is not secured by physical assets or collateral.
Debentures are backed only by the general creditworthiness and reputation of the issuer. Both
corporations and governments frequently issue this type of bond to secure capital. Like other
types of bonds, debentures are documented in an indenture.
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Part-A
The money market comprises banks and financial institutions as intermediaries, 20 of them are
primary dealers in treasury securities. Interbank clean and repo based lending, bb's repo, reverse
repo auctions, bb bills auctions, treasury bills auctions are primary operations in the money
market, there is also active secondary trade in treasury bills (up to 1 year maturity).
Treasury Bills: Treasury bills are issued by the treasury department and backed by the full
faith and credit of the government. As a result, market participants perceive Treasury
securities to carry no risk of default.
Federal Funds: Depository institutions are required to maintain reserve with central bank.
The reserves are deposited to the central bank, which called central bank fund. There are two
ways that banks with less than the required reserves can bring reserve to the required level-
a) To enter into a repo with a non bank customer.
b) Borrow central bank fund from a bank that has excess reserve.
Commercial Paper: If any large corporation or municipalities needs short term funds they
might attempt to acquire those funds by bank borrowing. Commercial paper is short term
unsecured promissory notes issued in the open market as an obligation of the issuing entity.
Negotiable Certificate of Deposit: Bank-issued time deposit that specifies an interest rate
and maturity date and is negotiable, (i.e., can be sold by the holder to another party).
Bankers Acceptance: Time draft payable to a seller of goods, with payment guaranteed by a
bank. The instrument called Bankers acceptance because a bank accepts the ultimate
responsibilities to repay a loan to its holders.
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institution. CDs are issued by bank and thrifts to raise fund for financing their business
activities.
The primary issues and secondary trading of equity securities of capital market take place
through two (02) stock exchanges-Dhaka stock exchange and Chittagong stock exchange. The
instruments in these exchanges are equity securities (shares), debentures and corporate bonds.
The capital market is regulated by Bangladesh Securities and Exchange Commission (BSEC).
The taka treasury bond market consists of primary issues of treasury bonds of different maturities
(2, 5, 10, 15 and 20 years), and secondary trade therein through primary dealers. 20 banks
performing as primary dealers participate directly in the primary auctions. Other bank and non
bank investors can participate in primary auctions and in secondary trading through their
nominated primary dealers. Non-resident individual and institutional investors can also
participate in primary and secondary market, but only in treasury bonds.
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3.2 Brief History of Bangladesh Capital Market
Bangladesh capital market has achieved some major milestone events in the recent past. The
capital market operations in this part of the country started in mid fifties with the establishment
of East Pakistan Stock Exchange Association in 1954, which started trading in 1956. Initially it
was a mutual organization (cooperative body) which was corporatized in recent activity of the
Dhaka Stock Exchange (DSE) in term of turnover in the name of Dacca Stock Exchange Ltd.
During those early periods until 1971, all trades in the exchange were conducted using trading
data collected over telephone from Karachi Stock Exchange. After independence of Bangladesh,
the operations of the stock exchange remained suspended until August 1976. At that time market
trading started with only 14 listed companies having market value of only taka 90 million. The
trade volume was very thin and could not attract investors. Over time some reform initiatives
were taken to strengthen the market. First time Tk. 1 crore daily trades were recorded in April
1992. Government adopted the Securities and Exchange Commission Act 1993 and established
the SEC as the regulatory authority for the market and the Securities and Exchange Commission
(SEC), established in 1993 under this Act, as the central regulatory agency oversees the activities
of the entire capital market including issue of capital, monitoring the issue of stocks and
operation of the stock markets including regulating of portfolio market.
2. Commercial Bank:
Security Segment
1. Stock Exchanges:
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3.4 Management of Stock Exchanges
DSE and CSE comprises of 25 members of whom 12 are elected through direct election from
the 235 and 134 shareholders respectively. Another 12 members representing distinguished
personalities from different key economic and social arena of the country. The CEO of the
exchange is also a Director of the Board.
“Z’ Category Companies: Companies which have failed to hold the AGM or failed to declare
any dividend or which are not in operation continuously for more than six months or whose
cumulated loss after adjustment of revenue reserve, if any is negative and exceeded its paid up
capital.
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3.5 Regulatory Bodies of Bangladesh Capital Market
Capita market in Bangladesh is regulated by following regulatory bodies_
The Bangladesh Securities and Exchange Commission (BSEC) was established on 8th June,
1993 as the regulator of the country’s capital market through enactment of the Securities and
Exchange Commission Act 1993. Through an amendment of the Securities and Exchange
Commission Act, 1993, on December 10, 2012, its name has been changed as Bangladesh
Securities and Exchange Commission from previous Securities and Exchange Commission. The
Commission consists of a Chairman and four Commissioners who are appointed for fulltime by
the government for a period of four years and their appointment can be renewed only for further
one term, but the condition is that age cannot exceed 65 in position during the tenure. The
Chairman acts as the Chief Executive Officer (CEO) of the Commission. The Commission has
overall responsibility to formulate securities legislation and to administer as well. The
Commission is a statutory body and attached to the Ministry of Finance.
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3.5.1.2 Functions of Bangladesh Securities and Exchange Commission (BSEC)
Regulating the business of the Stock Exchanges or any other securities market.
Registering and regulating the business of stock-brokers, sub-brokers, share transfer agents,
merchant bankers and managers of issues, trustee of trust deeds, registrar of an issue,
underwriters, portfolio managers, investment advisers and other intermediaries in the
securities market
Registering, monitoring and regulating of collective investment scheme including all forms
of mutual funds.
Monitoring and regulating all authorized self regulatory organizations in the securities
market.
Prohibiting fraudulent and unfair trade practices relating to securities trading in any securities
market.
Promoting investors’ education and providing training for intermediaries of the securities
market.
Prohibiting insider trading in securities.
Regulating the substantial acquisition of shares and take-over of companies.
Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of
securities, the Stock Exchanges and intermediaries and any self regulatory organization in
the securities market.
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3.5.4 Central Depository Bangladesh Limited (CDBL)
Central Depository Bangladesh Limited (CDBL) was incorporated on 20 th August 2000
sponsored by the country's Nationalized Commercial Banks (NCBs), Investment Corporation of
Bangladesh (ICB), Private Commercial Banks (PCBs), Foreign Banks, Merchant Banks, Publicly
listed Companies, Insurance Companies and Dhaka & Chittagong Stock Exchanges with the
collaboration of the Asian Development Bank (ADB). Legal basis for CDBL's operations is set
out in the Depositories Act 1999, Depositories Regulations 2000, Depository (User) Regulations
2003, and the CDBL by-laws. CDBL's core services cover the efficient delivery, settlement and
transfer of securities through computerized book entry system i.e. recording and maintaining
securities accounts and registering transfer of securities; changing the ownership without any
physical movement or endorsement of certificates and execution of transfer instruments. The
Central Depository System (CDS) operated by CDBL has proved to be a convenient and reliable
means to settle securities transaction. The investor has been freed from the hassles of physical
handling of certificates, errors in paper work and the risks associated with damaged, lost and
forged certificates.
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3.5.4.3 CDBL Milestones
October 2010 100% threshold reached of Stock exchange trades settled in CDS
December CDBL signs agreement with Bangladesh Online Ltd (BOL) for enhancement of the
2009 company website using open source technologies.
CDBL signs agreement with E.B. Solutions Ltd for SMS Alert Services for BO's on
April 2009
April 23, 2009.
June 2008 90% threshold reached of stock exchange trades settled in the CDS
January 2007 Dematerialized securities held in CDBL surpass BD Tk. 100 billion
Global Internet Securities Balance Enquiry and Portfolio Valuation Service for BO
August 2006
accountholders launched
August 2005 BO accounts setup in CDBL surpass 500,000
September
Depository Registration Certificate awarded by the SEC
2001
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3.5.5 Dhaka Stock Exchange (DSE)
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3.5.5.4 Objectives of Dhaka Stock Exchange (DSE)
Dhaka Stock Exchange shall endeavor to achieve the following objectives within 2020:
Commercial:
Achieve a sustainable average daily turnover of BDT 25 billion. Ensure steady domestic and
offshore institutional investments of at least three fourth of the total investments in the
market. Attract more foreign investments to attain a steady level of at least 30% of the total
market capitalization. Double the total number of listed securities (other than Government Bills
and Bonds). Increase depth and liquidity of bond market, including bringing in the Government
Securities under trading net. Increase breadth by listing new products, i.e. Index futures, ETF,
Skulk and derivatives.
Knowledge Development:
Enhance knowledge of general investors to ensure an aware and educated investor base.
Governance:
Technology:
Deploy State-of-Art technology through continuous but prudent and effective investment.
Ensure continuous learning for employees through effective training. Ensure optimum
organizational structure.
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3.5.5.6 Functions of DSE
Incorporated as East Pakistan Stock Exchange Association Ltd.: 28th April 1954
Start of Formal Trading: 1956
Renamed as East Pakistan Stock Exchange Ltd.: 23rd June 1962
Renamed as Dacca Stock Exchange Ltd.: 13th May 1964
Trading Suspended under new State Policy: 16th December 1971
Trading Resumed in Bangladesh: 16 August 1976
Starting Of All Share price Index calculation: 16th September 1986
Share price Indices calculation on basis of IFC Designed formula: 1st November 1993
Starting of Automated trading: 10th August 1998
Starting Of DSE-20 Index calculation: January 2001
Starting Of DSE General Index calculation: 27th November 2001
DSE All share price Index (DSI) Re introduced: 28th March 2005
Regulations 2006 Introduced: 12th April 2006
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Web Based Trading Software-MSA Plus Introduced: 10th June 2012
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3.5.6 Chittagong Stock Exchange (CSE)
Practice a set of core values to build competency in compliance, diversification and technology
so that an accessible platform, market confidence and wealth maximization scope can be
ensured.
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3.5.6.5 Functions of CSE
1. Listing of Companies. (As per listing Regulation)
2. Providing the screen based automated trading of listed securities.
3. Settlement of trading. (As per Settlement of Transaction Regulations)
4. Gifting of share / granting approval to the transaction / transfer of share outside the trading
system of the exchange (as per listing regulations 42)
5. Market Administration & Control.
6. Market Surveillance.
7. Publication of Monthly Review.
8. Monitoring the activities of listed companies. (As per investor protection fund Regulation
1999)
9. Announcement of price sensitive or other information about listed companies through online.
After demutualization the Chittagong Stock Exchange Ltd (CSE) is registered as a Public
Limited company under Companies Act, 1994. The Board, headed by elected Chairman from the
Independent Directors, consist of 13 members comprising 7 Independent Directors, 5
Shareholder Directors including 1 Strategic Investor and the Managing Director.
CSE activities are regulated by its own Memorandum & Articles of Association, regulations and
by laws along with the rules, order and notifications of the Bangladesh Securities and Exchange
Commission (BSEC).
After the introduction of automated trading system in Bangladesh in 1998, CSE was also the first
bourse to introduce Internet Trading services in the country. CSE introduced Internet Trading
System on 30th May 2004. CSE upgraded the Internet Trading System with the introduction of
Next Generation Trading System (NGTS) on October 20, 2011.
The Internet Trading System of CSE is a real online Internet based trading application which is
directly integrated with the main trading engine. Thus the investors' orders hit directly to the
matching engine provided the investors have enough stock/cash available in their portfolio. This
application supports Multiple Brokers, Supports Direct Dealer Access and Investor Access. It is
user-friendly and has configurable User Interfaces, Comprehensive Market Information. It
provides both Thick (EXE clients) and Thin Clients (Browser Based), Provides online Cash,
Margin, Back office reports to both Dealer and Investor s. This ITS complements the existing
ITS of CSE.
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3.6 Regulatory Framework of Bangladesh Capital Market
Acts:
1. The Securities Act, 1920 (Act No. X of 1920)
2. The Securities and Exchange Commission Act, 1993
3. The Companies Act, 1994
4. Depository Act, 1999
Rules:
1. The Securities and Exchange Rules, 1987
2. Securities and Exchange Commission (Meeting Related) Rules, 1994
3. Securities and Exchange Commission (Appeal) Regulations, 1995
4. Securities and Exchange Commission (Prohibition of Insider Trading) Rules, 1995
5. Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996
6. Credit Rating Companies Rules, 1996
7. Margin Rules, 1999
8. Securities and Exchange Commission (Stock Dealer, Stock Broker and Authorized
Representative) Rules, 2000
9. Securities and Exchange Commission (Market Maker) Rules, 2000
10. Securities and Exchange Commission (Mutual Fund) Rules, 2001
11. Securities and Exchange Commission (Issue of Capital) Rules, 2001
12. Securities and Exchange Commission (Over-The-Counter) Rules, 2001
13. Securities and Exchange Commission (Substantial Share Acquisition and Takeover) Rules,
2002
14. Securities and Exchange Commission (Security Custodial Service) Rules, 2003
15. Securities and Exchange Commission (Asset Backed Securities) Rules, 2004
16. Securities and Exchange Commission (Public Issue) Rules, 2006
17. Securities and Exchange Commission (Rights Issue) Rules, 200
Regulations:
1. Listing Regulations of Stock Exchanges
2. Trading Regulations of Stock Exchanges
3. Settlement of Stock Exchange Transactions Regulations, 1998
4. Investors’ Protection Fund Regulations, 1999
5. Stock Exchange (Board and Administration) Regulations, 2000
6. Stock Exchange (Member’s Margin) Regulations, 2000
7. CSE (Internet Based Trading Services) Regulations, 2002
8. Depository Regulations, 2000
9. Depository (User) Regulations, 2003
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3.7 Bangladesh Capital Market Regulatory Structure
The Registered of
Joint Stock Company
Security & Exchange Commission
The Depository Act- The Security & Exchange Commission Act- 199
1920
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3.8 Listing Process (IPO) at DSE & CSE
Listing process is regulated by two regulations at Dhaka Stock Exchange & Chittagong Stock
Exchange. They are:
The listing regulations of the Dhaka stock Exchange Limited & Chittagong Stock Exchange.
The Dhaka Stock Exchange Limited & Chittagong Stock Exchange (Direct Listing)
Regulation 2006.
There are three possible ways to get listed whit DSE & CSE
3.9 General Stages and Relevant Processes of listing with DSE &
CSE through IPO
1. Decision to Go Public:
Appoint Issue Manager from Bangladesh Security & Exchange Commission (BSEC)
approved issue Managers.
Decide method of IPO with assistance from issue manager-Fixed price.
In case of IPO under book building-Get accounts audited by BSEC approved panel of
auditors.
Initiate process for credit rating- Mandatory for Bank, Insurance, NBFI and any issue with
offer price at premium.
Develop a country Website with publications of company financials.
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In case of IPO Under Book Building Method prepare o information Memorandum with
Financial for road show and Indicative price determination in accordance with rules of the
securities and exchange commission (public issue) rules, 2006.
Host road shows with all Eligible Institutional Investors (EII)
Collect offer from all Ells
Finalize a indicative price
4. IPO Approved
Print Abridged version of the approved and vetted prospectus in widely circulated Bengali
and English News papers.
Print final prospectus.
Published Soft Copy of vetted Prospectus on Company Website within 3 working days.
Apply of listing with exchange in accordance with regulations of the listing Regulatioins of
the exchanges.
Appoint a post issue Manager.
6. Subscription, Lottery
Start subscription for IPO through designated Bankers to the issue.
Assist issue manager and post issue manager in completing formalities related to
subscription, lottery, refund and crediting shares to successful allottees
After subscription period submit subscription status to BSEC and exchanges where the issuer
wishes to get listed
In case of over subscription hold lottery
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7. Allotment and Refund
Process all subscription and lottery results
Distribute Allotment letter and refund warrants
After distribution of allotment letters/refund warrants submit a compliance report before the
commission and exchanges.
9. Credit Share/Unites
If listing is approved by any of the exchanges, issuer apply to CDBL for crediting tradable
shares/units as per allotment.
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3.10 Bo nds Ma rket o f Bang la desh
Before independence, the use of bonds as a means of resource mobilization was virtually non-
existent in Bangladesh. Immediately after liberation, the government of Bangladesh reissued
long-term bonds accepting the liabilities of the Income Tax Bonds and the Defense Bonds of the
Pakistan government held by Bangladeshi nationals and institutions. The government also issued
a 5% non-negotiable bond to Bangladeshi shareholders of nationalized industries. In addition,
savings bonds were also issued to pay for the value of demonetized 100-taka notes in 1974. Most
of these bonds are held by Bangladesh bank. The first effort to mobilize savings for use of
development expenditure was the issue of Wage Earners Development Bonds in 1981 to be sold
to Bangladeshi wage earners abroad. Later, a two-year special treasury bond was issued in
January 1984 to be sold to individuals, public and private sector organizations including banks.
In December 1985, another instrument, the National Bond, was issued to be sold to non-bank
investors. During the implementation period of the financial sector reform programmed that took
effect from 1990, Nationalized commercial banks, specialized banks and development financial
institutions had to make considerable provisions for huge classified loans.
As a result, the capital base of those banks and financial institutions eroded severely and their
viability was seriously threatened. In this situation, the government issued a series of bonds to
restructure the capital base of these banks and financial institutions as well as to assume the
liabilities of the bad loans made to a number of public sector organizations. The government also
issued some bonds for augmenting loan able funds for specialized banks and financial
institutions. Moreover, some bonds were also issued to mobilize funds for a number of public
sector organizations like the T&T Board, Bangladesh Biman etc.
The issues of developing a corporate bond market that is currently near non-existent in
Bangladesh. The two major sources of financing are the banks and capital market. Equity
financing from capital markets through issuing new shares is lenient whereas debt financing
through issuing corporate bonds is almost nonexistent.
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3.11 Bangladesh Shilpa Bank
3.11.1 Historical Background of BSB
Industries play indispensable role in the economic enlargement of every country. This is why
Industrialization has been used as main mechanism of economic expansion in many developing
countries. Government of Bangladesh instituted a development financial institution named
Bangladesh Shilpa Bank on 31s December, 1972 under the presidential order no. 129 of 1972
with a mission of speeding the process of industrialization of the country by providing financial
support and equity backing. It has been extending long and medium term loan facilities in local
and foreign currencies to industrialize projects in the private and public sectors.
Bangladesh Shilpa Bank is the state owned Lending Department Financial Institution (DFI) of
Bangladesh. The mission of BSB is accelerating the process of industrialization of the country
by providing financial assistance and equity support.
BSB extents term loan facilities in local and foreign currencies to industrial projects (both new
and BMRE) in the and public sectors. Besides Bank also performs the following activities:
Provides working capital loans to industrial projects.
Provides equity support in the form of underwriting and bridge finance to public
limited companies.
Issues guarantees on behalf of borrowers for repayment of loan.
Extends commercials banking services along with deposit mobilization.
Purchases and sales shares / securities for BSB and on behalf of customers as member of
Dhaka Stock Exchange (DSE) ltd. and Chittagong Stock Exchange (CSE) ltd. for capital
market development; and
Conducts projects promotional activities along with preparation of various sub-sectoral
study reports.
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3.12 Bangladesh Shilpa Rin Sangstha
To contribute to the development of capital market, Bangladesh Shilpa Rin Sangstha (BSRS)
participates in the trading of securities in the Dhaka Stock Exchange as its member in addition to
participation in the primary market.
BSRS (Bangladesh Shilpa Rin Sangstha) also guarantees, under certain conditions, deferred
payments of machinery imported from aboard under Suppliers Credit and provides guarantee,
counter-guarantee for loans, debts, credits, performance of contract and financing arrangement
with foreign lending agencies as well as with local banks and financial institutions.
It keeps constant vigilance over the industries after grant of the loan. Its function is to create
down assets and increase productive capacity.
It disburse loan not in one instalment but gradually as assets are acquired and the project passes
form one stage to another. Besides, BSRS also assists in helping borrows to choose right type of
machinery at a competitive price, conducts market surveys, undertakes industrial promotional
activities and provides professional counseling to entrepreneurs regarding investments.
BSRS (Bangladesh Shilpa Rin Sangstha) prefers giving loans to those industries which are based
on local raw materials, fall in the priority fixed under the Investment Schedule and which, if
developed, would affect savings in foreign exchange both by reducing imports and increasing
country’s exports. BSRS also started commercial banking operation form may, 1997.
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3.13 Investment Corporation of Bangladesh
Investment Corporation of Bangladesh is a statutory company of Government of the People's
Republic of Bangladesh, established on 1 October 1976 under No. 40 of Investment Corporation
of Bangladesh Ordinance, 1976.
Direct purchase and sale of shares and debentures including placement and equity
participation
Providing lease finance singly and through syndication
Managing existing investment accounts
Managing existing Mutual Funds and Unit Fund
Managing proprietary investment portfolios and take part in buying & selling of
Securities
Providing advance against ICB Unit, Bangladesh Fund, Mutual Fund certificates and
ICB AMCL Unit Fund certificates
Providing bank guarantee
Acting as trustee and custodian
Participating in financing of joint-venture companies
Providing investment counseling to investors
Participating in government divestment program
Part-B
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3.14 Capital Market Development in Bangladesh
Bangladesh stock markets have grown significantly during the last decade. Still, the size of the
market is relatively small compared to other Asian Markets. Size and liquidity of the companies
provide some distinguishing features of developing markets. The market capitalization ratio,
defined as the value of listed stocks divided by GDP, is used as a measure of stock market size. It
has got economic significance because market size is positively correlated with the ability to
mobilize capital and diversify risk. Total market capitalization of DSE was US $ 1.049 billion in
1994 compared to US $ 127.515 billion in India, US $ 12.263 billion in Pakistan, US $ 191.778
billion in South Korea and US $199.276 in Malaysia. This market is also small relative to the
size of the economy. Market capitalization in Bangladesh was only 4.07 per cent of GDP in 1994
against 25.77per cent in Pakistan, 24.03 per cent in Sri Lanka, 104.14 per cent in Thailand
and294.56 per cent in Malaysia. This ratio for Bangladesh is 0.075 in June 1997 and 0.05 in June
2000.
Almost 33 lakh investors are now involved in the capital market at the moment; more than 70%
of which are general investors. The total market capitalization of all shares and debentures of the
listed securities stood at USD 49.4 billion by the end of 2010, indicating an 84% growth from the
year before. The total turnover has increased from USD 0.13 billion to USD 0.25 billion at the
end of 2010 which indicates a 91% growth. However, the capital market has been exposed to
greater risk since PE ratio rose from19.9% to 29.71% from January, 2010 to November,
2010.Dematerialization may be successful in stimulating the further growth of Bangladesh
capital market, but to ensure the success of such an initiative, it will be necessary to ensure that
the regulatory framework and authority are sufficiently strong, in order to strike a balance
between the interests of both the members of stock exchanges and the public. On a long-term
basis, it may be important for a successful bond market to be built in Bangladesh. This can assist
in creating more instruments for investors and, at the same time, creating some depth in the
capital market. Bond markets can also be utilized by the government in raising necessary funds,
and can serve as an efficient method of financing in large projects.
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The capital market of Bangladesh had two major debacles which occurred in 1996 and2010,
creating some bad impacts upon the country’s total capital market.
During 1996 some local and foreign initiatives succeeded in drawing some international attention
which was followed by an international conference in 1994. The conference followed by some
regional as well international market destabilizing events, some hedge fund managers started
investing in the local capital market. The market was neither operational nor in terms of legal
structure ready to absorb such sudden surge in demand both at home and abroad. Consequently
within a very short tenure (from July to October of 1996) the market price level soared to a
record level (of that time) height with the index rising from 894 levels lo 3627 level. The market
P/E ratio of all the listed securities reached to the level of 66.5 within a short period of 4 months.
The 'cry out' auction based trading system of DSE could not handle the huge demand coming
from several thousand investors who crowded the Motijheel thoroughfare. Consequently street
based curb market took over the legal trade executed through stock market sys-tem.
Unsuspecting inexperienced new entrant investors allured by very quick profit potentials were
buying anything without understanding substance, legality and validity of their investment.
Unscrupulous market players (which even include some issuers) were minting fortunes by selling
fake securities to the crowd who were eager to make quick profit from the market. Thereafter, for
obvious reason the market experienced first major crash in l996 affecting about fifty thousand
investors
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Analysis shows that, the capital market of the country experiences some abnormal upheaval
during the last few years, which had full bubble effects in 2010 concluding with the burst. The
causes and factors to such behavior are as following.
The political reality of 2007 was one of the major reasons for creating a sudden rise in the
market. Until 2006, the growth pattern in the market was gradual and moderate. From January
2007, the market experienced a sharp rise in terms of transaction and price level. Especially the
political situations in late 2006 made the market little shy of investment. The emergence of
military backed caretaker government (CTG) initially encouraged the investors to come back to
capital market. At the time of declared campaign against corruption, budgetary policy support for
legalization of undisclosed in-come through investment in securities market also encouraged new
investors to transfer their funds to this market. Besides new civilian investors, influx of armed
forces members as investors also boosted the demands in the market.
Since the last decade, the economy of the country has been growing at a fairly steady rate with
national savings rate remaining around 30% of GDP. Such high savings rates were attained
mostly due to robust growth in inward remittances from expatriate Ban-glades his over the years.
While savings rates were good along with rising GDP, the in-vestment rates were not matching.
The real ADP in terms of budgeted amount as well as implemented amount was not increasing.
As a result the public sector investment declined from a level of more than 6% to slightly over
4% level. Due to different infra-structural and political reasons, the private sector investments
also could not match the shortfalls in public sector investments. Thus an overall surplus savings
has been created in the economy.
3.17.3 Gas and Power Sector Shortage and Idle Business Funds
Due to shortage of power and gas, the government declared moratorium on new connections.
Such policy almost stopped establishment or expansion of new industrial units and even
residential buildings. The moratorium was further extended by the newly elected government
until middle of this year. Consequently private sector in-vestment for manufacturing sector
almost stalled for quite some time. The global financial crisis of 2008-09 also made many export
oriented business to keep their production facilities partially or totally closed. Therefore, the
business people having idle funds found incentives to move their funds lo capital market. The
transfer of such funds also created excess demand pushing the price level upward.
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The decline in private sectors' new or expansion oriented investment also created significant
volume of surplus liquidity at the hands of financial institutions. The financial institutions started
investment in the securities market as one of the avenue to utilize their liquidity. Almost all the
major financial institutions got involved in deploying a portion of their idle funds in the market.
The stock market crash reveals structural weaknesses of the market. This leads to all concerned
feeling the agenda for market reforms. Rules, laws and guidelines are framed and implemented
to improve infrastructure and foundation on which the stock ex-changes can operate effectively.
Major notable features of capital market reforms implemented so far include:
Amendment of the SEC Act 1993 to empower SEC a vetting power, financial penalty power
with a view to monitoring and enforcing compliance of rules. SEC is also allowed to conduct
special audit to detect window dressing in the accounts of the listed firms, if it suspects.
Information disclosure rule specifying the requirements to comply with the International
Accounting Standard (IAS) and International Standards of Auditing (ISA) for timely and
quality information disclosure in the market.
In the new issue rule, the pricing of IPOs has been delegated to the issue manager.
In the merchant bank regulation, three activities, viz., issue management, underwriting and
non-discretionary portfolio management, are restricted to merchant banks operating in
Bangladesh.
c) Separation of the management from the ownership at both DSE and CSE
d) Inclusion of the representatives of the listed companies and the investors on the governing
bodies of both DSE and CSE
e) Automation of trading at both DSE and CSE introducing order-driven system re-placing out-
cry system.
f) Amendment of the Trust Act, 1882 enabling pension fund and insurance fund investing in
securities market and thereby create demand for securities.
g) Enactment of the Central Depository Act enabling national securities ltd. company to establish
CDS. The implementation of the on-line CDS will in fact avoid problems of "fake shares" and
"short sale" to a great extent.
However, a few important reform measures are still pending. These include, among others:
47 | P a g e
a) Restructuring Investment Corporation of Bangladesh (ICB) by creating three subsidiary
companies carrying out the function of merchant banking, fund management and
securities brokerage house.
b) Divesting government holdings in SOEs and MNCs through securities market.
c) Issuing government securities with medium term and long-term maturities on a regular
basis through the securities market. Thus the period of 2003 to ‘06 can be viewed as a
period of consolidation & restoration.
2016
2014
2012
2010
2008
2006
7.05 6.55 6.06 6.01 6.52 6.46 5.57
2016 2015 2014 2013 2012 2011 2010
The Gross Domestic Product (GDP) in Bangladesh expanded 7.05 percent in 2016 from the
previous year. GDP Growth Rate in Bangladesh averaged 5.72 percent from 1994 until 2016,
reaching an all time high of 7.05 percent in 2016 and a record low of 4.08 percent in 1994. GDP
growth rate in Bangladesh is reported by the World Bank.
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Inflation Rate
7
6 6.07
5.38 5.57 5.53 5.37 5.4 5.53 5.45 5.61 5.65 5.62
5 5.03
4
3
2
1
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Inflation Rate in Bangladesh averaged 6.63 percent from 1994 until 2016, reaching an all time
high of 16.00 percent in September of 2011 and a record low of -0.03 percent in December of
1996. Inflation Rate in Bangladesh is reported by the Bangladesh Bureau of Statistics.
During 2015-16 Capital Market witnessed an squeeze due to various adjustments in the monetary
and fiscal policies and the market lost its usual pace due to the go slow approach of the
institutional and individual investors. The trade volume increased in 2015-16 compared to
2014-15; however, the index and market capitalization decreased significantly during the same
period. A total of 11 securities raised Tk. 8,583 million from the capital market through initial
public offerings. Another 2 companies raised Tk. 3,134 million including premium issuing
right shares. Foreign trade increased in 2015-16 compared to the previous year. The total
foreign trade stood at Tk. 80,838 mn in 2015-16. Of the amount, the foreign investors bought
securities worth Tk. 42,677 mn and sold securities worth Tk. 38,161 mn.
Equity Market
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At the beginning of the FY 2015-16, total 283 companies were listed with a paid up value of
Tk.493,357 mn and market value of Tk. 2,663,400 mn. During the FY 2015-16, 9 new
Companies got listed with the Exchange with paid-up value of Tk. 8,236 mn and raised capital of
Tk. 8,183 mn. (at face value Tk. 2,517 mn and at premium Tk. 5,666 mn) through initial
Public offerings. Out of 9 companies 6 companies raised their capital with premium. At the end
of FY 2015-16 total number of listed companies stood at 292 with a paid-up value of
Tk. 526,401 mn and market value of Tk. 2,600,000 mn.
At the beginning of the FY 2014-15, total 263 companies were listed with a paid up value
of Tk. 435,483.59 mn. During the FY 2014-15, 20 new companies got listed with the
Exchange with paid up value of Tk. 20,782.47 mn and raised capital of Tk.13,751.72 mn.
(at face value Tk. 5,119.96 mn and at premium Tk. 8,031.76) through public offerings. Out
of 20 companies 11 companies raised their capital with premium.
Equity market represents 98.63% of total tradable market capitalization in FY 2015-16 where
as it was 98.71% in the FY 2014-15.
Market Capitalization
DSE’s Market capitalization was Tk. 3,159,757 mn at the beginning of fiscal year 2015-16.
The market capitalization decreased to Tk. 3,185,749 mn at the end of the financial year. In
percentage it decreased by 1.90%. On August 5, 2015, DSE’s market capitalization rose to
its highest level at Tk. 3,409,970 mn and the lowest level at Tk. 2,985,349 mn on May 02,
2016.
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(BDT
million)
FY FY FY FY FY
Particulars 2015-16 2014-15 2013-14 2012-13 2011-12
Statement of Income
Revenue 1,874 1,949 1,925 1,719 1,391
Expenses 675 602 585 564 447
Net income 1,198 1,346 1,340 1,155 944
The financial performance during the year 2015-16 was impacted by the declining interest
rates. In the financial year 2015-16 the Exchange made a Net Income of Tk. 1198.27 million.
This is a decrease of 11 percent compared to 1346.39 million recorded in 2014-15. Fees and
non-interest income of the exchange however recorded an increased from 771.58 million to
802.82 million over the preceding year.
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1500
1000
500
0
2011-12
2012-13
2013-14
2014-15
2015-16
(BDT million)
1500
1000
500
0
2011-12
2012-13
2013-14
2014-15
2015-16
(BDT million)
Collection of tax from transfer of securities or mutual fund units by sponsor shareholders of a
company (U/S 53M)
3.20.1 Strengths:
1. Protection of Foreign Investors:
Over a dozen of foreign hedge/frontier funds are operating in the capital market in Bangladesh.
One of the reasons behind their investing in here is that Bangladesh Government is strictly
concerned about the capital safety of these foreign investors. This protection gives a competitive
leverage to these foreign investors when market failure is apparent because investors are able to
generate high positive excess returns over a significant time frame.
Bangladesh government is more concerned about protecting the institutional investors (e.g.,
commercial banks, insurance companies) than about individual small-scale investors. Because
institutional investors are actually managing their investment generated by deposits/premiums of
thousands of small-scale individual investors, the government gives the top priority while
protecting investors from massive market failure. In the most recent market crash in 2008,
Bangladesh Government protected the commercial banks by offering them opportunities for safe
liquidation of assets from the capital market.
3. Government Facilitation:
Foreign hedge/frontier funds want to have a long-term exposure to the capital market of
Bangladesh. From that perspective, foreign hedge/frontier funds are more important than
individual small-scale investors who invest from a short-term perspective. The government
facilitates the long-term foreign investors by giving them protection and safe capital
preservation.
JP Morgan has given a Frontier Five status to Bangladesh considering its above-average growth
opportunities and potential for higher positive excess return from a long-term perspective.
Bangladesh has also been given an Emerging Eleven status in another research report published
by Goldman Sachs.
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investors have a tendency to move their capital into a less structured environment where there
are still opportunities of massive development and returns resulting from that. Bangladesh is
offering that kind of opportunity to the foreign investors.
3.19.2 Weakness:
1. High Volatility:
The major weakness of the capital market of Bangladesh is its sensitivity to high unpredictability
of returns. High volatility also means that investors will be entitled to high returns also. But it
has been evident from the recent market failure that the risk profile of Bangladesh is quite high.
This high risk often makes the investor base vulnerable to massive losses. The fact is also
concerning when the loss has to be borne by investors who invest in the market for the first time
or who is not responsible for any market bubble.
There is a lack of qualified and resourceful human capital base. In most of the companies
operating in the capital market, there are no efficient bases of human capital for which operation
of the entire market is often inefficient and depends on rumor news. Besides, lack of expert
manpower also means that investors will not be able to get quality and relevant information
about the capital market in time. There also arises another problem when investors want some
advisory or consultancy services from the manpower concerned.
The market is not driven by research knowledge. So, equity firm employees are not encouraged
to do relevant research on the listed securities. This is the primary reason for which the
employees working in equity firms cannot deliver the investors with investment ideas from a
long-term perspective. Fear exists among those investment employees that if they give some
long-term advice about investing in a security to the clients and after that the price of that
security falls, the clients might think that they are not capable of handling advisory role
successfully.
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The entire market is said to be driven by insider information and insider trading. Employees
working in the equity firms are said to be involved with insider trading as they have adequate
prior knowledge and ideas of different press releases. These sorts of prior information have made
them able to able to front-run general investors by buying or selling securities much ahead of the
investors.
Recently, the merchant banks have been blamed by experts from all corners as they have
involved in massive-scale market manipulation. These merchant banks have artificially
manipulated the market in favor of their institutional investors by Omnibus accounts which
cannot be tracked by SEC on an account-by-account basis. Other sorts of market manipulation
(e.g., block trading) are also responsible for sudden rise or fall in particular securities. Asset
management firms sometimes artificially inflate the share price by issuing bonus/right shares
which have no economic reason to justify.
6. Syndication:
It has recently been reported in some dailies that institutional investors form syndication with
equity firms so that the former can get the competitive advantage over retail investors. This
unequal status of investors all through the market has prompted further market inefficiencies in
the market.
There is no fixed pattern of investment by retail investors as they do not invest from a long-term
perspective. Their short-run investment is triggered by following few large-scale investors who
can control the entire market by controlling the demand and supply situation of securities. Retail
investors primarily follow the existing market pattern. When a particular stock goes down, they
immediately try to liquidate their investment and are thus faced with losses.
8. Day Trading:
Most of the investors are said to be day traders, meaning that they do not invest from a long-term
perspective rather they try to gain profits from day-to-day price movement. This day trading is
primarily responsible for unpredictable movement of the market that happens in DSE.
9. Market Rumor:
Apart from insider information, market rumor has been significantly responsible for the overall
market inefficiency. Retail investors often get trapped into market rumor and try to liquidate
their investment, resulting in a significant amount of loss.
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Most of the investors are not much educated. Lack of investor knowledge about particular
securities and the overall mechanism of the market is responsible for unpredictable market
movements. Because investors do not have sufficient knowledge and expertise, they are not
capable of investing from a long-term perspective and thus they have to depend on their brokers
when an investment decision has to be taken.
Excessive market volatility has made many retail investors reluctant to invest in the market for
long. Lack of investor trust is one of the reasons for which the market is now stagnant and less
liquidity has become a persistent problem.
Investors do not know which equity firms are better capable to serve them and guide them
throughout their investment horizon. In fact, there is not a single equity firm in Bangladesh
which has prohibited their employees from trading on specific securities. For this reason,
investors are disadvantaged to a high extreme because the employees at equity firms can execute
their own propriety trading far ahead of the investors themselves.
13. Weak Infrastructure:
Bangladesh stock market has not been able to provide an adequate infrastructure base for an
efficient operation of the market. Limited technology use coupled with lack of efficient
manpower has made the overall infrastructure very poor compared to that of other countries. It
has also been reported that the algorithm that is followed to determine DSE index is flawed and
this is why investors sometimes get concerned over price movements which are actually not
significant. It has also been reported that DSE index is not adjusted for splits, bonus shares,
rights shares, repurchases and other market activities effectively.
The SEC is the controlling body of the entire equity capital market of Bangladesh. Till date, the
regulatory oversight that the entity has tried to implement into the system of the market has not
been successful because of massive loopholes and scopes of non-compliance. Besides, frequent
changes in stock market rules and regulations are responsible for further complication of trading
in the market.
The supply of good and quality securities in the market is not high. Till date, most of the
multinational corporations have been away from the stock market. This sort of unwillingness to
be listed in the stock market is a hindrance for the long-term growth of the entire market.
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3.19.3 Opportunity
1. Considerable Economic Growth:
Though stated as a third-world economy, Bangladesh has seen a considerable GDP growth (i.e.,
around 5%-6%) in the last couple of years. It will be possible to earn high returns if the overall
capital market can be correlated with the broad economy. This will only be possible if the
investors will make considerable effort to conduct due research for each listed entity before
investment in its shares.
The government surveillance system is still unable to develop the entire market system.
However, the government is now trying to change the current scenario incorporating the need of
an efficient market structure and adequate market oversight.
Goldman Sachs has reported in a seminar that it will come to invest in Bangladesh in 2-3 years
as the future prospect of the country’s stock market and the overall economy looks promising.
3.19.4 Threats
Frontier markets like SriLanka and Pakistan are far ahead of Bangladesh in implementing an
efficient market because of technical as well as human resource base. Bangladesh may not be
able to attract of adequate foreign funds if these other markets look much more profitable in the
long run.
The geographic limitation of Bangladesh is one of the major problems that make ways to price
bubbles. Because investors do not have much wide scope for investment, they end up investing
in a concentrated base. This leads the way to price bubble and subsequent market failures. So,
investors might avoid the stock market for a long period of time. Possibility of a price bubble.
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4.1 Recommendations:
Capital market in Bangladesh is now going through a hard time currently as there are some
upheavals in the market and there exists an upsetting condition in the stock markets. But as per
the past occasion, it is evident that our current capital market as a good ground now for future
developments. We should take this opportunity to boost up the market as well as contribute to
our economy. In, addition, our mindset needs to be changed regarding earning profit from the
capital overnight. Foreign investments also need to be increased o ensure a sound capital and
along with this, the government should make an authentic list of the companies that has
credibility and accountability. If we can develop our capital market, it will definitely enhance our
national economy.
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Ensuring more Companies Listing are Fundamentally Sound, Well-reputed:
With the improvement of corporate governance, we can attract sound corporate to come to
capital market;
- Quality scrip’s provide liquidity and motivation for educated investors to participate in
capital markets.
- Listing of large, reputable corporate attracts foreign investments, increases liquidity.
- Introduction of new scrip’s in different sectors provides investors with broader options.
- Inclusion of well reputed, large cap companies will reduce ability of select “investor
syndicates” to manipulate prices.
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4.2 CONCLUSION
Thorough various forms of reforms and automation the capital market of Bangladesh won the
confidence of investors from all walks of life. It is a fact that capital market outperformed money
market by far in the last couple of years but that was only possible due to the uniform and state
of the are technology that has been used as the platform of our capital market. In addition to that,
the government facilitated our capital market by structuring its monetary and fiscal policies in a
pro-capital market manner.
Our emerging economy mostly invited the funds form all over the world. Market capital has
shown amazing growth. Although Current market price earnings ratio is higher than that of the
neighboring country but it is my belief that considering the demand for lack of avenue to invest,
the capital market of our country has a bright and attractive future and untapped sector.
Developing countries which accounts for 75% of the world's population, have an enduring need
to attract capital and technology to improve their infrastructure and standard of living.
Developing economies, thus, look forward to their capital markets as the engine for future
growth as its existence ensures mobilization of surplus funds to the ones suffering from deficit.
In Bangladesh we have a capital market that is yet to be further nurtured to get the fruit out of it.
Without doing this we cannot undergo heavy industrialization and other capital based
development. We have various problems like the market has been suffering from inadequacy of
good scripts. Out of around three thousands public companies, only two hundred and twenty
have issued securities keeping a large number away from the securities market.
It is further observed that Government is still holding lion portion of many blue chip company
shares. We must overcome this sort of problem to strengthen our capital market. Various
methods and policies may be adapted regarding this, but the investors’ mindset is one of the
most important things that must be changed to ensure the development of the market. If we can
strengthen the market properly, it is only then we can have a sound economy in terms of capital
and related developments in our country.
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Bibliography:
6. Websites-
www.bangladeshstockmarket.com
www.bangladeshbank.org
www.secbd.org
www.dsebd.org
www.csebd.org
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