Capital Market

Capital Market is one of the significant aspects of every financial market. Hence it is necessary to study its correct meaning. Broadly speaking the capital market is a market for financial assets which have a long or indefinite maturity. Unless the capital market instruments become mature for the period above one year. It is an institutional arrangement to borrow and lend money for a longer period of time. It consists of financial institutions like IDBI, ICICI, UTI, LIC, etc. These institutions play the role of lenders in the capital market. Business units and corporate are borrowers in the capital market. Capital market involves various instruments which can be used for financial transactions. Capital market provides long term debt and equity finance for the government and the corporate sector. Capital market can be classified into primary and secondary markets. The primary market is a market for new shares, where as in the secondary market the existing securities are traded. Capital market institutions provide rupee loans, foreign exchange loans, consultancy services and underwriting.

Functions of Capital Market

Like the money market capital market is also very important. It plays a significant role in the national economy. A developed, dynamic and vibrant capital market can immensely contribute for speedy economic growth and development.

1. Mobilization of Savings: Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. In that sense it activate the ideal monetary resources and puts them in proper investments. 2. Capital Formation: Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation. 3. Provision of Investment Avenue: Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provides diverse investment avenue for the public.

4. Speed up Economic Growth and Development: Capital market enhances production and productivity in the national economy. As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in, increasing production and productivity in economy by generation of employment and development of infrastructure. 5. Proper Regulation of Funds: Capital markets not only helps in fund mobilization, but it also helps in proper allocation of these resources. It can have regulation over the resources so that it can direct funds in a qualitative manner. 6. Service Provision: As an important financial set up capital market provides various types of services. It includes long term and medium term loans to industry, underwriting services, consultancy services, export finance, etc. These services help the manufacturing sector in a large spectrum. 7. Continuous Availability of Funds: Capital market is place where the investment avenue is continuously available for long term investment. This is a liquid market as it makes fund available on continues basis. Both buyers and seller can easily buy and sell securities as they are continuously available. Basically capital market transactions are related to the stock exchanges. Thus marketability in the capital market becomes easy.

Bangladesh Capital Market

The capital market is the engine of growth for an economy, and performs a critical role in actingas an intermediary between savers and companies seeking additional financing for businessexpansion. Vibrant capital is likely to support a robust economy. While lending by commercial banks provides valuable initial support for corporate growth, a developed stock-market is animportant prerequisite for moving into a more mature growth phase with more sophisticatedconglomerates. Today, with a $67 billion economy and per capita income of roughly $500,Bangladesh should really focus on improving governance and developing advanced market products, such as derivatives, swaps etc.Despite a challenging political environment and widespread poverty, Bangladesh has achievedsignificant milestones on the social development side. With growth reaching 7 percent in 2006,the economy has accelerated to an impressive level. It isnoteworthy that the leading global investment banks, Citi,Goldman Sachs, JP Morgan and Merrill Lynch have allidentified Bangladesh as a key investment opportunity. TheDhaka Stock Exchange Index is at a 10-year high, however,the capital market in Bangladesh is still underdeveloped, andits development is imperative for full realisation of thecountry's development potential.It is encouraging to see that the capital market of Bangladeshis growing, albeit at a slower pace than many would like, withmarket development still at a nascent stage. The market hasseen a lot of developments since the inception of the Securitiesand Exchange Commission (SEC) in 1993. After the bubble burst of 1996, the capital market has attracted a lot moreattention, importance and awareness, that has led to theinfrastructure we have in the market today.
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Problems of capital Markets in Bangladesh

The unexpected rise and fall in share prices mostly followed from the general confidence of the investors about political stability, euphoria of investment in shares, prospect of quick capitalgains, a vacuum in respect of institutional presence in the share market, monopolistic dominance of member brokers, inefficiency of the SECS to cape

the developments, existenceto Kerbm a r k e t , a b s e n c e o f p r o p e r a pplication of circuit breaker etc. Delivery versus payment mechanism was used as one of the main vehicles of manipulation. Kerb market gave birth fake and forged share certificates. Although there are increasing trends in all the indicators, DSE,CSE are not free from problems, The problems of DSE, CSE may be summarized as under:

Price manipulation It has been observed that the share values of some profitable companies has been increased fictitiously some items that hampers the smooth operation of Stock market. Delays in Settlement: Financing procedures and delivery of securities sometimes take an unusual long time for which the money is blocked from nothing. Regulations in Dividends: Some companies do not hold Annual General Meeting(AGM) and eventually declare dividends that confused the shareholders about the financial positions of the company

Selection of Membership: Some members being the directors of listed companies of DSE, CSE look for their own interest using their internal information of share market. Improper financial statement: Many companies do not focus real position of the company as some audit firms involve incorruption while preparing financial statements. As a result the shareholders as well as investors do not have any idea about position of that company.

OTHER
The concept of centralization of the securities market has not been implemented that arise technical problems and political infighting. The intrinsic values for securities traded are sometimes estimated without considering the current market prices of the securities. The absence of comprehensive legal and supervisory framework. Lack of skilled manpower as well as financial and non-financial institutions involved in the securities market. The lack of proper policy framework that provides incentives and protection to investors The dominance of bigger public sector and borrowing of public sector as well as government form the institutional sources rather than the market.

Suggestions to improve the activities of Stock Market

To introduce automated monitoring system that may control price manipulation, malpractices and inside trading. To introduce full computerized system for settlement of transactions. To force the listed companies to publish their annual reports with actual and proper information that can ensure the interests of investors. To control and abolish kerb market form premises of stock market. To take remedial action against the issues of fake certificates. The composite Quotation system (CQS) should be introduced

and implemented that available the exchange specialist bid-ask quotes to the subscribers. To make arrangement to set-up merchant banks, investment banks and floatation of more mutual funds particularly in the private sectors. Banks, insurance companies and other financial institution should be encouraged deal in share business directly. The brokers should not be allowed to deal in the Scripps on their own accounts. The management of DSE and CSE should be vested with professionals and should not in any way be linked with the ownership of stock exchange and other firms.

Major future prospects that will change the Stock Market

Within 3 to 6 months 8 large profitable government enterprises are going to be listed under Direct Listing Method adding value worth another 1 billion Dollar. The Telecom Giants in Bangladesh are finalizing their offers for IPO in the market. Power and energy sectors demand for capital is 5 to 10 billion dollar within short time tomeet the immediate needs of 5000 MW power demand. A deep sea port requiring 1 billion dollar is going to start with a policy decision that itwill also be listed. The Pharmaceutical sector and API enjoying WTO benefit is growing sharply Textile sector as backward linkage to thriving export oriented garments industries is booming. Export oriented food processing industry needs huge capital and technical capacity tomeet the growing standards in global market for marine food, fruits and poultry. IT sector with our talented developers, yet to demonstrate the massive potentials of software industry of the country.