Stock Market of Bangladesh Essay Example

a burning issue in our country to take some precautionary steps immediately.

Thus our port is entitled to analyze the problems that stock market is currently facing and providing some solutions. 3. Methodology: The report consists of secondary information and was collected from several books, journals and websites'. Data are also collected from various issues of annual report of Securities and Exchange Commission (SEC) of Bangladesh, Quarterly Review of SEC, Monthly Review of Dacha Stock Exchange (DES), Statistical Year Book of Bangladesh, Website of Dacha Stock Exchange, and Website of SEC Bangladesh Stock Market At a glance 1. What is Stock?

Some portion of the company sold to public is called stock. If a company has 200,000 stocks outstanding it meaner the company has been divided into 200,000 units and different people own some unit. These units are called stocks. When someone purchases any stock or equities he or she becomes the partial owner of the company. It entitles the owner to vote at the shareholders meeting and allows the owner to receive any profit that the company allocates to its owner or shareholders. These profits are referred to as dividends. Stock gives highest return by its appreciation value and dividends.

On the contrary stocks also provide high risk while trading. Many companies do not give dividends and there is not obligation for the companies to pay dividends. Hence only way to get return is appreciation (increase in price of stock over time) value of stock which may not happen and the shareholder may lose his money if stock prices goes low or the company goes bankrupt. 2. What is Stock Market? Stock Market (also

called Stock Exchange or Share Market) is one important constituent of capital market. Stock Market is an organized institute for the purchase and sale of security.

It is convenient place where trading in securities is conducted in hysteretic manner as maintain rules and regulations. A stock broker handles all the transactions and makes money off each transaction. It is an investment intermediary and facilitates economic and industrial development of a country. Stock Market is indispensable for the smooth and orderly functioning of corporate sector in a free market economy. A stock exchange should act as a place for safe and profitable investment, for this, effective control on the working of stock exchange is necessary.

This will avoid misuse of this platform for excessive speculation, scams and other undesirable and anti-social activities. It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capital market. It consists of Central Depository Bangladesh Limited (JDBC), the only Central Depository in Bangladesh that provides facilities for the settlement of transactions of demoralized securities in CASE and DES. 1st century stock markets are almost invariably hosted on computer based Electronic trading systems; most can be accessed only by entities within the financial sector or the treasury departments of overspent and corporations, but some can be accessed directly by the public. There are many thousands of such systems; however mostly are only serving a small parts of the overall capital markets. 3. What is Inefficient Stock Market? Inefficient stock market meaner that the market is not stable and healthy for the investors. In the inefficient

market the price level fluctuates so much.

For that no one can predict that how long the price of a security will be same. For that market cannot absorb large number of securities without charging price level. The main reason share market fall is for the inefficient market. Last year we have experienced a huge crash in Dacha and Chitchatting Stock exchange. Still the market is inefficient. If we would recall, Dacha Stock Exchange Gene. Index (OGDEN) soared to its highest levels from October to December last year, with the peak on Deck. 5, 2010 at 8,918 points. Deed's index on Jan. 3, 2010 was at 4568. 40 and went up at a staggering 4,350 points or 95. 3% increase! But seeks later, Jan. 10, 2011, trading on the Dacha Stock Exchange was halted after it fell by pinpoints, or 9. 25%, in less than an hour, the biggest one- day fall in its 55-year history. 4. How stock market works? Stocks are traded in the stock market. The trade in conducted either on floor or in exchanges. Stock exchange acts as a market place for trading stock through broker in our country. One can buy or sell stock using his or her broker website. The anticipated trader can see the offer price or bid price for any stock in his broker's website or any application given by the broker.

In addition to broker before trading a stock in the stock market it is always better to consult with someone who has more knowledge about the recent incidents of the stock market. Furthermore there are also many third party applications for trading as today the

trading is done through electronic media. As there are two major stock markets in Bangladesh, DES & CASE, regulated by SEC, trades are conducted here. Any company has to be listed by SEC in one or more of the exchanges before issuing stock. 5. What is Stock Market Crash?

The most significant problem that share market face is the crash in stock prices. A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles. Stock market crashes are social phenomena where external economic events combine with crowd behavior and psychology in a positive feedback loop where selling by some market participants drives more market participants to sell.

There is no numerically specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bangladesh Stock Market 1 . History of Bangladesh Stock Market: Our stock market which was initially named as "Stock Exchange Association Ltd" in 1954 and started its Journey from East Pakistan. First formal trading started in 1956. After six years of trading its name was renamed to "East Pakistan Stock Exchange Ltd", remember it was in 23 June, 1962.

Two years passed and in 13th may 1964 again it was renamed to "Dacca Stock Exchange Ltd". We all know that our liberation year took place

in 1971, a nasty war killed many Muslim Bangladesh as well as Hindu Bangladesh, and so the market collapse at that time and it didn't operate for five years. In 1976, share market got its life back and started its Journey in a free country named "Bangladesh". On September 16th 1986, DES was born. Now in this twentieth century there are two main stocks market in Bangladesh. One is called Dacha Stock Exchange and other one is called Chitchatting Stock Exchange.

The automated trading was initiated in 10 August 1998 and started on 1 January 2001. Before 1998 there was all papers, no perfect calculation was there. One can apply for several times for a primary share, share prices were increasing by people mouth to mouth, above all before 1998 there was high manipulated game going on our stock market. As a result it's collapsed in 1996, many people became hopeless, they were terrified, and they didn't want to get involved again in share market. There was very low volume trade going on and no manipulation game took place after the crash.

After years of struggling "Central Depository System" was initiated in 24th January 2004. People got confident again about the stock market because all things were computerized. They were again involving themselves in stock market. The volume of returning investors were quite low but there were new investors coming forward to the share market. It stared to work on full pace form 2005. . Structure of Bangladesh Stock Market: Bangladesh has two Stock Exchanges, Dacha Stock Exchange (DES), Chitchatting Stock Exchange (CASE) and Bangladesh Securities Exchange Commission (BEES) regulated by Ministry of Finance. .

Dacha Stock Exchange (DES): The necessity of establishing a stock exchange in the then East Pakistan was first decided by the government when, early in 1952, it was learnt that the Calcutta Stock Exchange had prohibited the transactions in Pakistani shares and securities. The Provincial Industrial Advisory Council of Pakistan soon thereafter set up an organizing omitted for the formation of a stock exchange in East Pakistan. A decisive step was taken in the second meeting of the organizing committee held on the 13th march, 1953.

In the cabinet room, Eden building, under the chairmanship of Mr.. A. Killable, secretary of the government of East Bengal, commerce, labor and industries department at which various aspects of the issue were discussed in detail. Then the central government's proposal regarding the opening a branch of Karachi Stock Exchange at Dacha did not find favor with the meeting who felt that East Pakistan should have an independent stock exchange. The 8 promoters incorporated the formation as the East Pakistan Stock Exchange Association Ltd. On April 28, 1954 (28. 04. 954). As public limited company the name was revised to East Pakistan Stock Exchange Ltd on June 23, 1962 (23. 06. 1962). Again on 14. 05. 1964 the name of "East Pakistan Stock Exchange Ltd" was changed to "Dacha Stock Exchange Ltd". Although incorporated in 1954, the formal trading was started in 1956 at Maryanne after obtaining the certificates of commencement of business. But in 1958 it was shifted to Dacha and started functioning at the Marooning Chamber Building in Mitchell C/ A. On 1 . 10. 1957 the stock exchange purchase a land measuring 8. 5 Kathy at

IF Mitchell C/A from the government and shifted the stock exchange to its own location in 1959. In Short 59 Years Journey of DES: Incorporated as East Pakistan Stock Exchange Association Ltd. 28 Par. 1954 Stared Formal Trading 1956 Renamed as East Pakistan Stock Exchange Ltd. Renamed Cajun. 1962 as Dacca Stock Exchange Ltd. Restarted in Bangladesh Price Index Calculation Started on the 13 May. 1964 Trading Starting of DES all-Share 16 Gauge. 1976 16 cot. 1986 01 NOVO. 1993 Formula Starting of Automated Trading Ђ DES all-Share Price Index Calculation basis of designed 10 Gauge. 998 Starting of DES 20 Index Starting of CDC Starting of Gobo. Bond Market 01 Jan. 2001 24 Jan. 2004 DES all-Share Price Index Re-introduced 01 Jan. 2005 28 Mar. 2005 Direct Listing Regulations 2006 Introduced Inaugurated 12 Par. 2006 DES Chitchatting Office 22 NOVO. 2007 DES sylphs Office Inaugurated 30 Mar. 2008 Book-Building Method Introduced Web Based Trading Software-MASS Plus Introduced Management: 2010 10 June. 2012 The management and operation of Dacha Stock Exchange is entrusted on a 25 members Board of Director.

Among them 12 are elected from DES members, another 12 are selected from different trade bodies and relevant organizations. The CEO is the 25th ex-officio member of the board. The following organizations are currently holding positions in DES Board: Bangladesh Bank CB President of Institute of Chartered Accountants of Bangladesh President of Federation of Bangladesh Chambers of Commerce and Industries President of Metropolitan Chambers of Commerce and Industries Professor of Finance Department of Dacha University President of DDCD (Dacha Chamber of Commerce and Industry) Legal Control:

The Dacha Stock Exchange (DES) is registered as a

Public Limited Company and its activities are regulated by its Articles of Association rules & regulations and by-laws along with the Securities and Exchange Ordinance - 1969, Companies Act- 1994 & Securities & Exchange Commission Act - 1993. The Major Function of DES: Listing of Companies (As per Listing Regulations). Providing the screen based automated trading of listed Securities. Settlement of trading (As per Settlement of Transaction Regulations). Ђ Gifting of share / granting approval to the transaction/transfer of share outside the trading system of he exchange (As per Listing Regulations 42). Market Administration & Control and Market Surveillance. Publication of Monthly Review. Monitoring the activities of listed companies (As per Listing Regulations). Investor's grievance Cell (Disposal of complaint bye laws 1997). Investors Protection Fund (As per investor protection fund Regulations 1999). Announcement of Price sensitive or other information about listed companies through online.

Trading Sessions: The Dacha Stock Exchange is open for trading Sunday through Thursday between 1 1 :Moa - 3:pm BEST, with the exception of holidays declared by the Exchange in advance. DES conducts trading in-4-phases. Enquiry: In this session Brokers can logon to the system. No order will be submitted in this session. No trade will be executed. Only previous orders can be withdrew in this session Opening: The Opening is a pure, single-price auction. All buy and all sell orders are compared and calculate the open-adjust price.

No trades will be executed in this session Continuous Trading: During this phase, participants enter orders and immediate execution or for inclusion in the book. Automatic matching and execution takes place based on best price/ first in, first out trading rules Enquiry: Closing

prices are lactated and disseminated to market participant. Market will be closed in this session & other facilities like the previous enquiry session. Company Listing By Category: SSL I Category Name 1475 I No. F Companies 112 114 18 13 119 Chitchatting Stock Exchange (CASE): Background: IN The Chitchatting Stock Exchange (CASE) began its Journey in 10th October of 1995 from Chitchatting City through the cry-out trading system with the promise to create a state- of-the art bourse in the country. Founder members of the proposed Chitchatting Stock Exchange approached the Bangladesh Government in January 1995 and obtained the remission of the Securities and Exchange Commission on February 12, 1995 for establishing the country's second stock exchange.

The Exchange comprised of twelve Board members, presided by Mr.. Emir Chorus Muhammad Chowder (PM) and run by an independent secretariat from the very first day of its inception. CASE was formally opened by then Honorable Prime Minister of Bangladesh on November 4, 1995. Vision & Mission: Aspire a global standard transaction place of securities and financial product. Practice a set of core values to build competency in compliance, diversification and genealogy so that an accessible platform, market confidence and wealth minimization scope can be ensured.

Objectives: Increase business turnover Modernize trading system Ensure effective relationship management Achieve high level of confidence & professionalism Engage in product and market diversification Contribute to capital market policy development Ensure exchange related quality services Milestones Of CASE: 12th February 1995 I illustrate 1995 10th October 1995 1 1st January 1996 I Received approval of Bangladesh Government I Incorporated as a limited company

I Introduced Floor Trading I Became corresponding member of

World I Federation of Exchanges (Former FIB) and June 1998 16th January 2000 12th January, 2004 1 30th May, 2004 1 14th July, 2004 I Introduced Automated Trading on WAN I Convened South Asian Federation of Exchange (SAFE) I Central Depository Bangladesh Ltd. (JDBC) formed I Internet Trading Service launched (ITS) I Introduced Over-the-counter (ETC) market 1 14th July, 2004 formal proposal ICES initiates the idea of Securities Institute by raising 1 14th Deck, 2005 First of its kind in the country I Organizes Capital Market Fair- 1 10th March, 2007

I Introduced Comprehensive Training Program on Stock Market for investors, professionals I land others. First of its kind in the country 1 12th June, 2007 Derivatives I Submission to BEES of draft Regulatory Framework on Financial 1 118 October, 2008 ICES became a member of OIC Member States' Stock Exchange Forum 1 128 Novo, 2010 signed a contract with Millennium IT Software Ltd. ND Polaris Software I Lab Ltd for Next Generation Trading System (ANGST) ICES I | 13 Jan, 2011 I Ill seep,2011 I Execution of trade of Short Sell under the Regulations I Signing of agreement for launching electronic fund ranges through Bangladesh Network (BEFIT) I Electronic Fund Transfer 1 120 October,2011 Next Generation Trading System (ANGST) and the new website Legal Beasts Of CASE: As legal entity CASE is a not-for-profit public limited company. All of its 129 members are corporate bodies.

It has a separate secretariat independent of policymaking Board. The Board comprises of brokers and non-brokers directors with equal proportion to ensure the transparency. The Board constituted Committees to delegate such functions and authority as it may deem fit.

There is an independent secretariat headed by a full time Chief Executive Officer. CASE activities are regulated by its own regulations and bye laws along with the rules, orders and notification of the BEES.

Core values: Value for people Transparency Excellence Harmony Commitment Integrity Company listing by Category: 1224 115 113 The activities of the four categories are same in both DES and CASE. Those activities are: 1) A category: Provide 10 percent dividends or stock every year. They are regular in all the GM and GEM. They gave 10 percent cash every year. 2) B category: More than 5 percent and less than 10 percent dividend or stock is given. They are also regular in GM and GEM. 3) N category: Those who have new shares. ) Z category: GM and GEM are not regular. They also don't provide dividend. Securities and Exchange Commission (SEC): The Securities and Exchange Commission (SEC) is the regulator of the capital market of Bangladesh, comprising Dacha Stock Exchange and Chitchatting Stock Exchange. The Commission is a statutory body and attached to the Ministry of Finance. The Bangladesh Securities and Exchange Commission (BEES) was established on 8th June, 1993. Earlier its name was Securities and Exchange Commission (SEC).

Through an amendment of the Securities and Exchange Commission Act, 1993, on 10 December 2012, its name has been changed as Bangladesh Securities and Exchange Commission. The Chairman and Commissioners of the Commission are appointed by the government and have overall responsibility to formulate securities legislation and administer as well. The Commission is a statutory body and attached to the Ministry of Finance. Mission: Protect the interests of securities investors Develop

and maintain fair, transparent and efficient securities markets Ensure proper issuance of securities and compliance with securities laws.

Functions: 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. Conducting research and publishing information.

Various Department of Securities and Exchange Commission: Administration & Finance (A) Department Capital Issue Department (Initial Public Offering has been renamed) Capital Market Regulatory Reforms & Compliance (COMER) Department Central Depository System (CDC) Department Corporate Finance Department (CUFF) Enforcement Department Law Department Management Information Systems (MIS) Department Special Purpose Vehicle Registration & Licensing Department Mutual Fund & Research & Development (R) Department Supervision & Regulation of Markets and Issuer Companies (SCRIM) Supervision & Regulation of Intermediaries (SIR) Department

Department Synopsis of Bangladesh Stock Market Current State of Stock Market: Surveillance Over the last few years, the capital market of Bangladesh has witnessed unstable growth, which has not been in

line with development in the real economic sector. Although, the Securities and Exchange Commission (SEC) of Bangladesh has tried to correct the irregular behavior observed in the market, very often it is argued that lack of proper decisions from the regulator's side has contributed to make the market more unstable. Ђ Stock Market Crisis of 2006: One of the significant crises that Bangladesh capital market faced was in 1996. The benchmark price barometer of DES, General Price Index (OGDEN), increased by 139. 3 percent during 1991-1995 and stood at 834. 7 at the end of 1995. It recorded a remarkable increase of 337 percent in 1996. From the beginning of 1996, stock prices moved to the pressure of the market bubble. From July 1996 EDGING grew at an accelerated rate reaching its peak at 3648. 7 on 5 November 1996 - an increase of 280. 5 percent from the index of 959. , at the end of June. Later that day the bubble burst and market crashed, as share prices of companies slumped. During the next year the OGDEN lost 2892 points. Form then to the end of 2003, the capital market price index was below 800. Stock Market Crisis of 2011: Again on January 10, 2011, the OGDEN dropped 660 points within the first 50 minutes of the trading session. It started when from January 2010 to December 2010, the OGDEN marked an increase of 80 percent, daily turnover rose by 60 percent and the number of 8. 0. Count holders reached 3. 21 million from 1. 25 million I. E. An increase of 154 percent. On the other hand, in the PAYOFF our

GAP had grown only by a mere 5. 5 percent. This clearly indicates that the capital market growth had been an unsustainable one and any unmatched growth with the real economy will not sustain in the long run. From the graph we can identify that, during the 4-year period since January 2009, the DES general index has increased to approximately 9000 in the year 2011 but its already decreased to 4000 in 2012.

Dramatic increase in new investors indicates that the market might be overcrowded with naive and uninformed investors that might lead more speculation in the market. Though currently the government is sticky regulating the stock market to prevent it from any sever crash, and thus the market is operating at a normal pace, however tit such uncertainties' in the market any time any devastating situation can occur.

In some extent the crash of 1996 is acceptable as in 2011 trading was automated, investigation was strong and circuit breakers and international protections were in place, unlike back in 1996. All these positive developments have opened up the potential for the stock market to become a real alternative to immobile funds for investment, moving away from the traditional dependence on the banking system. From any sever crash, and thus the market is able to develop form every side.

However, while welcoming these developments, we also observe a number of stubbing phenomena, which, if unattended, may seriously undermine the sustainability of this positive trend. Significance of Healthy Stock Market: From the view of economic and financial literature both banking and stock market developments play important roles in output expansion, capital formation, and productivity gains, even after

controlling for many other factors associated with long- run economic performance of an economy.

Beyond the macro-economic relationship, even micro-economic studies of finance and growth, and firm-level data also find that financial development disproportionately boosts the growth performance of industries that are naturally heavy users external finance. The banking sector, which dominates the financial sector in Bangladesh, has served the economy very well, and its coverage is broadly comparable with other developing countries. However, equity markets which generally serve as the second most important pillar of the financial sector, have significantly lagged behind in Bangladesh.

The recent increase in investor interest in the Bangladesh capital market, as reflected in terms of market capitalization and turnover, has significantly changed this situation; the capital racket is gaining its position as a sizable source of investment financing after the banking sector, which is a welcome development. Market developments and sustainability depend on market fundamentals, and the fundamental strength of the market essentially comes from financial strength of the listed enterprises.

Strong regulatory environment created and maintained by the regulatory bodies (like the SEC) and participation of institutional investors and professional market analysts help orderly market operations. The problem comes when market prices overshoot fundamentals in a big way, transactions become speculative, and market becomes unstable in terms of prices, turnover, and volatility. Such developments are not new in Bangladesh; we experienced it in the boom and bust of 1996.

The global landscape is also littered with such boom and bust episodes, the recent ones being: the crash of the US stock markets in 2000 (NASDAQ tumbling from 5,100 to less than 1,600); Japanese stock market crash of 1989

with Nikkei tumbling from 31,000 to less than 10,000; the crash of ICC (Saudi Arabia, AJAX, Kuwait, and Qatar in particular) stock markets in 2005; and more recently the crash of Chinese stock markets in 2007. It must be kept in mind that a sharp rise in stock prices does not necessarily mean formation of a bubble.

Sometimes stock prices may rise sharply across the board when some things change fundamentally in the economy or in the economic outlook, as happened in the case of Spanish and Irish stock markets on the eve of their joining the ELI. Several East European (former Soviet Bloc) countries also experienced surges in their stock markets because of their anticipated integration with the ELI. Furthermore, no two bubble episodes are exactly the same across countries or across