Premier University

Term paper
On
“Stock Market in Bangladesh”

Submitted to:
Mr. Syed Moinur Rashid
Lecturer
Management Discipline
Department of Business Administration
Premier university

Submitted by:
Abdur Rahman
ID: 1503210108701
Management Discipline
Department of Business Administration
Premier university

Date of submission: 12-04-2020

Letter of Transmittal

Date: 12-04-2020
Mr. Syed Moinur Rashid
Lecturer
Department of Management
Faculty of business studies
Premier university

Subject: Submission of Term paper on “Stock Market in Bangladesh”

Dear Sir,
With immense pleasure, I would like to submit my term paper on “Stock Market in Bangladesh”.
To complete my Bachelors of Business Administration program, this report is a pre-requisite.
In this report I have tried to analyze Stock market in Bangladesh. I have prepared this report in a
details format with adequate information search and I have tried my level best to conduct this in
a professional manner. It is true that, it could have been done in a better way if there were no
limitations. I hope you will assess my report considering the limitations of the study.
I will be obliged if you accept my report and grant your final evaluation remark in order to
acquire my graduation accreditation. Thanking you in advance.
Sincerely,
……………...
Abdur Rahman
ID: 1503210108701
Management Discipline
Department of Business Administration
Premier university, chattogram
 Acknowledgement
At the beginning I would like to express my deepest gratitude to the Almighty Allah for giving
me the strength & the composure to complete the report. I feel satisfied and glad that I have
completed this study within specific duration. This report might never have been completed
without the necessary practical knowledge, assistance of many books, articles, and websites. It
enhanced my knowledge on “Stock market in Bangladesh”.
A special gratitude we give to our honorable teacher Mr. Syed Moinur Rashid., lecturer, who’s in
the Management Discipline, Premier University. Who believe that I could terminate the term
paper on time. His moral guidelines, endless effort, and joyful encouragement made me
successful in this term paper.
Furthermore I want to show my appreciation to the executives, to the librarian of premier
university and to the lab assist ant of the computer labs, for their unlimited patience during the
time of research writing.
 EXECUTIVE SUMMARY
At some point of every business cycle companies need to raise stock for further growth of the
companies’ business operation. To accomplish those, companies can either borrow money from
other business entities or from bank or companies can raise the amount by selling ownership of
the company. This sale of ownership is known as Issuance of Stock. Issuing stock is
advantageous for the company to pay back the money or make interest payments along the way.
The objective of this report is to analyze in the stock market of Bangladesh.
To accomplish this following specific objectives have been covered. To highlight the Bangladesh
stock market status with having book building method To identify the problems regarding this
method that impeded the development stock market in Bangladesh To suggest some important
policy measures regarding the development of Stock market.
My task is divided into seven major parts, which are Introduction Part, Overview Part, Market
Crash Part, Current state part, and Problems & Prospects part, Findings and Recommendations
Part and Conclusion.
Part one describes the introduction of my report, background of the study, objectives, scope and
limitations of the study. In Part two, I tried to describe in brief an overview Bangladesh stock
market (DSE, CSE, BSEC, BICM) and its history, mission, vision and major functions part three
I tried to describe in brief the two major crashes of stock market with their background and
reasons. Part four tells the present situations & update state of this stock market. Part five future
prospects, opportunities of the stock market and its emerging problems, pitfalls in two
exchanges. Part six Findings & Recommendations. And finally, Part seven Conclusion and
References
I have tried my best to accumulate relevant information in this report and make the report vivid
and comprehensive within the scheduled time and limited resources.
 CHAPTER 1
INTRODUCTION
1.1 INTRODUCTION
Stock Market of Bangladesh is still highly speculative and lacks transparency due to poor
regulatory framework. In Bangladesh, Financial sector was historically driven by banks and
stock market had fewer rules to play as people had mixed perception about the risk pattern in
stock market that discouraged them mostly to invest there.
But in the mid of ninetieths of last century stock market started to show vibrant behavior that
make people interested about the stock exchanges. As the index was rising sharply and everyone
was making money, many people started to invest their money to the heated market that made a
bigger bubble and finally the bubble bursts. Benchmark index came down to 700 point in
November 1997 from its highest 3600 point in November 1996. Thousands of investors lost their
money that made them reluctant to invest in the stock market again. It took one decade for them
to forget the history of collapse.
After that, regulators had taken many steps to stabilize the market. Hundreds of new issues came
to the market. Central depository, circuit breaker, online trading, etc. were introduced in the
market to attract investors. As a result, the market started to grow again. This time most investors
were new and young with little knowledge about stocks and did not care about market risk.
They invested their money and finally lost everything when the bubble started to burst in
December, 2010 that had started to grow from the year 2009. This time Benchmark index came
down to 4600 points in early July 2015 from its highest point 8918 in December 2010. Millions
of investors lost their money and came down to the street. This is the small picture of stock
market crashes in Bangladesh.
As such volatility affects mass people (many investors), it is essential to try to minimize such
volatility by identifying the causes (esp., Regulatory failure) and solving the problems.
In my study, I will try to floor the historical background as well as to identify the reasons of
major crashes and also to recommend some suggestions to minimize volatility and to create
efficiency of our stock market in future.
1.2 Objectives of the Report
Objective of the report can be divided into two parts. These are:

1. General objective
2. Specific objective

1. General objective: The general objective of the report is to find out the market scenario
and investors’ behaviors on capital market.

2. Specific objective: The specific objective of this topic is to find out the scenario behind
behavioral trend in Stock market. In the whole report, I will thoroughly discuss about Stock
market and also discuss about trend after market crash and the existing rules and procedures of
Stock market. Besides, in the report, I will discuss about the effective solutions, suggestions of
these problems highlighting prospects of our Stock market.

1.3 Methodology
While doing this Term paper, I have used both theoretical and practical elements for the Term
paper. And then compare and contrast both and come up with what is needed for the betterment
of the organization. Basically, I mix up the theory, analysis with the practical scenario and then
convey findings after Term paper.
The report is more descriptive with little calculative justice. The report is based on information
collected from secondary sources. The indicators which are responsible for recent crash are
measured by calculation. The trend of those indicators has also been measured for last three
years as presented.
To find out the critical issues of the past and existing scenario, I have collected secondary
information from various sources. I have emphasized on quantitative and qualitative data to
analyze the recent share market crash and its prevailing crisis in Bangladesh stock market. All
the quantitative data are extracted from Dhaka Stock Exchange website and qualitative data are
collected from published research journals, newspapers, websites etc.
1.4 Limitation of the Study
While doing this assignment, I have faced some problems. Even though I met some stock market
officials which was so helpful, but it has limitations while taking interview like time-constrain.
And for some extent, they do not want to give the whole information.
Other problems are basically from the organization. But there are also limitations from me.
Limitations of our knowledge as well as time. Limited information in website. Limited sources
to collect data. Unable to access some organizations
However, from the nature of the study it could be easily understood that respondents were hard
to reach. Lack of secondary source is another limitation that I have faced. In fact, I did find many
haphazard researches on this topic making me puzzled. However, I had to rely on other relevant
studies, books and websites for this purpose.

CHAPTER 2
LITERATURE REVIEW
2.1 Literature Review
A stock exchange, securities exchange or bourse is a facility where stockbrokers and traders can
buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock
exchanges may also provide facilities for the issue and redemption of such securities and
instruments and capital events including the payment of income and dividends.[citation needed]
Securities traded on a stock exchange include stock issued by listed companies, unit trusts,
derivatives, pooled investment products and bonds. Stock exchanges often function as
"continuous auction" markets with buyers and sellers consummating transactions via open outcry
at a central location such as the floor of the exchange or by using an electronic trading platform.

To be able to trade a security on a certain stock exchange, the security must be listed there.
Usually, there is a central location at least for record keeping, but trade is increasingly less linked
to a physical place, as modern markets use electronic communication networks, which give them
advantages of increased speed and reduced cost of transactions. Trade on an exchange is
restricted to brokers who are members of the exchange. In recent years, various other trading
venues, such as electronic communication networks, alternative trading systems and "dark pools"
have taken much of the trading activity away from traditional stock exchanges.

Initial public offerings of stocks and bonds to investors is done in the primary market and
subsequent trading is done in the secondary market. A stock exchange is often the most
important component of a stock market. Supply and demand in stock markets are driven by
various factors that, as in all free markets, affect the price of stocks (see stock valuation).

There is usually no obligation for stock to be issued through the stock exchange itself, nor must
stock be subsequently traded on an exchange. Such trading may be off exchange or over-the-
counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock
exchanges are part of a global securities market. Stock exchanges also serve an economic
function in providing liquidity to shareholders in providing an efficient means of disposing of
shares.
Stock
Stock or Share is the smallest part of ownership of an asset/company/firm. For example you have
a shop worth of Tk.10,000/= Now if you divide the ownership of the shop in 100 parts then
every part will be worth of 100 tk. Now each of the part is called a share/stock. Now if you buy
10 part/share from that 100 part then you are partially an owner of the shop/firm/company.

How it traded
For example if you want to transfer your part of ownership of the firm to other then you should
sale the deed of ownership to someone else. In that case you have to maintain some papers. For
example a sale deed will be signed and the deed will be registered in government registry office.
In case of stock when you buy stock/share of a certain company you will be given a share
certificate. This certificate certifies that you own that much part of the company. And you have
to register your ownership certificate with company's register. But due to some problems with
paper certificate - (such as copied certificate, maintenance of huge paper certificates) a new
system of electronic stock is made. In this system your stock is preserved in an electronic system
rather delivering you the paper shares. And you don't need to register your ownership. The
ownership is automatically transferred to you and preserved in an automatic system. This system
is called Central Depository Bangladesh Limited (CDBL). I will describe this CDBL system in
details later.

Stock exchange
Stock exchange is a organized place or arrangement where the buyer and seller is brought
together so they can buy sale their stocks/share. For example Dhaka Stock Exchange has a
electronic trading system called TESA and Chittagong Stock Exchange has an electronic trading
system called VECTOR. These two system work as an arrangement to help buy/sale of listed
securities.

Broker
A broker is an intermediary who works as an media to bring together buyer and seller. And it
takes commission form the buy/sales made. A broker must be listed member of any stock
exchange (i.e. - DSE, CSE).
Listed company and unlisted company
Companies or firms which are listed with stock exchanges are called listed public limited
company. On the other hand firms/companies those are not listed with any of the stock
exchanges are un-listed companies.

Can you buy stock/share of unlisted companies?

Definitely you can. But in that case you have to go the traditional method of buying or selling
process. For example at present if you want to buy sahre of Grameen phone you have ot go to
Telinor who is the major 62% share owner of Grameen phone or to the Grameen telecome which
is a subsidiary of Grameen bank who owns 38% of the Grameen phone shares and negotiate with
them so that they sale their shares to you. If they agree to sale any share/stock to you then you
can buy it and you have to go to register of joint stock companies and register your ownership
there. But the whole system will work avoiding the stock exchange as still it is an unlisted
company.

Securities and Exchange Commission (SEC)

It is the regulatory body of Bangladesh capital market. For your information stock exchanges are
called capital market as companies raise capital from here. SEC defines working process and
rules and policies under which the stock exchanges will operate.

Face value (FV) of a stock

This is the value assigned to a smallest part of ownership of a company. For example in case of
the previous example i gave the Face Value of a share of that shop is 100tk.

Market value (MV) of a stock?

When someone sees a good business prospect of a company then he may be will to buy it other
than the face value. It may be a higher price. For example at present SALAM still mill's stock is
trading around 190tk. So its market value (MV) is 190tk now. What is market lot (ML)?
Every firm has millions of stock in the market. If every piece of stock is traded separately it will
generate tedious clerical job and the system won't support so many trades per day. Moreover the
trading cost per trade will be intolerable. To face such problem stocks of different companies are
traded in bunches. Then every bunch is traded in the market. Every bunch is called a lot (market
lot). For example you have to buy at least 50 stocks at a time in a bunch if you want to buy GQ
ball pen's stock. So the market lot (ML) gor GQ ball pen's stock is 50.

Earnings Per Share (EPS)

Earnings per share indicates how much profit is earned per share. For example if GQ ball pen is
divided in 10 million stock and GQ ball pen makes a profit of 100million tk then earning per
share of GQ company is (100million tk / 10 million shares = 10tk.) 10tk. EPS is calculated
through dividing the total profit buy total number of securities/stock.

Price Earning Ratio (PER)

It indicates that what is the price of a stock in relation to EPS. Say GQ ball pens price is now 140
tk in the market and it's EPS is 10tk. Then it's price earning ratio (PER) is (140tk/10tk) 14 times.
It also indicates that if someone buy a GQ ball pen stock for 140tk today the company will earn
the same amount of earning for that stock in 14years.

Dividend
Its the portion of profit given to the shareholders. Dividend is usually expressed in percentage
basis or per share basis. For example now if GQ company declares a 80% dividend to the
shareholders it indicates that every shareholder will get 8tk per share. Dividend is calculated on
Face Value not on the market value. The dividend declaration depends on the profit earned by
the company, companies pay out ratio, investing policy etc.

Stock dividend
In some cases company may earn some profit. But it may need some extra money for further
growth of the company. In that case the company may retain the profit earned. It won’t declare
cash dividend. Rather it will declare stock dividend. In that case an investor will get a few more
stock of that company for free. For example if GQ declares a 80% stock dividend it means if you
hold 100stock of GQ ball pen you will get 80stock for free. This is a very nice system for
company growth. In this system company can retain its needed cash for further investment and
stock holders also get some benefit.

What is Right issue?

In some cases business may need immediate money in the middle of the year or for any reason.
May be it need some more cash for business growth. In that case the company can issue fresh
share in the market. But according to regulation the existing shareholders have the priority to buy
the shares. So when the company decides to issue new shares in the market at first it offers the
shares to existing shareholders of the company. As existing shareholders get the shares according
to their right it is called right issue. But if the existing shareholders decline to buy the new shares
the company can issue the shares to general public as fresh IPO.

Dividend yield
Dividend yield is the return calculated on your buying price resulting from declared dividend. If
ACI Company declares a 23% dividend and you buy ACI stock for 230tk. In that case you will
receive 2.3tk as dividend (Face value of ACI stock is 10tk so 23% on 10tk. is 2.3tk). But as you
bought the stock for 230tk your return is not 23% rather your return is 2.3/230=1% only. This is
called dividend yield.

Circuit Breaker
This is an automated system introduced by both DSE and CSE. In this system a specific stock
cannot increase or decrease more than a specific percentage point. For example say previous
days close price of Power Grid Company was 710tk. and the circuit breaker is 10%. It means
Power Grid will not rise more than 10% today even it won't fall more than 10% today. So in a
single day its highest price can be 710+710*10%=781tk and the lowest price will be 639tk. This
system is introduced to tackle unusual volatility in the stock market.
LTP
Last Trade Price of a specific company in a day. The latest trade took place in this price. Volume
Volume indicates how many stock of a specific company is traded in a single trading day.

High Price
This is the highest price of a stock in a single trading day.

Low Price
This is the lowest trade price in a single trading day.

Trade
It indicates how many transaction of a single stock took place in a day.

52 Weeks Range
It means that what was the highest and lowest price of a stock in last 52 weeks. For example if
today (28/03/2008) ACI's 52 weeks range shows 62-235 it means that ACI stock was traded
lowest at 62 tk in last 52weeks and highest 235tk in last 52weeks. Usually it is updated every
month on DSE website.
IPO
Initial Public Offering
When any company offers their stock to general public for the first time it is called Initial Public
Offering. A company can offer stock to the public again and again. Those are called Public
Offering.

Private Placement
When a company sells its shares to institutional or individual investors through private
negotiation rather offering their shares to the public it is called private placement.

Technical Analysis
Technical analysis means analyzing a stocks price trend based on its recent past trade pattern
(investigating volume, price trend, high, low, close etc). People try to identify near-future-
uptrend of any stock and invest in it so that when the price will go up he can make profit.
Fundamental Analysis
This sort of analysis is done based on the company fundamentals- (EPS, Dividend, NAV etc.) In
this case peoples try to identify the true value of a stock rather the price trend. When someone
identifies a stock is undervalued s/he consider that market will recognize the value shortly and
the price will go up. And s/he invests in that particular stock in advance to reap profit from
increased value when the market will recognize the value.
Comparative Valuation
I wrote on it earlier. Just read that. If you cant find that post just type the topic- "Comparative
Valuation" in the search box and search it. You'll get it.
Intrinsic Value
This means that what is the true value of a stock. Fundamental analysts try to identify this value.

About SEC
The Securities and Exchange Commission (SEC) was established on 8th June, 1993 under the
Securities and Exchange Commission Act, 1993. The Chairman and Members of the
Commission are appointed by the government and have overall responsibility to administer
securities legislation. The Commission is a statutory body and attached to the Ministry of
Finance.

Members perform the following functions:

a. Serve as the members of the Commission and supervise its management.
b. Provide policy direction to industry and staff and promulgate legally binding rules.
c. Act as an administrative tribunal for decisions on the capital market.
Mission of the SEC:

 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.

 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.

Dhaka Stock Exchange

Dhaka Stock Exchange (Generally known as DSE) is the main stock exchange of Bangladesh. It
is located in Motijheel at the heart of the Dhaka city. It was incorporated in 1954. Dhaka stock
exchange is the first stock exchange of the country. As of 31 December 2007, the Dhaka Stock
Exchange had 350 listed companies with a combined market capitalization of $26.1 billion.
History
It first incorporated as East Pakistan Stock Exchange Association Ltd in 28 April 1954 and
started formal trading in 1956. It was renamed as East Pakistan Stock Exchange Ltd in 23 June
1962. Again renamed as Dacca Stock Exchange Ltd in 13 May 1964. After the liberation war in
1971 the trading was discontinued for five years. In 1976 trading restarted in Bangladesh. In 16
September 1986 DSE All Share Price Index was started. The formula for calculating DSE all-
share price index was changed according to IFC in 1 November 1993. The automated trading
was initiated in 10 August 1998. In 1 January 2001 DSE 20 Index was started. Central
Depository System was initiated in 24 January 2004. As of November 16 2009, the benchmark
index of the Dhaka Stock Exchange (DSE) crossed 4000 points for the first time, setting another
new high at 4148 points.

Management
The management and operation of Dhaka Stock Exchange is entrusted on a 25 members Board
of Director. Among them 12 are elected from DSE 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 DSE Board:
• Bangladesh Bank.
• ICB.
• 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 Dhaka University.
• President of DCCI (Dhaka Chamber of Commerce and Industry).
Chittagong Stock Exchange
BACKGROUND
The Chittagong Stock Exchange (CSE) began its journey in 10th October of 1995 from
Chittagong 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 Chittagong Stock Exchange approached
the Bangladesh Government in January 1995 and obtained the permission 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. Amir Khosru
Mahmud Chowdhury (MP) and run by an independent secretariat from the very first day of its
inception. CSE was formally opened by then Hon'ble Prime Minister of Bangladesh on
November 4, 1995.
MISSION
The Chittagong Stock Exchange believes that a dynamic, automated, transparent stock exchange
is needed in Bangladesh. It works towards an effective, efficient and transparent market of
international standard to serve and invest in Bangladesh in order to facilitate the competent
entrepreneurs to raise capital and accelerate industrial growth for overall benefit of the economy
and keep pace with the global advancements.
OBJECTIVES
• Develop a strong platform for entrepreneurs raising capital;

• Provide a fully automated trading system with most modern amenities to ensure: quick, easy,
accurate transactions and easily accessible to all;
• Undertake any business relating to the Stock Exchange, such as a clearing house, securities
depository center or similar activities;
• Develop a professional service culture through mandatory corporate membership;
• Provide an investment opportunity for small and large investors;
• Attract non-resident Bangladeshis to invest in Bangladesh stock market;
• Collect preserve and disseminate data and information on stock exchange;
• Develop a research cell for analyzing status of the market and economy.

Stock market Crash:

A stock market crash is a sudden dramatic fall of stock prices across a significant cross-section
of a stock market, resulting in a significant loss of paper assets. 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. Generally speaking, crashes usually occur under the
following conditions, a prolonged period of rising stock prices and excessive economic
optimism, a market where P/E ratios exceed long-term averages, and extensive use of margin
debt and leverage by market participants

Crash in Bangladesh Capital Market:

The capital market of Bangladesh had two major debacles which occurred in 1996 and
2010-11, creating some bad impacts upon the country’s total capital market.

Crash during 1996

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 to 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 50 thousand investors

Background of the 1996 crash

The scenario of stock market crash in 1996 was totally different. The number of BO
account holders was only 300,000 and most of them were very new in the market. During
the crash of 1996.
Paper shares used to be sold in front of DSE and it was not easy for investors to identify fake and
original shares. There was no automated trading sys-tem, surveillance was not enough strong and
no circuit breakers as well as international protections.

From 1991 to the end of 1995 DGEN price index gained by 139.3% and reached to 834 point.
But in 1996 the market experienced dramatic change and pushed the price index up by 337%.
DGEN Index recorded high growth from July and stood at 3648.7 points or by 280.5% on 5th
November 1996.

During the ‘Bull Run’ period new records were posted almost every day in both bourses for
example market capitalization achieved to $2 billion which is equal to 20% of total GDP. Finally
abnormal rise of share prices started to fall and Bangladesh stock market experienced its first
crash of the history in 1996. The index lost over 233 points on Nov 6, 1996. After the bubble
burst DGEN index dropped to its lowest point and stood at 957 in April 1997. It stood at around
the same point where it was 10 months before and DSE General Price index lost almost 70
percent from its highest point of November 1996.

Analysis Market Crash in 1996 with Example:

In 1996, Index starting with a base of 350 points, the share price index of the DSE rose, the index
of the DSE soared from 1,000 in June to 3,648.75 points on November 5, 1996 before the market
crashed. Then it started falling and it came down to 462 points in May 1999.

DSE Index
4000

3000

2000

1000

That time share traded only by paper to paper. There was no grape or computer base trade system.
Invest was trade on the basis of rumor which was used by big market player.

They spared rumor that, that company will up because foreign buy will buy it or foreign investor
was buying etc. Big player was used group of syndicate, who spared the rumor to small investor
and small investor believe that rumor and they buy those share on highest price.
That was the big reason for market crash in 1996.

During the period, some shares were sold by foreign investors, and there were some price-
sensitive announcements when the prices peaked. It clearly indicates an act of manipulation and
these dealings come within mischief under a section of the Securities and Exchange Ordinance.

A number of companies and some of the country's biggest brokers and influential individuals to be
involved in market crash. BSEC found that there are 38 individuals, eight listed companies and six
brokerage firms on charges of manipulating share prices through fraudulent means in 1996.

Heidelberg Cement, it was listed Bangladesh stock market in 1989. The prices crossed Tk
18,000 per share in 1996 against its book value of Tk 134. After market crash it price came again
around 2000 at 1997. One of the directors of the company transferred a large number of shares
during the July-November period of 1996 to one of his relatives that were sold in the market

Heidelberg Cement
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Aug-91

Aug-93
Aug-90

Aug-92
Dec-89

Dec-91

Dec-93
Dec-90

Dec-92
Apr-91

Apr-94
Apr-90

Apr-92

Apr-93

Aug-95

Aug-96
Aug-94

Dec-95

Dec-96
Dec-94

Apr-96
Apr-95

Apr-97
Fig: Price Chart for Heidelberg Cement at 1989-1997

C. Reasons of the 1996 crash:

Manipulation

Some foreign portfolio, 28 managers, few brokers and sponsors of few listed companies were behind
the stock price manipulation in October 1996. As a result all share price index of DSE dramatically
sky rocketed to 3600 point from 1000 point in six months’ time. Few foreign & local investors that
had inside information made huge profit and a lot of general investors paid heavily.
Demand Supply mismatch

The failure of market regulators was one of the causes of stock market crash in 1996. Stock
exchanges did not take any action against the dramatic price in-crease of listed securities during
June to November 1996. Bubble formed due to abnormal demand of securities by new investors
where the numbers of listed securities were very few. The reason of huge influx of investors was
political stability in the country and bringing confidence in investor`s mind.

Defective (DVP) system

The delivery versus payment (DVP) system of trading used to allow buyer-seller to settle their
transactions between them without stock exchange participation. Many brokers/dealers used it as
a tool to show fake trading to increase demand of share from the general investor’s side. According
to Bangladesh Bank analysis that there was an unauthorized curb market consisting of over
25,000 investors outside the stock exchange where securities were traded at a very high price.
Weak regulations and surveillances by SEC could not monitor market manipulators and market
intermediaries. Even information inefficiency, artificial financial statements certified by
chartered accountants, false information and rumor were other important factors that overheated
the market and burst the bubble.

3.2.2 Crash during 2010

The market crash of 2010 drew greater degree of attention because much larger segments of
population spreading all around the country are affected this time as the market in this period has
gained significant growth. The securities market debacle in 2010 need to be viewed from different
perspectives. This is a plain logical analysis supported by some facts and figure. The analysis
covered the period from 2004 till 2010 because, the impacts of 1996 continued until 2003 period. It
can be considered that, the market started consolidation and development from 2004.

A. Analysis of Market Crash in 2010-11 with Example:

In 2010-11 market crash, when again Awami League government was in power. The Awami
League led alliance government to power in January 2009, the general index of the DSE stood at
2,726 points. Before the crash began, the general index had soared in 29 trading days from 7,522
points on October 20 to 8,918.51 points on December 5.
 DGEN Index
10000
8000
6000
4000
2000
0

May-10

May-11
May-09
Mar-09

Mar-10

Mar-11
Nov-10
Nov-09

Nov-11
Sep-09

Sep-10

Sep-11
Jan-09

Jan-11
Jan-10

Jan-12
Jul-10

Jul-11
Jul-09

In 2010-11, stock market was computerized and investor around 33+ lacs who was traded
electrical share computerized software. The company have historical data, annual report, grape
of price which recorded by computer program. There are so many companies, big investors;
Finance Institute and Bank was involved in market crash 2010-11. Like Beximco, Aftab Auto,
CVO-PLT and CMC Kamal, IDLC, Prime finance, PLFSL, NBL and South east Bank etc.

Beximco ,Aftab Auto, CVO-PTL and CMC Kamal:

2009 2010 2011

EPS Price Range EPS Price Range EPS Price Range

Lowest Highest Lowest Highest Lowest Highest

BEXMCO 3.46 30 95 4.20 92 160 2.10 50 155

Aftab 3.19 20 110 19.61 95 310 16.15 93 240

Auto

Chittagong (24.4) 1.90 9.7 2.1 8.30 446 4.50 129.40 295.2
Vegetable
(CVO)

CMC 1.01 1.20 7.30 1.92 3.30 68.50 1.42 22.10 68.90
Kamal

*EPS Calculate by according to face value of share TK 10

Beximco is one of them company that was involved in market crash 2010-11. In 2009 Beximco
EPS was 3.46, price TK 30 in January and December was TK 90. In January 2010 price was TK 92
and then its goes up TK 160 at December 2010 before crash start, 2010 EPS was 4.20.
Then its fall quickly and reached TK 50 at 2011.
EPS growth (4.20-3.46=0.74) but Price Rise TK 30 to 160. That was the reason for Big Fall.

In 2009 Aftab Auto EPS was 3.19, price TK 20 in January and December was TK 97. In January
2010 price was TK 95 and then its goes up TK 310 at December 2010 before market crash start,
while EPS was 19.61. Then its fall quickly and reached TK 93 at 2011.

In 2009 Chittagong Vegetable (CVO-PTL) EPS was (–24.38), January price was only TK 1.9
and December was TK 9.7. January 2010 price was TK 8.30 and then its goes up TK 446 at
December 2010 before market crash start. 2010 EPS was 2.10. Then its fall quickly and reached
TK 93 at 2011.

In 2009 CMC Kamal EPS was 1.01, January price was only TK 1.20 and December was TK
7.30. Then January 2010 price was TK 3.30 and then its goes up TK 68.50 at December 2010
before market crash start. 2010 EPS was 1.92. Then its fall quickly and reached TK 93 at 2011.

EPS growth (1.92-1.01=0.91), but Price Rise TK 1.20 to 68.50. That was the reason for Big Fall.

500
450
400
350
300 MEXMCO
250
200 Aftab Auto
150 CVO-PTL
100
50 CMC Kamal
0
May-10
May-09
Mar-09

Mar-10
Nov-09
Sep-09

Sep-10
Jan-09

Jan-10
Jul-09

Jul-10

Mar-11
Nov-10
Jan-11

May-11

Fig: Market Up and Down Different Company

Reasons of stock market crash in 2010-2011:

Demutualization of Exchanges

The executive board of both DSE and CSE is formed with members both elected and nominated.
The elected members mostly come from a pool of big investors. Due to the less interest and
relation of nominated members, these elected members run the administration. Consequently, the
players of the capital market act as controller. It has been found that, during the period of market
manipulation, controllers are inactive because of conflicting interest.
In the investigation report has been pointed out that, different stakeholders of capital market
support demutualization of exchanges which is the process of converting exchanges from non-
profit, member owned organization to for-profit, investor owned corporation.

Uniform Face Value of Shares

In 2009 & 2010, 62 listed companies spilt their shares to make a uniform face value of share at Tk.
10. In theory, splitting shares doesn’t intend to change revenue or asset and thus should not affect
share prices. However, as splitting shares make it possible for small investors to buy those shares
which were previously expensive, small investors showed a lot of enthusiasm to buy split shares
and consequently pushed the price up. This began to transform market capitalization. The
companies which had split their shares witnessed 655% increased market capitalization. On the
contrary, companies which did not split their shares noticed only 46% rise in market
capitalization.

Increase of BO a/c

Most of the BO accounts were opened during June ’2009 to January ’2011 that indicated that
more than half of the investors could be treated as new investors. During 2009, stock exchanges,
Institutional investors and SEC make many campaigns within and outside the country to attract
new investor that seems to be successful as the BO accountholders was doubled in last two years
that might be treated as a potential for market development. But due to scarcity of new securities
market price increased substantially. This demand-supply mismatch along with inadequate
investor’s knowledge made the stock prices in a new height and finally turned into a big
depression that is still going on.

Increase of listed securities

The fundamental strength of the market essentially comes from financial strength of the listed
companies. The market witnessed that last few years many fundamental companies with strong
financial strength have been listed in the market. From the graph, it is seen that number of
security listing are increasing year to year and highest amount is in the year 2011. But growth of
market demand for stock was much then that of supply that inflated the market in recent years
and made the market most volatile one in the region

Increase of Market Cap and Turnover value.

The graph shows that market capitalization and turnover of Dhaka stock exchange, prime bourse
of Bangladesh increased substantially in consecutive three years that might be considered as a
good factor for capital market development. But as the supply side response was poor, stock
price might go up due to excess liquidity. SEC had nothing to do with this as they had no direct
tool to control money supply and also they cannot force companies to come to the market.
In December 2010, DSE index had crossed 8500 points. The market had called bullish during
this period. After this period, the market became bearish. The exchange lost 1800 point between,
December 2010 and January 2011. In January 2011, the General Price Index (DGEN) fall 660
points. Again that during December 2011 to January 2012 Dhaka Stock Exchange general Index
(DGEN) felled by more than 50% during that period, i.e., DGEN lose its value by 50% during
the period that says that this is not simple volatility and it can be defined as a collapse.

Issue of Right and Preference Shares

Right share indicates issuing new shares to the existing shareholders at a discount price. The issuance
of right share increase number of share which should decrease share price but it did not happen.
Mysteriously, it took BSEC five months to come to a decision regarding right issue proposal.
Preference share are the share which contain fixed percentage of dividend at cost of voting right.
Issuer companies provide an option to convert into general shares to make it more attractive and it is
called Convertible Preference Share. However, in Bangladesh, companies issue
preference share for only 1-3 moths which is very unusual. BSEC also didn’t have proper
guidelines for Preference Share issuance

Faulty listing methods

In the year 2010, regulator introduced Book building method to attract new companies to the
market. Some companies abused this opportunity to exploit maximum benefits from listing that
inflated the market. SEC allows companies to float securities through IPO (Fixed Price and Book
Building method), Direct Listing and Repeat IPO where Book building method is used mostly in
the year 2010.

Listed Companies with financial information

Traditionally DSE used fixed price method for flotation of new companies. But fixed price method
does not attract good companies always. So, to attract new companies, SEC decided to introduce
Book building method that is a globally acceptable method for IPO. But in Bangladesh, Book
Building method is handled very roughly that caused loss for millions of investors.

Stock price Manipulation:

Stock price manipulation was very common in last few years as some company’s stock price
grew by more than 4000% in one year without any significant change in company fundamentals.
Stock price was inflated with the help of serial trading by few numbers of big investors that was
one of the reasons of recent collapse of stock market in Bangladesh.

Pre-IPO & IPO process:

Investigation committee considered that due to Pre-IPO & IPO manipulation share prices sky
rocketed and that is the main reason for the share market crash. Manipulators illegally & unethically
created a Curb market in Pre-IPO stage. Without recommendation by the listing committee
application for IPO was accepted.
SEC did not investigate about indicative price. As a result in Pre-IPO or IPO stage placement
process and placement trade Curb market overvalued share prices. This eventually generated
liquidity crisis in the capital market.

Investment of bank in the capital market

In 2010 & 11 banks and financial institutions invested huge amount of deposit money in the
stock market. As a result share prices sky rocketed until December 2010. When Bangladesh
Bank restricted more than 10 percent investment of deposited money, increased CRR and SLR
ratio, created liquidity crisis and market crashed.

Omnibus account

Investigation report found Omnibus accounts of ICB and merchant banks as another major reason
behind the stock market debacle. Every branch of merchant bank operates only one omnibus account.
There could be 3-10 thousands BO Accounts under the omnibus account which are not under the
surveillance of SEC. So, information of individual accounts and its transaction 40 are kept only with
merchant banks. As investigation reports shows that this kind of account made a lot of illegal
transactions. It publishes name of 30 big players including ICB for a lot of suspicious transactions
and says most manipulators traded from the omnibus accounts. It was also reported at least Taka 2.5
billion has been traded from hidden or omnibus accounts.

Asset revaluation & Rumor

By taking chance of weak asset revaluation method companies have overvalued their asset. In
this process dishonest auditors generated artificial audit reports. So, calculating of NAV on
overvalued asset indicates wrong signal. Some companies issued Bonus shares against unrealized
gain of revalued asset price which is a faulty accounting practice.

Block placement

There was a lot of suspicious block trading of mutual funds. Some investors got enormous
amount of placement time to time.

Direct listing:

With the approval of SEC few companies have been directly listed in the stock exchange. These
companies come to the market with inflated share prices.

Suspicious transaction of top players

Investigation report reveals some names of individual and institutional investors as top buyers
and sellers during abnormal increase and decrease of index in different time periods. The
transactions of these investors were suspicious and affected the market heavily and liable for
abnormal rise and fall.
Market Scenario and Investors’ Behavior after Market Crash

Market Scenario:
Before and after the market crash 2010-2011, the scenario of stock market is different. If
we look at the stock market trend from different views, we can predict the market
conditions and investor’s movement according to this changing market.

By Collecting Data 2009-2014 data Market indicators are Describe Below:

Market Turnover:

Turnover 2009 2010 2011 2012 2013 2014

Total Turn. 1475300. 4009912.67 1560912.09 1001084.90 952742.08 1154458.87
In Tk 88
million
Daily Avg. 6046.32 16434.07 6642.18 4206.24 4003.12 4850.67.
Turnover
Highest 12451.79 32495.76 19579.28 12884.27 12946.16 12885.538.
Turnover

Lowest 2120.14 5064.12 680.84 1157.03 1012.72 1499.64

turnover
 Total Turnover Tk. Mn
4500000

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

0
2009 2010 2011 2012 2013 2014

Figure 2: After Crash 2010-2011 total stock market turnover in 2009 to 2014

Foreign Trade Turnover:

Foreign Trade 2009 2010 2011 2012 2013 2014

Turn. Tk Mn
Buy 5816.32 10791.59 12168.35 13483.94 26525.05 32582.03
Sell 8567.57 17557.44 11384.03 5558.02 7096.10 9708.10
Total 14383.89 28349.03 235532.37 19041.93 33621.16 42290.13
 35000

30000

25000

20000
Buy
Sell
15000

10000

5000

0
2009 2010 2011 2012 2013 2014

The chart of the foreign trade turnover indicates that from the 2009 to 2011, foreign investors
sold more their shares rather to buy more. In 2010, the selling volume was huge compare to
another year and as a result local investors were scared and they also sold their shares more.

Investors’ Behavior Scenario:

The stock market or share market is a vital part of a country’s economy. People invest their
money in the capital market to obtain economic prosperity for them, which also has positive
effect on the country.

However, if, for any reason like the stock market crash, this process of resource enlistment is
threatened and as a result, investors become panic and begin seeking safe alternatives. Statistics
shows around 3.3 million retail investors of Bangladesh engaged in the stock market during the
market crash of 2010.

In addition, they used to invest money from various sources such as savings in bank, idle money,
and part of earnings or proceeds from selling their movable or immovable assets and so on.
Unfortunately, after the crash they were left with nothing significant.
 After the month March, 2014 BO account numbers stood at 60 thousand and the total number of
the BO account holder increased at 29lakh 55 thousand and 731 which was before at 29lakh 4
thousand 832.

Moreover, in February the men BO account holders were 21lakh 43thousand and 917 and this
number is increased by 21lakh 78thousand 305 that means after one month BO account of men
increased at 34 thousand and 388. Besides, women BO account holders are 7lakh 67thousand
and 569 in March.

On the other hand, in March the company BO accounts is 9thousand and 857. Now a chart is
giving below which shows the two months comparison of BO accounts.

3500000

3000000

2500000

2000000
February
1500000 March

1000000

500000

0
Men BO Holder Women BO HolderCompany BO Holder Total Bo

We can see from the chart is that BO account is increasing. But the true fact is, investors are now
more relying on IPO than secondary market because of the risk factor. Though IPO is held by
lottery but there is no such chance to loss investor’s whole investment whereas in secondary
market, there is no such chance and that’s why investors are opening BO account for the IPO and
after IPO they are not interested to hold their shares in secondary market as they scared of losing
their whole investment in secondary market.
Comparison between two Crashes:

2010-2011 1996

Trading was automated, Computer based Trading was not automated, Paper Based

Surveillance was strong Surveillance was weak

Circuit breakers and international Circuit breakers and international

protections were in place protections were not properly in place

Being automated there were no forged Being not automated there were no
shares traded. forged shares traded.

There were also omnibus accounts in the There were no omnibus accounts in the
market market

The BO account value was 35 lacs 2010- Compared to 3 lacs before the 1996 crash
2011 crash was an asset bubble was a result of a speculative bubble

While in 2011 it lost up to 660 points, In the end, in 1996 the index lost 232
nearly 10 percent, Maximum Lost Index points, Maximum index lost by one day
in one day
Indicators of Market Size & Efficiency:
However, we have to know some measures, indicators to evaluate our capital markets.
Based on these, we can collect respective transaction data, regulations acts and
quantitative and qualitative measurements.

Parameters used to measure size of capital market:

 Number of listed companies,
 number of securities,
 size of market capitalization,
 Index,
 Daily trade volume,
 GSP ratio to market capitalization

Efficiency indicators of capital market:

 P/E multiple,
 Dividend yield,
 Liquidity,
 Visible presence of regulators,
 Exit route regulation for sick PLC.

Capital market Company Category and Characteristics

Company Properties

Holding Annual Meetings (AGM) and have declared

dividend at the rate 10 percent or more in a calendar
A year.
B Holding Annual Meetings (AGM) and have declared
dividend less at the rate 10 percent or more in a
calendar year.
G Greenfield companies.
All new listed companies except Greenfield
companies.
N
Z Have failed to hold the AGM or fail to declare any
dividend or which are not in operation continuously
Sector wise Listing Companies (DSE):

NO NAME OF THE INDUSTRY COMPANY NUMBER

1 Bank 30

2 Cement 7

3 Ceramics Sector 5

4 Corporate Bond 2

5 Debenture 8

6 Engineering 33

7 Financial Institutions 23

8 Food & Allied 18

9 Fuel & Power 18

10 Insurance 46

11 IT sector 7

12 Jute 3

13 Miscellaneous 11

14 Mutual Funds 35

15 Paper & printing 2

16 Pharmaceuticals & Chemicals 28

17 Service & Real Estate 4

18 Tannery Industries 5

19 Telecommunication 2

20 Textile 47

21 Travel & Leisure 3

22 Treasury Bond 221

Total No. Of Companies 296

Total No. of Securities 562

Sector wise Listing Companies (CSE):

NO NAME OF THE INDUSTRY COMPANY NUMBER

1 Bank 29

2 Cement 7

3 Ceramics Sector 5

4 Corporate Bond 2

5 Debenture 8

6 Engineering 27

7 Financial Institutions 22

8 Food & Allied 12

9 Fuel & Power 16

10 Insurance 42

11 IT sector 7

13 Miscellaneous 14

14 Mutual Funds 36

15 Paper & printing 4

16 Pharmaceuticals & Chemicals 23

17 Service & Real Estate 7

18 Tannery Industries 6

19 Telecommunication 2

20 Textile 41

Total No. Of Companies 264

Total No. Of Securities 302

Source: Websites as of May 2017

Present Market Indicators of Two Exchanges:

Current Market Indicators of DSE

Current Market Indicators of CSE
Comparative Position of the Bd. Securities Market amongst
Asian Counterparts:
A comparison is drawn between the Bangladesh securities market and some of its Asian
equivalents with respect to the average size of companies and the amount of market
capitalization as per cent of GDP. It shows that the former is lagging far behind all its
counterparts in mobilizing funds from the public for firms.

500
450
400
350
300
250
200
150
100
50
0

Average company size (US$ in million)

MC as per cent of GDP

Source: IMF Report 2014

The average company size in Bangladesh is much smaller than those in other Asian
countries included in Figure .The average company size in Bangladesh is only
US$4.74m,whereas sizes of those in the neighboring countries of Pakistan and India are
US$9.71m and US$21.71m respectively (Standard & Poor’s, 2002: 24,34,218).The
average size of companies in other countries is even bigger than in Bangladesh,
Pakistan and India Therefore, the listed companies in Bangladesh remain considerably
smaller compared to those in other Asian markets.
The Potential of the Bangladesh Capital Market
The capital market is the engine of growth for an economy, and performs a critical role in acting
as an intermediary between savers and companies seeking additional financing for business
expansion. 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 an
important pre-requisite for moving into a more mature growth phase with more sophisticated
conglomerates. 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 achieved
significant milestones on the social development side. With growth reaching 7 percent in 2006,
the economy has accelerated to an impressive level. It is noteworthy that the leading global
investment banks, Citi, Goldman Sachs, JP Morgan and Merrill Lynch have all identified
Bangladesh as a key investment opportunity. The Dhaka Stock Exchange Index is at a 10-year
high, however, the capital market in Bangladesh is still underdeveloped, and its development is
imperative for full realization of the country's development potential.
It is encouraging to see that the capital market of Bangladesh is growing, albeit at a slower pace
than many would like, with market development still at a nascent stage. The market has seen a
lot of developments since the inception of the Securities and Exchange Commission (SEC) in
1993. After the bubble burst of 1996, the capital market has attracted a lot more attention,
importance and awareness, that has led to the infrastructure we have in the market today.
Reasons behind the underdevelopment Access to high quality and credible corporate information
remains a major problem in the market. While a handful of institutional investors may enjoy
certain benefits since they have an investment unit manned with qualified officers, nothing exists
for retail investors. And, in the absence of independent research houses, retail investors primarily
focus on advice given by their brokers, which often consists of market rumours. This is not
acceptable, and it often leads to enormous losses for small investors who are vital for a low-
income and emerging market like Bangladesh. Filtering of information among different types of
investors may leave scope for manipulation; this assumption had been proved right in the 1996
market meltdown at the cost of many individuals and households.
The market does not have an adequate number of fundamentally sound scrips. The authorities
should not force major corporations to come into the market, without creating an enabling
environment. The focus should be on the privatization of state owned enterprises through public
offerings in the bourses. The market has to reach such a stage of development that companies
will take it as a serious alternative to bank financing.
The government has reduced the interest rates on savings instruments, however this particular
market is still limited to the commercial banks, and individual investors do not have access to
these instruments. These savings instruments are considered risk-free, and since they are not
present in the capital market, the overall risk of investment for an investor remains very high. A
portfolio investor does not have the option of reducing his average portfolio risk by adding these
risk-free opportunities.

An estimate suggests that the ratio of institutional-to-retail investors is still low in Bangladesh,
even relative to other emerging markets. Institutional investors bring long-term commitment and
a greater focus on fundamentals and, hence, stability in the market. The presence of institutional
investors is also expected to ensure better valuation levels due to their specialized analytical
skills. While we do have public sector as well as private sector institutional investors in the
economy, proprietary investment from these institutions is not significant other than the
Investment Corporation of Bangladesh that was created in 1976 and currently manages several
mutual funds.

Corporate governance of international standard is still lacking. Multinational corporations and

institutions operating in Bangladesh often adhere to a very high international standard
compliance regime. Parent companies of most of these corporations and institutions have their
scrips listed in developed markets. Unless the local market adheres to, and effectively enforces, a
standard corporate governance system, there will not be a level-playing ground for international
business houses vis-a-vis local operators.
An important aspect for capital market is reflection of fair value of scrips. This is not adequately
present in the current scenario, and due to this reason the market is not receiving the attention of
an important segment of investors, both foreign and local.
Investors are perhaps depending more on speculative analysis, resulting in volatility in the
market, as opposed to fundamental analysis, which could attract more stable long-term investors
who are sure about their investment tenure and expectations. 1996 and now The bull-run that
took place in 1996 has left a number of positives for the market. A lot of investment-friendly
regulatory reforms have been implemented by the SEC. We now have stronger surveillance and
improved rules relating to public issue, rights issue, acquisition, mergers and so on. All these
fundamental developments, which were well overdue, followed the 1996 bull-run. It was a
learning experience for Bangladesh, and the desired level of changes was initiated by the market
watchdog subsequently.
In the secondary market, surveillance is more active and particular than before. These
developments, that are widely appreciated, are actually the fundamental requirements that are in
place today resulting from the continuous efforts of the government and multilateral agencies.
Trading has now become automated, led by the Chittagong Stock Exchange through the central
depository. In the present automated trading environment, bids/offers, depth, and required broker
particulars are all recorded and can be retrieved for future reference. The Central Depository
Bangladesh Limited (CDBL) was created in August 2000 to operate and maintain the Central
Depository System (CDS) of Electronic Book Entry, recording and maintaining securities
accounts and registering transfers of securities; changing the ownership without any physical
movement or endorsement of certificates and execution of transfer instruments, as well as
various other investor services including providing a platform for the secondary market trading
of Treasury Bills and Government Bonds issued by the Bangladesh Bank.
The stock market surveillance mechanics in place at present has no resemblance to that of 1996.
There are strict rules and guidelines, trading circuit breakers and international standard
surveillance to protect investor rights and ensure fair play. The disclosure requirements and its
timing for both listed scrips and

IPOs as devised by the SEC are now more reflective of international practices. The SEC is also
adopting new valuation methods that result in fair pricing of new issues. While there is still a
lack of credible research organisations, a few firms like Asset and Investment Management
Services of Bangladesh Ltd. (Aims) have come up, and they are investing in research and
building up stock market related credentials. The recent surge in the stock market
The Dhaka Stock Exchange Index was at a 10-year high in the 2007 year end (up 66 percent),
which made it Asia's top performer after China. The steady investment atmosphere prevailing
throughout 2007 is considered to be one of the main reasons behind this surge. Good return
prospects, stable market growth, and uninterrupted trading as a result of political stability
attracted foreign investors to local securities. In 2007, foreign investors bought shares worth
$205.7 million, while the amount of selling was $78.6 million, according to a DSE statistic.
According to the DSE, in 2007, net foreign or portfolio investment on the Dhaka Stock
Exchange surged 8.3x to $129 million. The banking sector, followed by the power,
pharmaceutical and cement sectors, received the most foreign investment.
Opportunities
The capital markets in Asia are getting more and more focus with the growing corporatization of
the Asian economies. Eastern Asia has progressed a lot with respect to attracting western
companies to get listed in Asian bourses as well as supporting innovative instruments, and
Southeast Asia is also coming up with India leading the way. Comparing the local market
scenario with that of the rest of the region, Bangladesh is in pretty good shape as we have most
of the infrastructure in place. Our market capitalization is relatively smaller and it currently
stands at $9.3 billion, which is just over 13 percent of GDP. Higher liquidity is skewed towards a
handful of scrips, while a stagnant situation exists for few less profitable issuers.
At present, the government is heavily focusing on developing a debt capital market. Such
measures are certainly welcome as Bangladesh lacks a proper secondary market for bonds. The
market is yet to support short-term capital requirements of corporations.

Commercial Paper (CP) has not yet been tried primarily due to interest rate volatility and illiquid
risk-free instruments that can be used as benchmark neither for short-term and hardly for long-
term financing. It can, therefore, be said that we have a somewhat flat yield curve in Bangladesh
at the moment.
SEC is also contemplating the introduction of the book-building method in the valuation of IPOs
in order to ensure a fair price within this year. This will encourage companies with sound
financial health to come into the market.
Regulatory pressures are mounting on telecom companies to get listed. It is estimated that the
listing of the top telecom companies will attract more foreign investment, increase the market
capitalization by few folds, and bring about higher standards of corporate governance.

There is still huge potential in the market for securitization and other debt instruments like
commercial papers and corporate bonds, and derivatives, which will help foreign investors hedge
their exposure.
Problems of Stock 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 capital
gains, a vacuum in respect of institutional presence in the share market, monopolistic dominance
of member brokers, inefficiency of the SECS to cape with the developments, existence to Kerb
market, absence of proper application 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.

Irregulations 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 in
corruption 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
areise 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:
A. 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.

B. The Telecom Giants in Bangladesh are finalizing their offers for IPO in the market.

C. Power and energy sectors demand for capital is 5 to 10 billion dollar within short time to

meet the immediate needs of 5000 MW power demand.

D. A deep sea port requiring 1 billion dollar is going to start with a policy decision that it

will also be listed.

E. The Pharmaceutical sector and API enjoying WTO benefit is growing sharply.

F. Textile sector as backward linkage to thriving export oriented garments industries is

booming.

G. Export oriented food processing industry needs huge capital and technical capacity to

meet the growing standards in global market for marine food, fruits and poultry.

H. IT sector with our talented developers, yet to demonstrate the massive potentials of

software industry of the country.

Future Programs for Further Development
1. Active market of government, municipal and corporate bonds beside the corporate bonds to
create alternative investment.
2. All securities to be brought under CDS within 2 years.
3. All major infrastructure companies, specially those in power, telecommunication and energy
sector are to be listed ensure to broaden the market depth with at least US$ 15 billion market cap
having daily average turnover from current level of average of 10 to 15 million dollar to a level
of 70 to 100 million dollar 2 years.
4. To strengthen merchant banks’ capacity to be more active.
5. Ensuring speedy disposal of decisions for market operation.
6. Ensuring greater degree of transparency in financial disclosure and management structure for
better corporate governance.
Conclusion:
To expedite the market development process, it may be a good idea to decide on certain
milestones and link them to the disbursement of Development Credit Support of the World Bank.
The government is making good progress in other sectors, including monetary management,
corporatization of public-sector banks and others through this linkage.
The missing link between the SEC, Bangladesh Bank, Bangladesh Telecom Regulatory
Commission and other regulatory bodies is now getting established. Individually, they were not
serving each other’s' interests, and there was no effective coordination among them, hence the
country was deprived of great initiatives. A dedicated financial market cell at the Ministry of
Finance could be formed to coordinate with these regulators as well as other ministries.
In terms of creating market depth, more profitable state-owned-enterprises should be listed. The
supply of securities can be increased if the SOEs are allowed to operate through the stock
exchanges. Floatation of SOE scrips is expected to expand the market by couple of times.