FIN 453 Report Final

8/3/2019 FIN 453 Report Final

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Stock Market: Bangladesh Perspective FIN 453

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As part of the Financial Market & Institutions (FIN 453) course requirement, we were assigned to

prepare a report on Stock Market. Throughout the report we tried to discover the stock market andwe tried to find out its nature in Bangladesh. How the stock market operates, being regulated and

functions were the main focus of this report. We have decided to make a report on Stock Market:

Bangladesh Perspective.

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To learn what stock market is and gain an overall idea about it is the main objective of our report.

The projected objectives are given below:

Specific objective:

To know what stock market is. To identify the functions performed by stock market. To discover how stock market operates. To analyze stock market in Bangladesh. To figure out current situations of Bangladeshi stock market.

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1.3.1 Data sources:

Data has been collected from the existing data available on the internet.


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1.4 Limitations

Limitation of time was one of the most important factors that shortened the presentstudy. Due to time limitation many aspects could not discussed in the present study.

Confidentiality of data was another important barrier that was faced during the conductof this study. Every organization has their own secrecy that in not revealed to others.

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The report contains five parts. Part one is the Introduction part, which includes objective of the

report, limitations, and methodology. Part two consists of literature review. Part three contains

the overview of stock market, its operations, and functionality. Part four provides overview of

Bangladesh stock markets and its current situations. Part five contains a general discussion on the

topics covered in the report. Finally, Sixth part consists with justifiable recommendations and

conclusion.


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2.0 Literature Review


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3.0 Stock Market: An overview

3.1 Stock Market

A stock market or equity market is a public entity (a loose network of economic

transactions, not a physical facility or discrete entity) for the trading of company stock

(shares) and derivatives at an agreed price; these are securities listed on a stock exchange

as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion at the start of

October 2008. The total world derivatives market has been estimated at about $791 trillion

face or nominal value, 11 times the size of the entire world economy. The value of the

derivatives market, because it is stated in terms of notional values, cannot be directly

compared to a stock or a fixed income security, which traditionally refers to an actual value.

Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on

an event occurring is offset by a comparable derivative 'bet' on the event not occurring).

Many such relatively illiquid securities are valued as marked to model, rather than an

actual market price.

The stocks are listed and traded on stock exchanges which are entities of a corporation ormutual organization specialized in the business of bringing buyers and sellers of the

organizations to a listing of stocks and securities together. The largest stock market in the

United States, by market capitalization, is the New York Stock Exchange (NYSE). In Canada,

the largest stock market is the Toronto Stock Exchange. Major European examples of stock

exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse,

and the Deutsche Brse (Frankfurt Stock Exchange). In Africa, examples include Nigerian

Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the

Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and

the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F

Bovespa and the BMV.
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3.2 History of Stock Market

Established in 1875, the Bombay Stock Exchange is Asia's first

stock exchange

In 12th century France the courratiers de change were

concerned with managing and regulating the debts of

agricultural communities on behalf of the banks. Because these

men also traded with debts, they could be called the first

brokers. A common misbelief is that in late 13th century Bruges

commodity traders gathered inside the house of a man called

Van der Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing what had

been, until then, an informal meeting, but actually, the family Van der Beurze had a building

in Antwerp where those gatherings occurred; the Van der Beurze had Antwerp, as most of

the merchants of that period, as their primary place for trading. The idea quickly spread

around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and

Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government

securities. In 1351 the Venetian government outlawed spreading rumors intended to lowerthe price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began

trading in government securities during the 14th century. This was only possible because

these were independent city states not ruled by a duke but a council of influential citizens.

Italian companies were also the first to issue shares. Companies in England and the Low

Countries followed in the 16th century. The Dutch East India Company (founded in 1602)

was the first joint-stock company to get a fixed capital stock and as a result, continuous

trade in company stock emerged on the Amsterdam Exchange. Soon thereafter, a lively

trade in various derivatives, among which options and repos, emerged on the Amsterdam

market. Dutch traders also pioneered short selling - a practice which was banned by the

Dutch authorities as early as 1610.
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There are now stock markets in virtually every developed and most developing economies,

with the world's largest markets being in the United States, United Kingdom, Japan, India,

China, Canada, Germany (Frankfurt Stock Exchange), France, South Korea and the

Netherlands.

3.3 Market Participants of Stock Market

A few decades ago, worldwide, buyers and sellers were individual investors, such as

wealthy businessmen, usually with long family histories to particular corporations. Over

time, markets have become more "institutionalized"; buyers and sellers are largely

institutions (like pension funds, insurance companies, mutual funds, index funds, exchange-

traded funds, hedge funds, investor groups, banks and various other financial institutions).

The rise of the institutional investor has brought with it some improvements in market

operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being

markedly reduced for the 'small' investor, but only after the large institutions had managed

to break the brokers' solid front on fees. (They then went to 'negotiated' fees, but only for

large institutions.

However, corporate governance (at least in the West) has been very much adversely

affected by the rise of (largely 'absentee') institutional 'owners'.

3.4 Functions of Stock Market

The stock marketis one of the most important sources for companies to raise money. This

allows businesses to be publicly traded, or raise additional financial capital for expansion

by selling shares of ownership of the company in a public market. The liquidity that an

exchange provides affords investors the ability to quickly and easily sell securities. This is
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an attractive feature of investing in stocks, compared to other less liquid investments such

as real estate.

History has shown that the price of shares and other assets is an important part of the

dynamics of economic activity, and can influence or be an indicator of social mood. An

economy where the stock market is on the rise is considered to be an up-and-coming

economy. In fact, the stock market is often considered the primary indicator of a country's

economic strength and development.

Rising share prices, for instance, tend to be associated with increased business investment

and vice versa. Share prices also affect the wealth of households and their consumption.

Therefore, central banks tend to keep an eye on the control and behavior of the stock

market and, in general, on the smooth operation of financial system functions. Financial

stability is the raison d'tre of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and

deliver the shares, and guarantee payment to the seller of a security. This eliminates the

risk to an individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower

costs and enterprise risks promote the production of goods and services as well as possibly

employment. In this way the financial system is assumed to contribute to increased

prosperity.

3.5 Behavior of Stock Market

From experience it is known that investors may 'temporarily' move financial prices away

from their long term aggregate price 'trends'. (Positive or up trends are referred to as bull

markets; negative or down trends are referred to as bear markets.) Over-reactions may

occurso that excessive optimism (euphoria) may drive prices unduly high or excessive
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pessimism may drive prices unduly low. Economists continue to debate whether financial

markets are 'generally' efficient.

According to one interpretation of the efficient-market hypothesis (EMH), only changes in

fundamental factors, such as the outlook for margins, profits or dividends, ought to affect

share prices beyond the short term, where random 'noise' in the system may prevail. The

'hard' efficient-market hypothesis is sorely tested by such events as the stock market crash

in 1987, when the Dow Jones index plummeted 22.6 percentthe largest-ever one-day fall

in the United States.

This event demonstrated that share prices can fall dramatically even though, to this day, it

is impossible to fix a generally agreed upon definite cause: a thorough search failed to

detect any 'reasonable' development that might have accounted for the crash. It seems also

to be the case more generally that many price movements are not occasioned by new

information; a study of the fifty largest one-day share price movements in the United States

in the post-war period seems to confirm this.

However, a 'soft' EMH has emerged which does not require that prices remain at or near

equilibrium, but only that market participants not be able to systematically profit from any

momentary market'inefficiencies'. Moreover, while EMH predicts that all price movement

is random, many studies have shown a marked tendency for the stock market to trend over

time periods of weeks or longer. Various explanations for such large and apparently non-

random price movements have been promulgated. For instance, some research has shown

that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and

Value at Risk limits, theoretically could cause financial markets to overreact. But the best

explanation seems to be that the distribution of stock market prices is non-Gaussian.

Other research has shown thatpsychological factors may result in exaggerated stock price

movements. Psychological research has demonstrated that people are predisposed to

'seeing' patterns, and often will perceive a pattern in what is, in fact, just noise. In the

present context this means that a succession of good news items about a company may lead
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investors to overreact positively. A period of good returns also boosts the investor's self-

confidence, reducing his risk threshold.

Another phenomenonalso from psychologythat works against an objective assessment

is group thinking. As social animals, it is not easy to stick to an opinion that differs

markedly from that of a majority of the group. An example with which one may be familiar

is the reluctance to enter a restaurant that is empty; people generally prefer to have their

opinion validated by those of others in the group.

In one paper the authors draw an analogy with gambling. In normal times the market

behaves like a game ofroulette; the probabilities are known and largely independent of the

investment decisions of the different players. In times of market stress, however, the game

becomes more like poker. The players now must give heavy weight to the psychology of

other investors and how they are likely to react psychologically.

The stock market, as with any other business, is quite unforgiving of amateurs.

Inexperienced investors rarely get the assistance and support they need. In the period

running up to the 1987 crash, less than 1 percent of the analyst's recommendations had

been to sell. In the run up to 2000, the media amplified the general euphoria, with reports

of rapidly rising share prices and the notion that large sums of money could be quickly

earned in the so-called new economy stock market.

3.6 Investment Strategies for Stock Market

One of the many things people always want to know about the stock market is, "How do I

make money investing?" There are many different approaches; two basic methods are

classified by either fundamental analysis or technical analysis. Fundamental analysis refers

to analyzing companies by their financial statements found in SEC Filings, business trends,

general economic conditions, etc. Technical analysis studies price actions in markets

through the use of charts and quantitative techniques to attempt to forecast price trends
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regardless of the company's financial prospects. One example of a technical strategy is the

Trend following method, used by John W. Henry and Ed Seykota, which uses price patterns,

utilizes strict money management and is also rooted in risk control and diversification.

Additionally, many choose to invest via the index method. In this method, one holds a

weighted or un-weighted portfolio consisting of the entire stock market or some segment

of the stock market. The principal aim of this strategy is to maximize diversification,

minimize taxes from too frequent trading, and ride the general trend of the stock market.

3.7 Crashes in Stock Market

A stock market crash is often defined as a sharp dip in share prices ofequities listed on the

stock exchanges. In parallel with various economic factors, a reason for stock market

crashes is also due to panic and investing public's loss of confidence. Often, stock market

crashes end speculative economic bubbles.

There have been famous stock market crashes that have ended in the loss of billions of

dollars and wealth destruction on a massive scale. An increasing number of people are

involved in the stock market, especially since the social security and retirement plans are

being increasingly privatized and linked to stocks and bonds and other elements of the

market. There have been a number of famous stock market crashes like the Wall Street

Crash of 1929, the stock market crash of 19734, the Black Monday of 1987, the Dot-com

bubble of 2000, and the Stock Market Crash of 2008.

One of the most famous stock market crashes started October 24, 1929 on Black Thursday.

The Dow Jones Industrial lost 50 % during this stock market crash. It was the beginning of

the Great Depression. Another famous crash took place on October 19, 1987 Black

Monday. The crash began in Hong Kong and quickly spread around the world.

By the end of October, stock markets in Hong Kong had fallen 45.5 %%, Australia 41.8 %%,

Spain 31 %%, the United Kingdom 26.4 %%, the United States 22.68 %%, and Canada
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22.5 %%. Black Monday itself was the largest one-day percentage decline in stock market

history the Dow Jones fell by 22.6 %% in a day. The names Black Monday and Black

Tuesday are also used for October 2829, 1929, which followed Terrible Thursdaythe

starting day of the stock market crash in 1929.

The crash in 1987 raised some puzzles-main news and events did not predict the

catastrophe and visible reasons for the collapse were not identified. This event raised

questions about many important assumptions of modern economics, namely, the theory of

rational human conduct, the theory of market equilibrium and the hypothesis of market

efficiency. For some time after the crash, trading in stock exchanges worldwide was halted,

since the exchange computers did not perform well owing to enormous quantity of trades

being received at one time. This halt in trading allowed the Federal Reserve system and

central banks of other countries to take measures to control the spreading of worldwide

financial crisis. In the United States the SEC introduced several new measures of control

into the stock market in an attempt to prevent a re-occurrence of the events of Black

Monday.

Computer systems were upgraded in the stock exchanges to handle larger trading volumes

in a more accurate and controlled manner. The SEC modified the margin requirements inan attempt to lower the volatility of common stocks, stock options and the futures market.

The New York Stock Exchange and the Chicago Mercantile Exchange introduced the

concept of a circuit breaker. The circuit breaker halts trading if the Dow declines a

prescribed number of points for a prescribed amount of time.

3.8 Instruments of Stock Market

Financial innovation has brought many new financial instruments whose pay-offs or values

depend on the prices of stocks. Some examples are exchange-traded funds (ETFs), stock

index and stock options, equity swaps, single-stock futures, and stock index futures. These

last two may be traded on futures exchanges (which are distinct from stock exchanges
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their history traces back to commodities futures exchanges), or traded over-the-counter. As

all of these products are only derived from stocks, they are sometimes considered to be

traded in a (hypothetical) derivatives market, rather than the (hypothetical) stock market.

Leveraged strategies

Stock that a trader does not actually own may be traded using short selling; margin buying

may be used to purchase stock with borrowed funds; or, derivatives may be used to control

large blocks of stocks for a much smaller amount of money than would be required by

outright purchase or sales.

Short selling

In short selling, the trader borrows stock then sells it on the market, hoping for the price to

fall. The trader eventually buys back the stock, making money if the price fell in the

meantime and losing money if it rose. Exiting a short position by buying back the stock is

called "covering a short position." This strategy may also be used by unscrupulous traders

in illiquid or thinly traded markets to artificially lower the price of a stock. Hence most

markets either prevent short selling or place restrictions on when and how a short sale can

occur. The practice ofnaked shorting is illegal in most stock markets.

Margin buying

In margin buying, the trader borrows money at interest to buy a stock and hopes for it to

rise. Most industrialized countries have regulations that require that if the borrowing is

based on collateral from other stocks the trader owns outright, it can be a maximum of a

certain percentage of those other stocks' value. In the United States, the margin

requirements have been 50 % for many years.

A margin call is made if the total value of the investor's account cannot support the loss of

the trade. Regulation of margin requirements (by the Federal Reserve) was implemented

after the Crash of 1929. Before that, speculators typically only needed to put up as little as

10 percent (or even less) of the total investment represented by the stocks purchased.
http://en.wikipedia.org/wiki/Commoditieshttp://en.wikipedia.org/wiki/Over-the-counter_%28finance%29http://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Short_sellinghttp://en.wikipedia.org/wiki/Margin_buyinghttp://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Naked_shortinghttp://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/Crash_of_1929http://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Crash_of_1929http://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/Naked_shortinghttp://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Margin_buyinghttp://en.wikipedia.org/wiki/Short_sellinghttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Over-the-counter_%28finance%29http://en.wikipedia.org/wiki/Commodities


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Other rules may include the prohibition of free-riding: putting in an order to buy stocks

without paying initially (there is normally a three-day grace period for delivery of the

stock), but then selling them (before the three-days are up) and using part of the proceeds

to make the original payment (assuming that the value of the stocks has not declined in theinterim).

New issuance

Global issuance of equity and equity-related instruments totaled $505 billion in 2004, a

29.8 %% increase over the $389 billion raised in 2003. Initial public offerings (IPOs) by US

issuers increased 221 %% with 233 offerings that raised $45 billion, and IPOs in Europe,

Middle East and Africa (EMEA) increased by 333 %%, from $ 9 billion to $39 billion.
http://en.wikipedia.org/wiki/Initial_public_offeringshttp://en.wikipedia.org/wiki/Europe,_the_Middle_East_and_Africahttp://en.wikipedia.org/wiki/Europe,_the_Middle_East_and_Africahttp://en.wikipedia.org/wiki/Europe,_the_Middle_East_and_Africahttp://en.wikipedia.org/wiki/Europe,_the_Middle_East_and_Africahttp://en.wikipedia.org/wiki/Initial_public_offerings


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4.0 Stock Market in Bangladesh

4.1 Economy of Bangladesh

Theeconomy ofBangladeshis a rapidly developing market-based economy. Its per capita

income in 2010 was est. US$1,700 (adjusted by purchasing power parity). According to the

International Monetary Fund, Bangladesh ranked as the 47th largest economy in the world

in 2010 in PPP terms and 57th largest in nominal terms, among the Next Eleven or N-11 of

Goldman Sachs and D-8 economies, with a gross domestic product of US$269.3 billion in

PPP terms and US$104.9 billion in nominal terms. The economy has grown at the rate of 6-

7% p.a. over the past few years. More than half of the GDP belongs to the service sector; a

major number of nearly half of Bangladeshis are employed in the agriculture sector, with

RMG, textiles, leather, jute, fish, vegetables, leather and leather goods, ceramics, fruits as

other important produce.

Economy of BangladeshRank 47Currency Bangladesh Taka (BDT)Fiscal year 1 July - 30 JuneTrade

organisations

WTO, WCO, IOR-ARC, SAFTA, D8

StatisticsGDP growth 6% (2010 est.)GDP per capita $1,700 (2010 est. PPP)GDP by sector Agriculture: (18.6%), Industry: (28.6%), Services: (52.8%) (2009

est.)Inflation(CPI) 5.4% (2009 est.)Populationbelow poverty line

30% (2011 est.)

Gini index 33.2 (2005)Labor force 73.87 million country comparison to the world: 8

Remittances estimated at $10.9 billion in 2009-10 (2009 est.)

Labor forceby occupation

Agriculture (45%), industry (30%), services (25%) (2008 est.)

Unemployment 5.1% (2010 est.)
http://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Developing_countryhttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29http://en.wikipedia.org/wiki/Next_Elevenhttp://en.wikipedia.org/wiki/Next_Elevenhttp://en.wikipedia.org/wiki/Goldman_Sachshttp://en.wikipedia.org/wiki/Developing_8_Countrieshttp://en.wikipedia.org/wiki/Bangladesh_Takahttp://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/Indian_Ocean_Rim_Association_for_Regional_Cooperationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Poverty_linehttp://en.wikipedia.org/wiki/Poverty_linehttp://en.wikipedia.org/wiki/Gini_indexhttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/Gini_indexhttp://en.wikipedia.org/wiki/Poverty_linehttp://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Indian_Ocean_Rim_Association_for_Regional_Cooperationhttp://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/Bangladesh_Takahttp://en.wikipedia.org/wiki/Developing_8_Countrieshttp://en.wikipedia.org/wiki/Goldman_Sachshttp://en.wikipedia.org/wiki/Next_Elevenhttp://en.wikipedia.org/wiki/Next_Elevenhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29http://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Developing_countryhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Economy


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Main industries cotton textiles, jute, garments, tea processing, leather, fish, oceangoing ship building, paper and newsprint, cement, chemicalfertilizer, light engineering, sugar, cane

Ease of DoingBusiness Rank

107th

External

Exports $22.93 billion (2010-2011)Export goods garments, textiles, jute and jute goods, ships, leather, produce,

frozen fish and seafood, pharmaceuticals, ceramics, cement

Main exportpartners

US 31.8%, EU 12.9%, Germany 10.9%, UK 7.9%, France5.2%, Netherlands 5.2%, Kuwait 4.9%, Japan 4.5%

Italy 4.42% (2010)

Imports $32 billion (2010-2011)Import goods machinery and equipment, chemicals, iron and steel, raw cotton,

food, crude oil and petroleum products,

Main importpartners

China 11.4%, Singapore 9.1%, India 8.5%, Hong Kong 7.1%, Japan6.5%, U.S 5.1% (2008 est.)

Gross external debt $15.23 billion (31 December 2008 est.)

Public finances

Public debt $1.2 billion (June 2008 est.)Revenues $19.1 billion (2008-2009 est.)Expenses $25.8 billion (2008-2009 est.)Economic aid $.957 billion (2010 est.)Credit rating BB- (Domestic)

BB- (Foreign)BB- (T&C Assessment)(Standard & Poor's)[2]

Main data source: CIA World Fact BookAll values, unless otherwise stated, are in US dollars

4.2 Stock Markets in Bangladesh

The stock market of Bangladesh is divided in two major markets- i. DSE (Dhaka Stock

Exchange), ii. CSE (Chittagong Stock Exchange). A brief discussion about these markets is

presented below.
http://en.wikipedia.org/wiki/Ease_of_Doing_Business_Indexhttp://en.wikipedia.org/wiki/Ease_of_Doing_Business_Indexhttp://en.wikipedia.org/wiki/List_of_countries_by_credit_ratinghttp://en.wikipedia.org/wiki/Standard_%26_Poor%27shttp://en.wikipedia.org/wiki/Economy_of_Bangladesh#cite_note-1http://en.wikipedia.org/wiki/Economy_of_Bangladesh#cite_note-1http://en.wikipedia.org/wiki/Economy_of_Bangladesh#cite_note-1https://www.cia.gov/library/publications/the-world-factbook/geos/bg.htmlhttps://www.cia.gov/library/publications/the-world-factbook/geos/bg.htmlhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttps://www.cia.gov/library/publications/the-world-factbook/geos/bg.htmlhttp://en.wikipedia.org/wiki/Economy_of_Bangladesh#cite_note-1http://en.wikipedia.org/wiki/Standard_%26_Poor%27shttp://en.wikipedia.org/wiki/List_of_countries_by_credit_ratinghttp://en.wikipedia.org/wiki/Ease_of_Doing_Business_Indexhttp://en.wikipedia.org/wiki/Ease_of_Doing_Business_Index


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4.2.1 DSE

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 soon thereafter set up an organizing committee for the formation of a

stock exchange in East Pakistan. A decisive step was taken 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. Khaleeli, Secretary Government Of East Bengal,

Commerce, Labor And Industries Department at which various aspects of the issue were

discussed in detail. Then the central governments proposal regarding the Karachi Stock

Exchange opening a branch at Dhaka did not find favor with the meeting who felt that East

Pakistan should have an independent stock exchange. It was suggested that Dhaka

Narayanganj Chamber Of Commerce & Industry should approach its members for purchase

of membership cards t RS.2000 each for the proposed stock exchange. The location of the

exchange it was thought should be Dhaka, Narayanganj or Chittagong. An organizing

committee was appointed consisting of leading commercial and industrial personalities of

the province with Mr. Mehdi Ispahani as the convener in order to organize the exchange.

The Chamber Informed Its Members And Members Of Its Affiliated Associations Of The

Proceedings Of The Above Meeting, Requesting Them To Intimate Whether They Were

Interested In Joining The Proposed Stock Exchange. This Was Followed By A Meeting, At

The Chamber Of About 100 Persons Interested In The Formation Of The Exchange On

07.07.1953. The Meeting Invited 8 Gentleman To Become Promoters Of The Exchange With

Mr. M Mehdi Ispahani As The Convener And Authorized Them To Draw Up The

Memorandum And Article Of Association Of The Exchange And Proceed To Obtain Register

Under The Companies Act.1913. The Other 7 Promoters Of The Exchange Were Mr. J M

Addision-Scott, Mr. Mhodammed Hanif, Mr. A C Jain, Mr. A K Khan, Mr M Shabbir Ahmed

And Mr. Sakhawat Hossin.


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It Was Also Decided That Membership Fee Was To Be Rs.2000 And Subscription Rate At 15

Per Month. The Exchange Was To Consist Of Not More Than 150 Members. A Meeting Of

The Promoters Was Held At The Chamber On 03.09.1953 When It Was Decided To Appoint

Orr Dignam & Co., Solicitors To Draw Up The Memorandum And Articles Of Association OfThe Stock Exchange Based On The Rules Of Stock Exchange Existing In Other Countries And

Taking Into Account Local Conditions.

The 8 Promoters Incorporated The Formation As The East Pakistan Stock Exchange

Association Ltd. On 28.04.1954. As Public Company. On 23.06.1962 The Name was Revised

To East Pakistan Stock Exchange Ltd. Again On 14.05.1964 The Name Of East Pakistan

Stock Exchange Limited Was Changed To "Dhaka Stock Exchange Ltd."

At The Time Of Incorporation The Authorized Capital Of The Exchange Was Rs. 300000

Divided Into 150 Shares. Of Rs. 2000 each and by an extra ordinary general meeting

adopted at the extra ordinary general meeting held on 22.02.1964 the authorised capital of

the exchange was increased to Tk. 500000 divided into 250 shares of Tk. 2000 each. The

paid up capital of the exchange now stoods at Tk.460000 dividend into 230 shares of Tk.

2000 each. However 35 shares out of 230 shares were issued at TK. 80,00,000 only per

share of TK. 2000 with a premium of TK. 79,98,000.

Although incorporated in 1954, the formal trading was started in 1956 at Narayanganj

after obtaining the certificates of commencement of business. But in 1958 it was shifted to

Dhaka and started functioning at the Narayangonj chamber building in Motijheel C/A.

On 1.10.1957 the stock exchange purchase a land measuring 8.75 Kattah at 9F Motijheel

C/A from the Government and shifted the stock Exchange to its own location in 1959.

The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its

activities are regulated by its Articles of Association rules & regulations and bye-laws along

with the Securities and Exchange Ordinance - 1969, Companies Act - 1994 & Securities &

Exchange Commission Act - 1993.


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4.2.1.1 Major Functions Performed by DSE

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). Gifting of share / granting approval to the transaction/transfer of share outside the

trading system of the exchange (As per Listing Regulations 42).

Market Administration & Control. Market Surveillance. Publication of Monthly Review. Monitoring the activities of listed companies (As per Listing Regulations). Investors 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.

4.2.1.2 Index Calculation Algorithm by DSE:

(according to IOSCO Index Methodology):Yesterday's Closing Index X Current M.Cap

Current Index = --------------------------------------------------------------

Opening M.Cap

Yesterday's Closing Index X Closing M.Cap

Closing Index = --------------------------------------------------------------

Opening M.Cap

Current M.Cap = ( LTP X Total no. of indexed shares )

Closing M.Cap = ( CP X Total no. of indexed shares )


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There are three indices in the DSE as follows :

Sl.No Index Name Base Index Remarks

1 DSI (all shares) 350 (as on 01-11-1993)

2DGEN

(A, B, G & N)817.63704 (as on 24-11-2001)

SEC directive regarding

index was on 17-11-2001

3 DS20 1000 (as on 01-01-2001)

Abbreviations and Acronyms

M.Cap - Market Capitalization

DSE - Dhaka Stock Exchange

IOSCO - International Organization of Securities Exchange Commissions (IOSCO)

LTP - Last Traded Price

CP - Closing Price

4.2.1.3 Branches of DSE:

DSE Head Office:

Dhaka Stock Exchange Ltd.

Stock Exchange Building

9/F Motijheel C/A

Dhaka-1000

Phone: +88-02-9564601, 7175703-11

Fax: +88-02-9564727


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DSE Branch Offices:

DSE Chittagong Office Address: Shafi Bhaban

6, Sheikh Mujib Road

Agrabad Commercial Area

Chittagong-4100

Phone: +88-031-2514100

Fax: +88-031-2514100

DSE Sylhet Office Address: RN Tower

Chowhatta

Sylhet

Phone: +88-0821-2830975

Fax: +88-0821-2830975

DSE Khulna Office Address: City Trade Center (2nd Floor)

75, K.D.A Avenue,

Khulna - 9100

Phone: +88-041-811600

Fax: +88-041-811600

DSE Rajshahi Office Address: Rajshahi Chamber of Commerce & IndustryChamber Bhaban (1st Floor)

Station Road,

Rajshahi -6100


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4.2.1.4 Clearing & Settlement Process of DSE:

The Clearing and Settlement module provides the management of trade from the point of

entry into the Settlement Pool trade database until it has been delivered, settled and

removed from the Settlement Pool. It consists of three major business processes.

Clearing: participant trade reporting, affirmation, billing and assigning settlement

instructions.

Settlement: the process of overseeing that delivery of all instruments to the buyer and

payment of all moneys to the seller has occurred before removing the trade from the

settlement pool.

Regulation 4 of the Settlement of Stock Exchange Transactions Regulation 1998 has been

given effect time to time. A new directive was made by SEC dated on 18th March 2003

"Adjusted due position mechanism for settlement of scrip only as provided by regulation

4(1) of settlement of Stock Exchange Transaction Regulations, 1998 shall remain

suspended from 19th March 2003 until further order"

Here is a complete picture of the settlement system for all of 427 Instruments in Five (5)

groups in the Four (4) markets.

A Group: Number of Instruments are 338 (150 + 8D + 22M + 158TB), Here D for

Debentures, M for Mutual funds & TB for Treasury Bonds (Trading in Public, Block & Odd-

lot Market with trade for trade settlement facility for scrip only through DSE Clearing

House on T+1, T+3 basis). "A" and "DA" are marked in BASES columns for Non-Demat &

Demat instrument respectively in our TESA Trading Software.


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The above cycle is valid for A, B, G & N category instruments traded in Public, Block &

Odd-lot market.

B Group: Number of Instruments are 44(Trading in Public, Block & Odd-lot Market with

trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). "B" and

"DB" are marked in BASES columns for Non-Demat & Demat instrument respectively in our

TESA Trading software.

G Group: Number of Instrument is 0 (Trading in Public, Block & Odd-lot Market with trade

for trade settlement facility through DSE Clearing House on T+1, T+3 basis). "G" and "DG"

are marked in BASES columns for Non-Demat & Demat instrument respectively in our


N Group: Number of Instrument is 11(Trading in Public, Block & Odd-lot Market with

trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). "N" and

"DN" are marked in BASES columns for Non-Demat & Demat instrument respectively in our



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Z Group: Number of Instruments are 34(Trading in Public, Block & Odd-lot Market with

trade for trade settlement facility through DSE Clearing House on T+1, T+9 basis). "Z" and

"DZ" are marked in BASES columns for Non-Demat & Demat instrument respectively in our


This cycle is valid only for Z group instruments traded in Public, Block & Odd-lot market.

Instruments Of All Groups Traded In Spot Market:

The above cycle is valid for A, B, G, N & Z category instruments traded in spot market.


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Instruments Of Foreign Trades (DVP) Of All Groups:

The above cycle is valid for A, B, G, N & Z category instruments of Foreign trade.

* If any instrument declared as Compulsory Spot then Trades of Block and Odd-lot

market of that Instrument will be settled like Spot Market.

* Howla Charge, Laga Charge & Tax are always payable to DSE at Pay-In date for both

Buyer and Seller traded in Public, Block & Odd-lot Market.

* Howla Charge, Laga Charge & Tax are always payable to DSE at T+1 day for both

Buyer and Seller traded in Spot Market.

* Outside-Of-Netted settlement for "A" Group instrument has been withdrawn from 10th

Dec 2006.

* DVP Trades are Off-Market Settlement (Broker to Broker).


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SETTLEMENT FOR DIFFERENT CATEGORIES INSTRUMENTS

01) for A group Instruments:

Market name Trade for Trade System Settlement & Settlement Period

Public Trade for Trade * T+1 & T+3

Odd + Block Trade for Trade T+1 & T+3

Spot Trade for Trade T+0 & T+1

02) For B group Instruments:




Spot (Before Book-closer) Trade for Trade T+0 & T+1

03) For G group Instruments:





04) For N group Instruments:


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Odd + Block Trade for Trade T+1 & T+3Spot (Before Book-closer) Trade for Trade T+0 & T+1

* As netting system for shares has withdrawn, for A, B, G & N group instrument, member

will have to deposit the full shares at the DSE on T+1 after selling the shares, In case of

purchasing such shares, the buyer will have to deposit the Balanced (Netted) money

traded in Public, Block & Odd-lot market at the DSE on T+1.

05) For Z group Instruments:





** Under the Trade for trade settlement system, member will have to deposit the full

money at the DSE on T+1 after purchasing the shares, In case of selling such shares, the

seller will have to deposit the full shares at the DSE on T+9.

DEMATE SHARE:

All selling shares have to transfer (Pay in) to the clearing account of selling Brokers from

concerned BO account within settlement period. Regarding the cash payment the

procedure will remain unchanged as mentioned above.


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Price Monitoring

The functioning of the Price Monitoring is broadly divided into following activities -

On line Surveillance

One of the most important tools of the Surveillance is the On-line Real Time Surveillance

system with main objectives of detecting potential market abuses at a nascent stage to

reduce the ability of the market participants to unduly influence the price and volumes of

the scrips traded at the Exchange, improve the risk management system and strengthen the

self regulatory mechanism at the Exchange. The system provides facility to access trades

and orders of members.

Off-Line Surveillance

The Off-Line Surveillance system comprises of the various reports based on different

parameters and scrutiny thereof -

High/ Low Difference in prices % change in prices over a week/ fortnight/ month Top N scrips by Turnover over a week/ fortnight/ month Top N scrips by Volume over a week/ fortnight/ month Trading in infrequently traded scrips Scrips hitting New High / Low etc.

The Surveillance actions or investigations are initiated in the scrips identified from the

above-stated reports.


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Investigations

Conducting in-depth investigations based on preliminary enquiries/analysis made into

trading of the scrip. In case of irregularities observed, necessary actions are initiated or

investigation case forwarded to SEC, if necessary through the CEO.

Surveillance Actions

Warning to Members

The department may issue verbal/ written warning to member/s when market

irregularities in the scrip are suspected.

Imposition of penalty/ suspension

The department, through the CEO, imposes penalty or suspend the member/s who

are involved in market irregularities, based on the input/ evidence available from

investigation report.

Rumor verification

Liaising with Compliance Officers of companies to obtain comments of the companyon various price sensitive corporate news items appearing in selected News Papers.

Comments received from the companies are disseminated to the market by way ofonline news bulletin.

Investigations based on rumor verifications are carried out, if required, to detectcases of suspected insider trading.


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Position Monitoring

The Surveillance Department closely monitors outstanding exposure of members on a daily

basis. For this purpose, it observes various off-line and on-line market monitoring reports.

The reports are scrutinized to ascertain whether there is excessive purchase or sale

position build up compared to the normal business of the member, whether there are

concentrated purchases or sales, whether the purchases have been made by inactive or

financially weak members and even the quality of scrips is considered to assess the quality

of exposure.

The following key areas are examined to assess the market risk involved -

Online monitoring of Brokers Position

Surveillance closely monitors brokers gross turnover exposure for ensuring margin calls in

time.

B/S Statement of Trading Members

Scrutinizing the statement on daily basis. It is for keeping a watch on the exposure of the

members & ascertains the quality of exposures.

A detailed report on the net outstanding positions of top purchasers and top sellers in

individual scrips, is prepared, if considered necessary.


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Concentrated B/S

It is considered a risky issue. In case, such a situation is noticed, fundamentals of the scrips,

their daily turnover, and their nature of transactions are ascertained. Thereafter, based on

the market risk perception appropriate surveillance actions are taken.

B/S of scrips having thin trading

It is closely scrutinized as comparatively high market risk is involved in trading in such

scrips. Details of trades in such scrips, if necessary, are called from members to assess the

market risk involved & decide on the appropriate surveillance action.

Verification of Institutional Trade

The institutional trades executed by the trading members are verified to ascertain the

genuineness of trades.

Verification of Foreign Trade

The foreign trades executed by the trading members are verified to ascertain the


Verification of Cross Reporting Trade

The report crossing trades executed by the trading members are verified to ascertain the



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Verification of Dealers own trades

Trades executed by the trading members (Dealers) are verified to ascertain the


Verification of Sponsor's Trade

The Sponsors trades executed by the trading members are verified to ascertain the


Snap Investigation

To carry out, wherever considered necessary, preliminary investigation of certain dealings

to verify irregularities. Further actions, viz., referring the case for detailed investigation,

referring the case to the Sec, depending on the findings of preliminary investigation.

Market Intelligence

The rumors floating in the market are verified with the data available with

DSE,Newspapers, Television news channels & Reuters to ascertain the national & global

factors affecting the market sentiments. This enables the Exchange to avert market

problems before it causes a serious damage.


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Review Block Trades

To determine -

Whether the block was executed at a price, even if at a discount or premium whichwas in line with other trading of the stock.

Whether there was any news on the company which caused the price increase ordecrease subsequent to the block transaction.

Review List of Settlement Failures

To identify -

broker/s with frequent failures A particular stock with a pattern

Verify Company Accounts

To scrutinize company announcements, company reports, auditors qualifications & other

notes of special interests in the published accounts of such company.

Review Media Information

To scrutinize press articles or other media on the daily basis, the news relevant to the share

prices of companies.


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Monitoring on Newly Listed Stock

To review all activities of a newly listed stock for the first 1 / 2 weeks to identify any

abnormal deal.

Develop Good Liaison

To develop & maintain good liaison with staff members of SEC & listed companies &

member firms as well.

4.2.2 CSE:

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 BangladeshGovernment 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.


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4.2.2.1 Mission of CSE:

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.

4.2.2.2 Objectives of CSE:

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.

4.2.2.3 Milestones of CSE:

12th February 1995 Bangladesh Government approved CSE

1st April 1995 Incorporated as a limited company

10th October 1995 Floor Trading started

1st January 1996 Became corresponding member of World Federation of Exchanges

(Former FIVB)

2nd June 1998 First bourse to automate the nationwide trading system


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1999 Established CSE Investor Protection Fund

16th January 2000 Convened SAFE

26th January 2004 Sponsored Central Depository Bangladesh Ltd. (CDBL)

30th May 2004 Internet Trading Service opened4th July 2004 Over- the-Counter market opened

4.2.2.4 Legal Basis of CSE:

As legal entity CSE is a not-for-profit public limited company. All of its 129 membersare 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 itmay deem fit. There is an independent secretariat headed by a full time Chief

Executive Officer. CSE activities are regulated by its own regulations and bye laws

along with the rules, orders and notification of the SEC.

4.2.2.5 Regulatory Structure Overview of CSE:


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4.2.2.6 Organization Structure of CSE:

4.2.2.7 Trading System of CSE:

The Chittagong Stock Exchange was the first stock exchange in the country to introduce

automated trading system on June 1999. The trading system at CSE known as CHITTRA

connected major cities of Bangladesh enabling all members to trade nation wide

simultaneously with ease and efficiency. CHITTRA provides a screen based, quote-driven

trading facility. Investors are allowed to quote an expected price in their buy/sell orders.

CHITTRA automatically matches the best prices.

Order Matching Mechanism

In terms of the matching process, there are two methods

1. Orders are sorted and matched with opposite orders of the best price. Waiting orders are

automatically in the following sequence keeping the system fair and transparent:

Best Price Within Price, by time priority.


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The best buy order will match with the best sell order. The best buy order for a seller is the

one with highest price and the best sell order for a buyer is the one with lowest price. An

order may match partially with another order resulting in multiple trades.

2. Orders are queued for matching at a specified time at a single price.

Subsequent to matching, trade confirmations are sent to the respective workstations,

which can be printed on-line. The system displays scrip and market-related information

required to support traders.

TRADING ORDERS

CSE trading system provides immense flexibility to the investors in terms of kinds of orders

that can be placed to trade. The system allows the user to modify or cancel an order prior

to execution.

The most frequently order on the CSE is the "limit order, which is an order to buy or sell at

a specific price. Conditions related to time can be easily made into a limit order, which are

as follows

Good Till Cancelled (GTC): A GTC order is the order that remains in the system for a

period not exceeding one calendar week or the member cancels it.

Good For Day (GFD): A GFD is the order, which is valid for the day on which it is entered.

If the order is not matched during the day, the order gets cancelled automatically at the end

of the trading day.

Good Till Date (GTD): A GTD order allows the member to specify the number of days not

exceeding one calendar week for which the order shall stay in the stay in the system. At the

end of this period the order shall be deleted from the system.

In addition to limit order, the Exchange has introduced other following types of orders for

the investors


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1. Market order: Market Order is an order to buy or sell a certain quantity of particular

security at the best price or prices prevailing in the market at that point of time.

Volume related conditional market orders are following categories:

Full Fill or Kill (FOK): A FOK order is the order that will match for a trade at the Market

Price only if the total quantity is available.

Partial Fill Rest Kill (PFRK): A PFRK order is the order that will match for a trade at the

Market Price for the quantity available in the market. The balance quantity, if any, will be

deleted from the system.

Partial Fill Rest Convert (PFRC): A PFRC order is the order that will match for a trade at

the market price for the quantity available in the market. The balance quantity, if any, will

be converted to a Limit Order at the last traded price.

Minimum Fill: An order in which the minimum quantity must be filled.

2. Drip Feed Order: A Drip Feed Order is an order in which the member has the option to

specify a replenish quantity along with the total order quantity. Only the replenish quantity

is revealed to the market. The quantity gets replenished only when the previous quantity

has got traded and every time the quantity gets replenished, the visible quantity gets a new

time stamp.

3. Stop Loss Order: A Stop Loss Order allows the member to place an order, which gets

activated only when the market price of the relevant security reaches or crosses trigger

price. A stop loss order can be modified or deleted until it is not converted to a limit order.

4. Match at Closing Price Order:A Match at Closing Price Order allows the Member to

specify order to be executed at Closing Price.


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5. Spot Order: Members shall be allowed to carry out spot order on CSE system arising out

of closure of book or closure of the renunciation period of listed Companies. A spot order is

traded against another spot order only.

6. Odd Lot Order: Any share quantity, which is not a market lot or multiple of market lots

shall be called Odd Lot. While matching the system would match orders only if the quantity

(odd) of the order is fully satisfied by one of the opposite order.

7. Bulk lot order: Bulk lot orders are multiple of market lot orders, which contain multiple

number of certificates. Each of the Bulk lot order shall match with equal quantity and best

price. The minimum amount for a bid of bulk lot for a certain security shall be Tk 0.5 ( point

five) million at market price unless otherwise fixed by the Board time to time with the

approval of the SEC.

8. Big Lot Order: Big lots are multiple of market lots inscribed in one single certificate.

Each of the big lot order shall match with equal quantity and equal or better price.

9. Auction Order: Auction Order shall be an order entered by CSE. The Exchange will

specify a rate with price brand for each security when putting the auction order. The

auction orders entered by CSE cannot be modified or deleted once the auction session has

started.

4.2.2.8 Opening & Closing Price Calculation of CSE:

Computation of opening price of scrips:

The opening price of a security shall be the price at which maximum number of securities is

matched in opening session.


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Computation of closing price of scrips:

The closing prices of scrips are computed on the basis of weighted average price of all

trades in the last 30 minutes of the continuous trading session. However, if there is no

trade during the last 30 minutes, the weighted average price of maximum 50 (fifty) number

of trades preceding the above 30(thirty) minutes shall be taken for determination of

closing price. In case there is no trade in the security during the continuous trading session

the opening price of the security shall be treated as the closing price.

Price Limit

Price Limit means a price control mechanism used to minimize the excessive volatility in

the market. Since unusual and abnormal price fluctuation of the securities may severely

affect investors interest CSE , as an additional measure of safety ,imposes price limit on the

securities trading of A,B,G& N category companies as per the following guidelines. A

Committee named Share Price Movement Regulating Committee comprised of CSE

Secretariat is responsible to regulate the price limit in the market.

4.2.2.9 Guidelines of CSE:

The following standard upward and downward price limits are applicable for A, B G &

N category companies for each market days:

Previous days per share market

price

Limits

01. Upto Tk. 200 20% (Twenty Percent ) but not exceeding Tk.35

02. Tk.201 to Tk.500 17.5% (Seventeen Point Five Percent ) but not

exceeding Tk.75


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03. Tk.501 to Tk. 1000 15% (Fifteen Percent ) but not exceeding Tk.125

04. Tk.1001 to Tk. 2000 12.5% (Twelve Point Five Percent ) but not exceeding

Tk.200

05. Tk.2001 to Tk.5000 10% (Ten Percent ) but not exceeding Tk.375

06. Tk.5001 and above 7.5% (Seven Point Five Percent ) but not exceeding

Tk.600

However the above price limit will not be applicable in the following cases:

1. There is no price limit for Z category companies. Free trade of Z category is allowed for

each market day. However, for Z category shares Circuit Filter @10% is applicable and the

circuit filter is calculated on the basis of last traded price of the shares of this category

during trading hours

2. A newly listed securities is allowed for free trade for first 5(five) consecutive market

days.

3. Free trade is also allowed on the subsequent trading day of receiving price sensitive

information like rights issue, bonus issue and dividend from the listed company. After the

day, the price limit will be applicable as usually.

4. Free trade is allowed on the first trading day subsequent to the record date from 12.00

noon to the rest of the trading hours of the day due to closure of transaction resulting from

record date/book closure date.


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4.2.2.10 Margin Requirements with CSE:

The CSE put in place a comprehensive risk management system, which is constantly

monitored to pre-empt any trading failures. It collect margins from members to address

the problems related to the volatile trading activities as well as to settlement failure.

CSE imposes margin requirements on the members additional trade exposure. Additional

trade exposure means the amount of the aggregate (gross) trade exposure exceeding the

free limit for each member. Aggregate (gross) trade exposure is computed on the total buys

and total sales position of a member at any point of time during a trading day. The free

limit on the amount of the gross trade exposure to trade in CSE is taka one crore per

trading day.

The member shall pay the margins in cash, bank guarantee or FDRs etc. within one hour of

exceeding the free limit on the amount of the gross trade exposure. As per Chittagong Stock

Exchange (Members Margin) Regulations,2000 the rate of depositing the members margin

with the clearing house on the additional trade exposure are as follows:-

ADDITIONAL TRADE EXPOSURE MEMBERS MARGIN RATE

(a) Above taka one crore but not exceeding taka two crore @ 20%

(b) Above taka two crore but not exceeding taka three crore @30%

(c) Above taka three crore but not exceeding five crore @50%

(d) Above taka five crore @100%

Exposure limit violation

The trading right of the members who exceeds the free limit without depositing margin to

CSE within the prescribed time shall remain suspended.


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Adjustment or refund of members margin :-

The Exchange can realizes the value of the margin instruments and adjusts the amount so

realized if member fails to settle his trade with the clearing house on the settlement day.

The member shall be liable to pay the shortfall, if any, including the costs, interest, charges

and expenses involved in the realization process, within three days of the written notice of

demand issued to him by the Exchange.

4.2.2.11 Transaction on Client by Margin:

A member may provide broker service to its client on cash account and /or margin account

basis. Client who pays in full for the cost of the securities purchased uses cash accounts.

Margin is buying securities on credit while using those same or other securities as

collateral for the loan. A client is authorized to borrow part of an investments total

purchase cost from their brokerage firm using margin accounts. Brokers have policies and

procedures to protect themselves from market risk, as well as credit risk.

As per Margin Rules, 1999 the member in no way extends credit facilities to its client until

and unless the client maintains margin account with the broker through a written

agreement. The client needs to carefully review the margin agreement provided by broker.

The client shall deposit margin not later than seven days from the first date of securities

transaction in the form of cash, securities issued by the Government or its agencies,

marginable securities etc. The amount of the initial margin would result in the equity being

not less than 150% of the debit balance in the account. Additional margin is required to bedeposited if the account falls below 150% of the debit balance. The failure to do so may

cause the broker to force the sale ofor liquidatethe securities in the clients account in

order to bring the accounts equity back up to the required level.


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The firm must also provide the customer with periodic disclosures informing the customer

of transactions in the account and the interest charges to the customer.

Risks Involved With Trading on Margin

As a client anyone may generally use margin to expand the purchasing power. However it

also run the risk there are a number of risks that all investors need to consider in deciding

to trade securities on margin. These risks include the following:

Lose more funds than deposited in the margin account: A decline in the value ofsecurities that are purchased on margin may require to provide additional funds to

the broker that has made the loan to avoid the forced sale of those securities or

other securities in the account.

The broker can sale of securities in the account: The broker can sell thesecurities in the account to cover the margin deficiency. Investor will also be

responsible for any short fall in the account after such a sale.

The broker can sell investors securities without contacting him: Someinvestors mistakenly believe that a broker must contact them for a margin call to be

valid. As a matter of good customer relations, most broker will attempt to notify

their client but they are not required to do so.

Investor is not entitled to an extension of time to deposit the margin: Anextension of time to meet initial or additional margin requirements may not be

available to investor.

INTERNET TRADING SERVICES

CSE is not only the pioneer of establishment of nationwide trading mechanism. It also

extended its network to the abroad by introducing Internet Trading System on 30th May

2004. Investors may have access to CSEs trading network not only from the premises of

the brokers but also from personal computers in investors home through the Internet.


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Internet trading is available on CSE. The CSE network allows its user to use internet as an

order routing system for communicating clients orders to the CHITTRA through brokers.

Broker can provide this service to their client after obtaining permission from respective

stock exchanges. CSE has stipulated the minimum conditions to be fulfilled by brokers tostart Internet based trading services.

4.3 Recent Fall Out in Stock Markets of Bangladesh

Reuters

Investors add bamboo poles to a fire as they block roads around the Dhaka StockExchange in Dhaka January 10, 2011. Bangladesh police fired tear gas and water

cannon to break up violent protests by investors on Monday after stock trading was

halted when prices went into free fall.


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Reuters

Investors vandalize a car as they block roads around the Dhaka Stock Exchange inDhaka January 10, 2011.


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Reuters

Investors chant slogans accusing dishonest brokers and traders of manipulatingstock prices as they block roads around the Dhaka Stock Exchange in Dhaka January

10, 2011.


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5.0 Discussion

Trading on the Dhaka Stock Exchange index was halted after it fell by 660 points or 9.25%,

in less than an hour in 9th January 2011. It was the biggest one-day fall in its 55-year

history. It is estimated that over three million people - many of them small-scale individual

investors - have lost money because of the plunging share prices. The benchmark index had

climbed by 80% in 2010 but has lost more than 27% since early December. Investors and

police also clashed last month. Monday's protest followed losses of about 6.7% in Sunday

trading. Trading was also halted on the country's other main index, the Chittagong Stock

Exchange. There was also violence in the port city of Chittagong - which has its own

exchange.The rising value of the stocks in recent years has attracted millions of investors in

Bangladesh. Shares have become a popular investment for ordinary people, often providing

higher returns than bank deposits and savings.

The BBC's Mark Dummett says that Bangladesh might be one of Asia's poorest countries,

but its two stock markets have soared in recent years on the rising value of its mobile

telephone companies and other firms.

Stock market graph by DSC


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After having gained by about 80 percent during the year 2010, Dhaka Stock Exchange has

shown an unprecedented nose-dive on Sunday. The Stock Market lost 660 points (9.25 %)

in just one hour. As a result the trading suffered a loss of about 6.7 percent. Chittagong

Stock Market also met a similar fate. An abrupt crash of the market sparked violentprotests from the Bangladeshi investors.

Investment in the stocks is a popular business among the educated middle class of

Bangladesh who were left frustrated with the sudden loss to their capital. They were

finding ways and means to exit from the market in order to minimize the losses.

The analysts have opined that the immediate reason for this crash was the policy of the

regulators of the market who laid down a limit for investment by the banks and other

financial institutions in the stocks. This was done in order to avoid the market being

overvalued. As the banks and other big investor institutions withdrew the capital from the

market, the panic ensued.

The analysts have opined that the immediate reason for this crash was the policy of the

regulators of the market who laid down a limit for investment by the banks and other

financial institutions in the stocks. This was done in order to avoid the market being

overvalued. As the banks and other big investor institutions withdrew the capital from the

market, the panic ensued. Price manipulation and lack of knowledge are most major

problems also.

The government of Bangladesh may be under pressure to intervene in order to protect the

hard earned money of the small investors from being lost due to this unusual crash of the

stock market. Stock price was also slightly influenced by the some key people of

government. There is also some false news from some company behind this problem.

However by this time of January 2010, Investors, who have not received any positive

assurance from the government, demanded the market remain shut until the prime

minister takes up the issue and comes up with a solution to restore confidence in the

market and the regulators suspended six trading houses on the main Dhaka Stock

Exchange.


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FIN 453 Report Final

Documents

Transcript of FIN 453 Report Final