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CChh[[pptt__rr 11

C O N T E X T 1.0 Introduction Capital Market mainly refers to the Stock and Share market of the country. When bank-

ing system cannot totally meet up the need for funds to the market economy, capital

market stands up to supplement it. Companies and the government can raise funds for

long-term investments via the capital market. The capital market includes the stock

market, the bond market, and the primary market. Securities trading on organized cap-

ital markets are monitored by the government; new issues are approved by authorities

of financial supervision and monitored by participating banks. Thus, organized capital

markets are able to guarantee sound investment opportunities. This paper reveals the

various aspects of the Capital Market in Bangladesh.

1.1 Objectives

Capital market, being an essential element of today’s economy, demands an intensive

and special attention. The objective of this study is to look into every aspect of Bangla-

desh capital market and identify its various pros and cons along with some recommen-

dations to overcome the existing problems.

The specific objectives of this study are:

� To give an overall idea about the capital market-its structures, functions, impor-

tance, etc.

� To identify the current situations of our capital market of Bangladesh.

� To compare the relative conditions of Bangladesh capital market to other coun-

tries of the world.

� To sort out the problems associated with our capital market.

� To suggest some practicable solutions to these problems.

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1.2 Methodology

Secondary data and information were used in preparing this seminar paper, and these

were collected through teamwork by adopting the following processes:

■ Visiting in person, the following organizations and respective key personnel:

� Dhaka Stock Exchange (DSE)

� Dhaka Chamber of Commerce (DCC)

� Bangladesh Bank (BB)

� Monetary Policy Department (MPD), BB

■ Consulting books from different libraries of:

� Bangladesh Institute of Development Studies (BIDS)

� Dhaka Chamber of Commerce (DCC)

� Bangladesh Bank (BB)

� Other Books

1.3 Literature review

Keeping the objectives in mind of the present study, we had reviewed the existing lite-

ratures. The Capital Market Development in Bangladesh: problems and prospects (Mah-

mood Osman Imam, October 5, 2000), Capital Market: An Overview (Md. Hasan Imam,

2005), An Overview of Bangladesh Capital Market (AZM Nazimuddin, 2007), Emerging

Stock market and the Economy: The Case of Bangladesh (Ahmed, M. Farid, 2000), Equity

Market Performance in Bangladesh: An Evaluation Savings and Development (Ahmed.

M.Farid, 1998), The Stock market and the Economy: The Indian Experience (Mookerjee.

R., R., 1981), Foreign Portfolio Investment: Return. Growth, Determinants and Monitoring

- A Critical Analysis (Nafisa H., 1998), Financial deepening in Economic Development

(Shaw. E., 1973), Fostering Investor Confidence in the Asian and Pacific Capital Markets

(Tarumizu, K., 1993). Dhaka Stock Exchange Monthly Review, (September, 2011), Finan-

cial Markets and Institutions (Jeff Madura, 2008) are some of the studies that helped us.

However, although these studies offered various insights into the dynamics of the cur-

rent capital market of Bangladesh, their extent of point of discussion are different and

reviewed from different aspects. In this paper we have tried to compile and explain all

the relevant information to make the paper successful.

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1.4 Limitations of the study

While conducting the study, we were confronted with the following limitations:

� There was a little scope for research on this crucial subject as all the data was

secondary and no way to collect primary data was available.

� Lack of a wider coverage due to time constraint. We did not have much time to

visit all the relevant places and meet respective personnel.

� Only secondary data was used, but there is no alternative of primary data to en-

sure the accuracy and effectiveness of the study.

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CChh[[pptt__rr 22 C A P I T A L M A R K E T I N B A N G L A D E S H

2.1 Definition Capital market can be termed as the engine of raising capital, which accelerates indu-

strialization and the process of privatization. In other words, capital market means the

share and stock markets of the country. It is a market for long term fund. With the

emergence of the need for infrastructural development projects, for setting up of new

industries for entrepreneurial attempts-now there are more frequent needs of funds.

Participants in the capital markets are many. They include the commercial banks, sav-

ing and loan associations, credit unions, mutual saving banks, finance houses, finance

companies, merchant bankers, discount houses, venture capital companies, leasing

companies, investment banks & companies, investment clubs, pension funds, stock ex-

changes, security companies, underwriters, portfolio-managers, and insurance compa-

nies.

2.2 Functions The functioning of an efficient capital market may ensure smooth floatation of funds

from the savers to the investors. When banking system cannot meet up the total need

for funds to the market economy, capital market stands up to supplement. To put it in a

single sentence, we can therefore say that the increased need for funds in the business

sector has created an immense need for an effective and efficient capital market. It faci-

litates an efficient transfer of resources from savers to investors and becomes conduits

for channeling investment funds from investors to borrowers. The capital market is

required to meet at least two basic requirements: (a) it should support industrialization

through savings mobilization, investment fund allocation and maturity transformation

and (b) it must be safe and efficient in discharging the aforesaid function. It has two

segments, namely, securities segments and non-securities segments.

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2.3 Classification of companies

The SEC classified firms in terms of A, B, G, N and Z categories that had not only guided

retail investors to know weak shares but also helped reducing netting and gambling

done by a few hidden consortia.

■ “A” Category Companies: Companies which are regular in holding the Annual

General Meetings (AGM) and have declared dividend at the rate of 10 percent or

more in a calendar year. (Mutual fund, debentures and bonds are being traded in

this category).

■ “B” Category Companies: Companies which are regular in holding the AGM but

have failed to declare dividend at least at the rate of 10 percent in a calendar

year.

■ “G’ Category Companies: Greenfield companies.

■ “N’ Category Companies: All newly listed companies except Greenfield companies

will be placed in this category and their settlement system would be like

B-Category companies.

■ “Z’ Category Companies: Companies which have failed to hold the AGM or failed

to declare any dividend or which are not in operation continuously for more

than six months or whose accumulated loss after adjustment of revenue reserve,

if any is negative and exceeded its paid up capital.

2.4 Importance of Capital Market in the economy

The capital market is the market for long-term loans and equity capital. Developing

countries in fact, view capital market as the engine for future growth through mobiliz-

ing of surplus fund to the deficit group. An efficient capital market may perform as an

alternative to many other financing sources as being the least cost capital source. Espe-

cially in a country like ours, where savings is minimal, and capital market can no won-

der be a lucrative source of finance.

The securities market provides a linkage between the savings and the preferred in-

vestment across the business entities and other economic units, specially the general

households that in aggregate form the surplus savings units. It offers alternative in-

vestment windows to the surplus savings units by mobilizing their savings and channe-

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lizes them through securities into optimal destinations. The stock market enables all

individuals, irrespective of their means, to share the increased wealth provided by

competitive enterprises. Moreover, the stock market also provides a market system for

purchase and sale of listed securities and thereby ensures liquidity (transferability of

securities), which is the basis for the joint stock enterprise system. (The existence of the

stock market makes it possible to satisfy simultaneously the needs of the firms for cap-

ital and of investors for liquidity.) Especially at times when the banking sector of the

country is facing the challenge of bringing down the advance-deposit ratio to sustaina-

ble level, the economy of the country is unfolding newer horizon of opportunities. Due

to over-exposure level of the financial system the securities market could play a very

positive role, had there been no market debacle. Due to the last market crash and follow

through events, it will be difficult to utilize the primary market to raise significant vo-

lume of funds. Thus the greatest economic importance of securities market at this point

can be understood from the opportunities being lost. Bangladesh having its target to

become a middle income country must have significant level of rise in investment,

which at the present state of banking system cannot be met. The securities market

could play the key role in meeting these huge investment demands if the secondary

market would remain stable.

The capital market also helps increase savings and investment, which are essential for

economic development. An equity market, by allowing diversification across a variety

of assets, helps reduce the risk the investors must bear, thus reducing the cost of capi-

tal, which in turn spurs investment and economic growth. However, volatility and mar-

ket efficiency are two important features which will ultimately determine the effec-

tiveness of the stock market in economic development. If a stock market is inefficient

due to insufficient informational supply, investors face difficulty in choosing the optim-

al investment as information on corporate performance is slow or less available. The

resulting uncertainty may induce investors either to withdraw from the market until

this uncertainty is resolved or discourage them to invest funds for long term. Moreover,

if investors are not rewarded for taking on higher risk by investing in the stock market,

or if excess volatility weakens investor’s confidence, they will not invest their savings in

the stock market, and hence deter economic growth. The emerging stock markets offer

an opportunity to examine the evolution of stock return distributions and stochastic

processes in response to economic and political changes in these emerging economies.

22 22

2.5 Structure of the Capital Market

Bangladesh capital market is one of the smallest in Asia but within the south Asian r

gion, it is the third largest one. It has two full

namely Dhaka Stock Exchange

change oper-

ated by CSE. It

also consists of

a dedicated

regulator, the

Securities and

Exchange

Commission

(SEC), since, it implements rules and regulations, mon

and develop the capital.

It consists of Central Depository Bangladesh Limited (CDBL), the only Central Dep

tory in Bangladesh that provides facili

rialized securities in CSE market and DSE.

2.6 Bangladesh Stock Market

Amid all the formidable obstacles

momentum. Even in the backdrop of Global Financial Crisis 2008 when the stock ma

kets in almost all the developed and developing countries crashed and Gover

those countries spent thousands of dollars t

mension in Bangladesh capital market has been becoming gradually strong and secur

ties market registered significant growth at the initial stage and later market fell a little

bit. The reason is might be that the amou

market is more or less only two per

shares has been causing overheating situation and circumstance like overpricing has

been a common phenomenon here in recent

Tk. of 250 crore two years ago to

to record 8,918 from 2,400 two years back. But demand and supply should match at a

certain point to the tune of bringing time

Figure 1: Structure of Capital Market of Bangladesh

Dhaka Stock Exchange (DSE)

Structure of the Capital Market in Bangladesh

Bangladesh capital market is one of the smallest in Asia but within the south Asian r

gion, it is the third largest one. It has two full-fledged automated stock exchanges

Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE) and an

(SEC), since, it implements rules and regulations, monitors their implications to o

It consists of Central Depository Bangladesh Limited (CDBL), the only Central Dep

tory in Bangladesh that provides facilities for the settlement of transactions of d

rialized securities in CSE market and DSE.

Bangladesh Stock Market

obstacles, our country’s securities market has been gaining

momentum. Even in the backdrop of Global Financial Crisis 2008 when the stock ma

kets in almost all the developed and developing countries crashed and Gover

those countries spent thousands of dollars to rescue the markets. Both depth and d

mension in Bangladesh capital market has been becoming gradually strong and secur

ties market registered significant growth at the initial stage and later market fell a little

that the amount of foreign portfolio in Bangladesh securities

et is more or less only two percent. But lack of supply of fundamentally sound

shares has been causing overheating situation and circumstance like overpricing has

been a common phenomenon here in recent times. Transaction has risen from a daily

of 250 crore two years ago to Tk. 2,500 crore now and DSE General Index has risen

to record 8,918 from 2,400 two years back. But demand and supply should match at a

certain point to the tune of bringing time-bound balance in the securities market.

Figure 1: Structure of Capital Market of Bangladesh

Capital Market of Bangladesh

Dhaka Stock Exchange (DSE)

Chittagong Stock Exchange

(CSE)

Stock and Securities

Exchange (SEC)

Bangladesh capital market is one of the smallest in Asia but within the south Asian re-

fledged automated stock exchanges

(CSE) and an OTC ex-

tors their implications to operate

It consists of Central Depository Bangladesh Limited (CDBL), the only Central Deposi-

ties for the settlement of transactions of demate-

country’s securities market has been gaining

momentum. Even in the backdrop of Global Financial Crisis 2008 when the stock mar-

kets in almost all the developed and developing countries crashed and Governments of

o rescue the markets. Both depth and di-

mension in Bangladesh capital market has been becoming gradually strong and securi-

ties market registered significant growth at the initial stage and later market fell a little

lio in Bangladesh securities

cent. But lack of supply of fundamentally sound

shares has been causing overheating situation and circumstance like overpricing has

times. Transaction has risen from a daily

now and DSE General Index has risen

to record 8,918 from 2,400 two years back. But demand and supply should match at a

und balance in the securities market.

Others

22 22

2.7 DSE and CSE: core

10th October of 1995 from Chittagong City through the cry

promise to create a state-of-

On April 28, 1954 the DSE was first incorporated as the East Pakistan Stock E

Association Limited. However, formal trading began in 1956 with 196 secur

on the DSE with a total paid

renamed as Dhaka Stock Exchange (DSE) Limited. After 1971, the tra

the Stock Exchange remained suppressed

economic policy pursued by the then government. The trading

1976 with only 9 companies listed having a paid up capital of Taka 137.52 million

the stock exchange. As of 30th June, 1999 there were 230 Securities listed on the

with a market capitalization of Taka 50,748 million.

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

tivities are regulated by its Articles of Association and its own rules, regulations, and

by-laws along with the Securities and Exchange Ordinance, 1969;

1994; and the Securities and Exchange

Trading is done through automated on

government holidays. There are four marke

trading of market lot share is

Spot transactions are done here through

within 24 hours. (3) Block Market: A place wher

through pick and fill basis. (4) Odd Lot Market: Odd lot scripts are traded

pick and fill basis. All transactions in public market of a day, after ne

and cleared through the DSE Clearin

ly, calculated from date of trading. Members shall be allowed to carry out transaction of

Figure 2: Dhaka Stock Exchange

core capital markets of the country

Dhaka Share Market consists of the

Dhaka Stock Exchange or DSE, the

main share market of Bangladesh.

Dhaka Share Market is still at its i

stage and has to walk a long way for

coming into the radar of the Global F

nancial Market. The Chitt

Exchange (CSE) began its journey in

ber of 1995 from Chittagong City through the cry-out trading sy

-the art bourse in the country.

On April 28, 1954 the DSE was first incorporated as the East Pakistan Stock E

Limited. However, formal trading began in 1956 with 196 secur

with a total paid up capital of about Taka 4 billion. On June 23, 1962 it was

Exchange (DSE) Limited. After 1971, the trading activities of

the Stock Exchange remained suppressed until 1976 due to the liberation war and the

policy pursued by the then government. The trading activities resumed in

1976 with only 9 companies listed having a paid up capital of Taka 137.52 million

the stock exchange. As of 30th June, 1999 there were 230 Securities listed on the

ization of Taka 50,748 million.

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

regulated by its Articles of Association and its own rules, regulations, and

Securities and Exchange Ordinance, 1969; the

Securities and Exchange Commission Act, 1993 (DSE, 1999).

Trading is done through automated on-line system every day except Friday and ot

holidays. There are four markets in the system: (1) Public Market: Only

trading of market lot share is done here through automatic matching. (2) Spot Market:

Spot transactions are done here through automatic matching which must be settled

within 24 hours. (3) Block Market: A place where bulk quantities of shares are traded

through pick and fill basis. (4) Odd Lot Market: Odd lot scripts are traded

pick and fill basis. All transactions in public market of a day, after netting, are settled

cleared through the DSE Clearing House due on 3rd and 5th working day respectiv

of trading. Members shall be allowed to carry out transaction of

Figure 2: Dhaka Stock Exchange Dhaka Share Market consists of the

Dhaka Stock Exchange or DSE, the

ket of Bangladesh.

Share Market is still at its infant

stage and has to walk a long way for

coming into the radar of the Global Fi-

nancial Market. The Chittagong Stock

change (CSE) began its journey in

out trading system with the

On April 28, 1954 the DSE was first incorporated as the East Pakistan Stock Exchange

Limited. However, formal trading began in 1956 with 196 securities listed

up capital of about Taka 4 billion. On June 23, 1962 it was

ing activities of

ration war and the

activities resumed in

1976 with only 9 companies listed having a paid up capital of Taka 137.52 million on

the stock exchange. As of 30th June, 1999 there were 230 Securities listed on the DSE

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

regulated by its Articles of Association and its own rules, regulations, and

the Companies Act,

(DSE, 1999).

line system every day except Friday and other

ts in the system: (1) Public Market: Only

done here through automatic matching. (2) Spot Market:

automatic matching which must be settled

quantities of shares are traded

through pick and fill basis. (4) Odd Lot Market: Odd lot scripts are traded here based on

ting, are settled

working day respective-

of trading. Members shall be allowed to carry out transaction of

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foreign buyers and/or seller involving a custodian bank to be settled directly between

the member through the custodian bank within the fifth day subsequent to the trading

day, in respect of the transactions carried out on each trading day with intimation to

the clearing house.

The total number of tradable securities increased by 1.97 % but the issued capital of all

listed securities declined by 5% during this period. However, both total turnover of se-

curities and total traded amount of securities has increased enormously compared to

that of the previous year. The total Market Capitalization of all listed Securities in the

DSE amounted to US$ 1046.36 million in 1999 compared to US$ 1283.79 million in

1998 representing a decline in market capitalization by 22%. The Market Capitalization

declined during the period of 1998-99 due to: i) listing of lesser number of new Issues,

ii) absence of rights and bonus issues, and iii) impact of decrease in all share price index

(SEC, 1999). The all share price index of the DSE declined from 676.47 to 546.79 during

this period. Special incentives are provided to encourage nonresident Bangladeshis to

invest in the capital market. Moreover, they can buy newly issued shares/debentures of

Bangladeshi companies and can maintain foreign currency deposits (styled as NFCD

account) in special accounts for up to five years. A quota of 10% reserved for nonresi-

dent Bangladeshis in primary shares (IPO) has also been initiated.

2.8 Main Board as on August 2011

Table 1: Total capital exchange of DSE in August 2011:

Main Board as on August 2011

Total Number of Listed Securities 493

Total Number of Companies 231

Total Number of Mutual Funds 36

Total Number of Debentures 8

Total Number of Treasury Bonds 215

Total Number of Corporate Bonds 3

Total number of Shares/Certificates: (No. in millions)

Total Number of Shares & Mutual Fund Certificates of All Listed Securities*

19,877

Total Number of Shares of All Listed Companies 17,046

Total Number of Certificates of All Listed Mutual Funds 2,817

(No. in '000)

Total Number of All Listed Debentures 409

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Total Number of All Listed Gov. T-Bonds 5,365

Total Number of All Listed Corporate Bonds 7,069

Total Issued Capital of : (Figure Tk. in millions) (Figure US$ in mns)

All Listed Securities 843,058 11,305.47

All Companies Shares 272,199 3,650

All Mutual Funds 26,269 352

All Debentures 140 2

All Listed Govt. T-Bonds 537,381 7,206

All Listed Corporate Bonds 7,069 95

Total Market Capitalization of: (Figure Tk. in millions) (Figure US$ in mns)

All Listed Securities 2,906,135 38,971

All Listed Companies Shares 2,326,597 31,200

All Listed Mutual Funds 34,915 468

All Debentures 576 8

All Listed Govt. T-Bonds 537,381 7,206

All Listed Corporate Bonds 6,666 89

Conversion Rate: BDT against USD 74.57

* Total No. of Shares/Share Capital/Market Capital includes Bonus/Right of shares.

2.9 Sectoral Performance

Table 2: Sectoral performance of DSE in August 2011:

DSE Sectoral Performance - August 2011

Sector Market Capitalization

in millions % of total

Mkt Cap

Turnover Tk. in millions % of total

Turnover May April May April Financial Sector

Banks 716,595.95 721,832.69 30.17 18,157.46 74,944.68 20.48

Financial Institutions 274,619.30 288,529.80 11.56 5,532.49 29,312.32 6.24

Insurance 136,417.38 150,538.81 5.74 6,493.71 25,206.93 7.33

Mutual Funds 34,915.01 41,101.33 1.47 5,038.45 11,778.13 5.68

Total 1,162,547.64 1,202,002.63 48.94 35,222.10 141,242.07 39.73

Manufacturing

Foods 51,810.32 53,035.70 2.18 2,419.52 7,075.12 2.73

Pharmaceuticals 175,334.69 199,033.89 7.38 7,838.09 19,365.83 8.84

Textile 71,598.61 96,488.97 3.01 9,516.58 31,038.42 10.74

Engineering 120,787.26 128,407.03 5.08 6,491.74 24,764.06 7.32

22 22

Ceramics 36,494.93

Tannery 14,663.75

Paper & Printing 917.70

Jute 784.49

Cement 85,851.62

Total 558,243.37

Service & Miscellaneous

Fuel & Power 292,329.13

Service & Real Estate 19,134.66

IT 4,522.42

Telecommunication 242,648.91

Travel and Leisure 7,218.08

Miscellaneous 82,085.73

Total 647,938.94

Bond

Corporate Bond 6,666.40

Total 6,666.40

Grand Total 2,375,396.36

Table 3: Sectoral performance of DSE in

0 100

29/09/2011

28/09/2011

27/09/201126/09/2011

25/09/2011

22/09/201121/09/2011

20/09/2011

19/09/2011

18/09/201115/09/2011

14/09/2011

13/09/201112/09/2011

11/09/2011

08/09/201107/09/2011

06/09/2011

* Values are in million taka

36,494.93 38,781.48 1.54 1,458.12 6,271.56

14,663.75 15,257.08 0.62 261.56 1,136.08

917.70 1,043.10 0.04 9.21 27.51

784.49 793.55 0.03 14.12 59.95

85,851.62 80,704.11 3.61 6,084.83 12,889.56

558,243.37 613,544.91 23.50 34,093.76 102,628.09

292,329.13 310,776.16 12.31 8,731.00 24,056.30

19,134.66 21,916.06 0.81 741.06 2,489.72

4,522.42 4,912.58 0.19 505.78 1,750.18

242,648.91 256,016.88 10.22 2,514.92 7,273.96

7,218.08 11,334.08 0.30 2,527.47 7,698.74

82,085.73 77,306.25 3.46 4,236.80 10,974.66

647,938.94 682,262.02 27.28 19,257.04 54,243.55

6,666.40 6,653.96 0.28 75.74 59.29

6,666.40 6,653.96 0.28 75.74 59.29

2,375,396.36 2,504,463.52 100 88,648.65 298,172.99

: Sectoral performance of DSE in September, 2011:

200 300 400 500 600 700

* Values are in million taka

6,271.56 1.64

1,136.08 0.30

27.51 0.01

59.95 0.02

12,889.56 6.86

102,628.09 38.46

24,056.30 9.85

2,489.72 0.84

1,750.18 0.57

7,273.96 2.84

7,698.74 2.85

10,974.66 4.78

54,243.55 21.72

59.29 0.09

59.29 0.09

298,172.99 100

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22 22

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CChh[[pptt__rr 33 S T A T U S O F C A P I T A L M A R K E T

3.1 Brief History

Bangladesh capital market has achieved some major milestone events in the recent

past. The capital market operations in this part of the country started in mid fifties with

the establishment of East Pakistan Stock Exchange Association in 1954, which started

trading in 1956. Initially it was a mutual organization (cooperative body) which was

corporatized in recent activity of the Dhaka Stock Exchange (DSE) in term of turnover

in the name of Dacca Stock Exchange Ltd. During those early periods until 1971, all

trades in the exchange were conducted using trading data collected over telephone

from Karachi Stock Exchange. After independence of Bangladesh, the operations of the

stock exchange remained suspended until August 1976. At that time market trading

started with only 14 listed companies having market value of only taka 90 million. The

trade volume was very thin and could not attract investors. Over time some reform in-

itiatives were taken to strengthen the market. First time Tk. 1 crore daily trades were

recorded in April 1992. Government adopted the Securities and Exchange Commission

Act 1993 and established the SEC as the regulatory authority for the market and the

Securities and Exchange Commission (SEC), established in 1993 under this Act, as the

central regulatory agency oversees the activities of the entire capital market including

issue of capital, monitoring the issue of stocks and operation of the stock markets in-

cluding regulating of portfolio market.

3.1 Present context

3.1.1 Current economy of Bangladesh

Bangladesh today is the 48th Largest Economy with US $225 billion GDP on the basis of

purchasing power parity. In nominal terms, the per capita income is US $750 with a

GDP size of nearly US $90 Million, Bangladesh is the 70th largest exporter and the 4th

33 33

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largest RMG exporter in the world, Bangladesh is also the 21st fastest growing economy.

Impressive growth of 5% and above in the last two decades have indeed taken the

economy to a new growth trajectory contributed by steady agricultural production, in-

creased export earn-

ings, healthy remit-

tance and vibrant

domestic demands.

The steady growth of

GDP during recent

global recessions has

demonstrated the re-

silience of our econ-

omy, adding that the

economy has strong

fundamentals.

Bangladesh is passing

through unique times just as many of the countries in the region passed through in the

recent past. Several International banks and risk analysts have given strong recom-

mendation to Bangladesh's steady growth recently. They recognized that Bangladesh

has:

■ The world's two top credit rating agencies, Standard and Poors (S&P) and Moo-

dy's Investor Service, for the first time, assigned sovereign credit ratings to Ban-

gladesh. S&P assigned BB- and Moody's Investors Service assigned Ba3 to Ban-

gladesh and termed the countries macroeconomic outlook stable, putting Ban-

gladesh at par with Philippines, Vietnam and Turkey. In the South Asian context,

Bangladesh is positioned higher than Pakistan and Sri Lanka.

■ Several global financial institutions have also identified Bangladesh as one of the

potential economies of the world, heading US investment bank Goldman Sachs

has included Bangladesh as one of the Next 11 (N1l) countries, after the BK1C

nations of Brazil, China, India and Russia as one of the rising economies of the

world. Similarly JP Morgan, another global leader in investment banking has in-

cluded Bangladesh in its 'JP Morgan frontier Five'. And in a recent update of their

2006 report on "The World in 2050-Price Waterhouse Coopers" extended their

Regional Markets-September, 2011

Country Index P/E Yield Interest Rate (%)

Bangladesh

DSE-20 Index 13.28 3.74

12.4 DSE General Index 15.51 3.14

All Share Price Index 15.58 3.11

India BSE 30 18.36 1.51

7.25 BSE 100 17.76 1.44

Pakistan Karachi 100 8 13.5

Sri Lanka CSE All Share Index 17.58 1.55 7

Thailand SET 11 3.2 3.5

Malaysia KLSE Composite 16 3.2 3

Taiwan Taiwan Weighted 13 4.5 1.88

Hong Kong Hang Seng 14 2.7 0.5

China Composite 11 2.8 6.56

Singapore Straits Times 12 3.5 0.02

Source: The Wall Street Journal (September 23-25, 2011)

Trading Economics (Global Economic Research, as on August-2011)

Weighted Average Interest Rate As of June, 2011)

33 33

Table 4: Regional capital market comparison

- Page | 14 -

analysis to include 13 other emerging economies including Bangladesh in their

new ' PWC 30 list' as one of the long term potential growth economics by 2050.

■ JP Morgan in its "Ho Chi Minn Trial to Mexico" research report states that it is

the demographics that justify the inclusion of Bangladesh in the "JP Morgan

Frontier Five". Their report identifies that:

1. The country ranks fourth in growth in economically active population.

2. Five year economic growth is strong at 6.1% per annum.

3. Progress has been made over the last few years to reduce poverty, in-

creasing literacy levels and moderating population growth to a more

sustainable level.

4. There is an assertive judiciary,

5. An active civil society,

6. A relatively free media which has increased public accountability.

Over the past two decades, privates sector has been contributing hand in hand with the

state-owned industries. The policy makers are taking initiatives for the private sector to

grow even further while dynamic entrepreneurs joined the race with their inimitable

ideas. There is also an inflow of qualified and matured professionals in the service in-

dustry including the financial sector.

3.1.2 Capital Market development in Bangladesh

Bangladesh stock markets have grown significantly during the last decade. Still, the size

of the market is relatively small compared to other Asian Markets. Size and liquidity of

the companies provide some distinguishing features of developing markets. The market

capitalization ratio, defined as the value of listed stocks divided by GDP, is used as a

measure of stock market size. It has got economic significance because market size is

positively correlated with the ability to mobilize capital and diversify risk. Total market

capitalization of DSE was US $ 1.049 billion in 1994 compared to US $ 127.515 billion in

India, US $ 12.263 billion in Pakistan, US $ 191.778 billion in South Korea and US $

199.276 in Malaysia. This market is also small relative to the size of the economy. Mar-

ket capitalization in Bangladesh was only 4.07 per cent of GDP in 1994 against 25.77

per cent in Pakistan, 24.03 per cent in Sri Lanka, 104.14 per cent in Thailand and

294.56 per cent in Malaysia. This ratio for Bangladesh is 0.075 in June 1997 and 0.05 in

June 2000.

33 33

Almost 33 lakh investors are now involved in the capital market at the moment; more

than 70% of which are general investors. The total market capitalization of all shares

and debentures of the listed securities stood at USD 49.4 billion by the end of 2010, in-

dicating an 84% growth from the year before. The total turnover has increased from

USD 0.13 billion to USD 0.25 billion at the end of 2010 which indicates a 91% growth.

However, the capital market has been exposed to greater risk since PE ratio rose from

19.9% to 29.71% from January, 2010 to November, 2010.

Dematerialization may be successful in stimulating the further growth of Bangladesh

capital market, but to ensure the success of such an initiative, it will be necessary to

ensure that the regulatory framework and authority are sufficiently strong, in order to

strike a balance between the interests of both the members of stock exchanges and the

public.

On a long-term basis, it may be important for a successful bond market to be built in

Bangladesh. This can assist in creating more instruments for investors and, at the same

time, creating some depth in the capital market. Bond markets can also be utilized by

the government in raising necessary funds, and can serve as an efficient method of fi-

nancing in large projects.

3.1.3 Market Capitalization

Market statistics shows that the total market capitalization at the country’s prime

Bourse-Dhaka

Stock Exchange

Limited stood at

Tk. 2700.74 bil-

lion on 30 June,

2010 against Tk.

1,241.34 billion

on 30 June,

2009.

In comparison

with the market

capitalization of 2009-10 with the corresponding period (2008-09) we see that total

market capitalization rose by 117.57 percent and by the amount of Tk. 1459.40 billion.

Figure 3: Market Capitalization in 2009-2010

33 33

Again the market capitalization to GDP rose to 39.12 per

20.19 per-cent on 30 June, 2009. But after a huge transa

tion has risen to a record high in recent time to

2010 and subsequently market

significant record.

3.1.4 Graphical Presentation

From the graphical presentation it is seen that market

curities at the Dha-

ka Stock Exchange

Limited increased

very significantly to

Tk. 2700.74 billion

on 30 June, 2010,

which was Tk.

1,241.34 billion on

30 June, 2009

showing a 117.57 percent rise over a one year period only. The most sign

about the rising trend of market capitali

creased to a highest ever Tk.

per-cent to GDP.

3.1.5 Analysis of the emerging markets

Despite having idiosyncrasies of each emerging market, it is possible to offer a broad

description of several phases common to all equity markets. These emerging ma

are found in different phases of development associated with the stages of ec

development process and political stability of a particular country.

equity prices tend to rise. With the implementing process growth

attaining some degree of economic and political stability, the market started to

confidence of domestic investors and become more widely a

alternative to bank deposits and often to short

of Belarus, Kazakhstan, Ukraine of the former

The second phase relates to the deregulation of capital markets for easy access by the

international investors and for cheaper capital funding by the domestic investors since

the equity markets have gained some degree of credibility at this phase. As

tion to GDP rose to 39.12 percent on 30 June, 2010 against

cent on 30 June, 2009. But after a huge transaction volume market c

tion has risen to a record high in recent time to Tk. 3,680.71 billion on 05 December,

y market capitalization to GDP also rose to 53.30 per

Graphical Presentation

presentation it is seen that market capitalization of all the listed s

cent rise over a one year period only. The most sign

about the rising trend of market capitalization is that market capitalization

Tk. 3680.71 billion on 05 December, 2010 which is 53.30

Analysis of the emerging markets

Despite having idiosyncrasies of each emerging market, it is possible to offer a broad

description of several phases common to all equity markets. These emerging ma

are found in different phases of development associated with the stages of ec

velopment process and political stability of a particular country. At the

equity prices tend to rise. With the implementing process growth-oriented policies and

attaining some degree of economic and political stability, the market started to

confidence of domestic investors and become more widely accepted as an investment

alternative to bank deposits and often to short-term government bonds. Equity markets

of Belarus, Kazakhstan, Ukraine of the former USSR may be considered in this p

relates to the deregulation of capital markets for easy access by the

international investors and for cheaper capital funding by the domestic investors since

the equity markets have gained some degree of credibility at this phase. As

Figure 4: Market Performance from 2006-05 to 2009

cent on 30 June, 2010 against

lume market capitaliza-

3,680.71 billion on 05 December,

to GDP also rose to 53.30 percent marking

of all the listed se-

cent rise over a one year period only. The most significant point

capitalization has in-

3680.71 billion on 05 December, 2010 which is 53.30

Despite having idiosyncrasies of each emerging market, it is possible to offer a broad

description of several phases common to all equity markets. These emerging markets

are found in different phases of development associated with the stages of economic

At the initial phase,

oriented policies and

attaining some degree of economic and political stability, the market started to gain the

cepted as an investment

ernment bonds. Equity markets

may be considered in this phase.

relates to the deregulation of capital markets for easy access by the

international investors and for cheaper capital funding by the domestic investors since

the equity markets have gained some degree of credibility at this phase. As market li-

05 to 2009-10

33 33

- Page | 17 -

quidity increases and risk-adjusted returns rise, international investors begin to reap

the diversification benefits if investing in these markets. The markets of Brazil, India,

Pakistan, the Philippines, Bangladesh and the like have entered this phase.

The third phase is concerned with expansion. The markets offer prospect of higher re-

turn value less volatility and the investors easily absorb new issues of stocks and cor-

porate bonds. These lead to increased trading activity, more effective intermediation,

while the growing need for a risk transfer mechanism spurs the development of equity

and currency-risk hedging instruments such as derivatives and index products. Argen-

tina, Indonesia, Malaysia. Thailand and Turkey may be considered in this stage.

Finally, the market depicts the phase of maturity. As equity risk premium falls to inter-

nationally competitive levels relative to government treasury bill rates or equivalent

short-term money market rates, the equity market begins to achieve the stable growth

that marks a nature of developed state. Such condition can be found in Hong Kong, Ko-

rea, Singapore and the like.

Studies have mentioned three reasons for the lack of confidence on the part of individ-

ual investors in securities of emerging markets. First, there is a dearth of appropriate

financial and other relevant information about the domestic security market in general

and listed securities in particular. Second, there is the inadequacy of the accounting and

auditing of financial reports. Third, there is the inability of the regulatory authorities to

effectively monitor and supervise the market and thereby protect investors against

market manipulation and other market abuses. In order to overcome such inefficien-

cies, credit markets need to be supplemented by a well-functioning equity market.

3.2 Debacles in Bangladesh Capital Market

The capital market of Bangladesh had two major debacles which occurred in 1996 and

2010, creating some bad impacts upon the country’s total capital market.

3.2.1 Debacle during 1996

During 1996 some local and foreign initiatives succeeded in drawing some internation-

al 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 nei-

33 33

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ther operational nor in terms of legal structure ready to absorb such sudden surge in

demand both at home and abroad. Consequently within a very short tenure (from July

to October of 1996) the market price level soared to a record level (of that time) height

with the index rising from 894 levels lo 3627 level. The market P/E ratio of all the listed

securities reached to the level of 66.5 within a short period of 4 months. The 'cry-out'

auction based trading system of DSE could not handle the huge demand coming from

several thousand investors who crowded the Motijheel thoroughfare. Consequently

street based curb market took over the legal trade executed through stock market sys-

tem. Unsuspecting inexperienced new entrant investors allured by very quick profit

potentials were buying anything without understanding substance, legality and validity

of their investment. Unscrupulous market players (which even include some issuers)

were minting fortunes by selling fake securities to the crowd who were eager to make

quick profit from the market. Thereafter, for obvious reason the market experienced

first major crash in l996 affecting about fifty thousand investors

3.2.2 Debacle during 2010

The market crash of 2010 drew greater degree of attention because much larger seg-

ments of population spreading all around the country are affected this time as the mar-

ket in this period has gained significant growth. The securities market debacle in 2010

need to be viewed from different perspectives. The following section attempts to ex-

amine those issues mostly from demand side factors. 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.

3.2.3 Reasons behind the two major debacles

Analysis shows that, the capital market of the country experiences some abnormal

upheaval during the last few years, which had full bubble effects in 2010 concluding

with the burst. The causes and factors to such behavior are as following:

3.2.3.1 Political economy inducing demand since 2007

The political reality of 2007 was one of the major reasons for creating a sudden rise in

the market. Until 2006, the growth pattern in the market was gradual and moderate.

From January 2007, the market experienced a sharp rise in terms of transaction and

33 33

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price level. Especially the political situations in late 2006 made the market little shy of

investment. The emergence of military backed caretaker government (CTG) initially

encouraged the investors to come back to capital market. At the time of declared cam-

paign against corruption, budgetary policy support for legalization of undisclosed in-

come through investment in securities market also encouraged new investors to trans-

fer their funds to this market. Besides new civilian investors, influx of armed forces

members as investors also boosted the demands in the market.

3.2.3.2 Macro-economic factors inducing excess savings

Since the last decade, the economy of the country has been growing at a fairly steady

rate with national savings rate remaining around 30% of GDP. Such high savings rates

were attained mostly due to robust growth in inward remittances from expatriate Ban-

gladeshis over the years. While savings rates were good along with rising GDP, the in-

vestment rates were not matching. The real ADP in terms of budgeted amount as well

as implemented amount was not increasing. As a result the public sector investment

declined from a level of more than 6% to slightly over 4% level. Due to different infra-

structural and political reasons, the private sector investments also could not match the

shortfalls in public sector investments. Thus an overall surplus savings has been

created in the economy.

3.2.3.3 Gas and power sector shortage and idle business funds

Due to shortage of power and gas, the government declared moratorium on new con-

nections. Such policy almost stopped establishment or expansion of new industrial

units and even residential buildings. The moratorium was further extended by the

newly elected government until middle of this year. Consequently private sector in-

vestment for manufacturing sector almost stalled for quite some time. The global finan-

cial crisis of 2008-09 also made many export oriented business to keep their produc-

tion facilities partially or totally closed. Therefore, the business people having idle

funds found incentives to move their funds lo capital market. The transfer of such funds

also created excess demand pushing the price level upward.

3.2.3.4 Excess liquidity in financial sector in 2009

The decline in private sectors' new or expansion oriented investment also created sig-

nificant volume of surplus liquidity at the hands of financial institutions. The financial

33 33

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institutions started investment in the securities market as one of the avenue to utilize

their liquidity. Almost all the major financial institutions got involved in deploying a

portion of their idle funds in the market.

3.3 Reform of the market after the debacles

The stock market crash reveals structural weaknesses of the market. This leads to all

concerned feeling the agenda for market reforms. Rules, laws and guidelines are framed

and implemented to improve infrastructure and foundation on which the stock ex-

changes can operate effectively. Major notable features of capital market reforms im-

plemented so far include:

a) Reorganizing SEC to strengthen infrastructure capabilities and build capacity

b) Updating rules, laws and guidelines to improve regulation framework:

□ Amendment of the SEC Act 1993 to empower SEC a vetting power, financial

penalty power with a view to monitoring and enforcing compliance of

rules. SEC is also allowed to conduct special audit to detect window dress-

ing in the accounts of the listed firms, if it suspects.

□ Information disclosure rule specifying the requirements to comply with the

International Accounting Standard (IAS) and International Standards of

Auditing (ISA) for timely and quality information disclosure in the market.

□ In the new issue rule, the pricing of IPOs has been delegated to the issue

manager.

□ In the merchant bank regulation, three activities, viz., issue management,

underwriting and non-discretionary portfolio management, are restricted

to merchant banks operating in Bangladesh.

c) Separation of the management from the ownership at both DSE and CSE

d) Inclusion of the representatives of the listed companies and the investors on the

governing bodies of both DSE and CSE

e) Automation of trading at both DSE and CSE introducing order-driven system re-

placing out-cry system

f) Amendment of the Trust Act, 1882 enabling pension fund and insurance fund

investing in securities market and thereby create demand for securities.

g) Enactment of the Central Depository Act enabling national securities ltd. com-

pany to establish CDS. The implementation of the on-line CDS will in fact avoid

problems of "fake shares" and "short sale" to a great extent.

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However, a few important reform measures are still pending. These include, among

others:

a) Restructuring Investment Corporation of Bangladesh (ICB) by creating three

subsidiary companies carrying out the function of merchant banking, fund man-

agement and securities brokerage house

b) Divesting government holdings in SOEs and MNCs through securities market

c) Issuing government securities with medium term and long-term maturities on a

regular basis through the securities market.

Thus the period of 2003 to ‘06 can be viewed as a period of consolidation & restoration.

3.4 Present scenario of Bangladesh Capital Market

Albeit Bangladesh economy is not more integrated with the global economies, Global

Financial Crisis 2008 has dented every sphere of Bangladesh. Bangladesh economy has

also been limping since being dented by the blow of financial meltdown. On the one

hand, Bangladesh economy has been gaining benefits from the crisis and on the other

hand it has lost. Because of income declining of developed countries’ citizens

low-priced garments of Bangladesh have been very popular registering more growth in

the country’s apparel sector. But financial collapse in many developed countries slowed

down the infrastructural development especially construction works in Middle East

which have pushed many Bangladeshi workers come back. Remittance inflow has risen

but number of workers going abroad has fallen drastically. In the year 2009-10 a record

$11 billon remittance has come to Bangladesh against $9.76 billion in 2008-09 fiscal

year. Country’s foreign currency reserve hit new record of $11.35 billion recently be-

cause of low import expenditure and rising trend of export earnings. But still 44 per-

cent people are under poverty level; the Government and other concerned organiza-

tions should take comprehensive efforts to eradicate poverty. But to achieve desired

level of growth to turn Bangladesh into a middle income country by 2021, growth rate

should be accelerated. To do that more investment in infrastructure especially power

sector, roads and highway, modern and sophisticated port facilities are badly needed.

Cost of doing business should also be reduced along with the removal of red-tapism in

commencing business. Public-Private Partnership has been incorporated in the budget

for 2010-11 but success will depend on time-bound implementation. Instead of eying

towards foreign countries, multi-lateral donors and agencies Government should

choose country ’s capital market to raise fund for development projects especially for

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the construction of Padma Bridge, elevated express-way and other big projects which

will also ensure people’s association in profitable Government properties. Associating

general people in lucrative Government venture means to create the way of ensuring

equitable distribution of wealth and this is only possible through strong and vibrant

capital market. Because of sluggish economic activities investment has not gotten mo-

mentum in recent years but for the sake of rapid economic growth more savings and

investment are also necessary. Another important issue is that tax to GDP (Gross Do-

mestic Product) is very poor in Bangladesh, which has been another cause of fiscal defi-

cit in almost every year.

The Government has been regularly depending upon the borrowing both from internal

and external sources. Because of huge Government borrowing from the country ’s for-

mal banking sector private industrial ventures and other commercial set ups have been

on declining trend. Instead of borrowing from banking sources and other foreign lend-

ers Government should depend on raising fund from the country’s capital market.

33 33

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CChh[[pptt__rr 44 O B S T A C L E S T O O V E R C O M E

4.0 Problems

Securities markets in Bangladesh encountered problems both from supply side issues

and demand side issues. The status and development of Bangladesh stock market has to

be examined when to diagnose the problems and perceive their causes. Some problems

of the Capital Market of Bangladesh are mentioned below:

■ The Securities and Exchange Commission (SEC) and capital market participants

are weak. The SEC lacks sufficient capacity to regulate, monitor, supervise, or

enforce regulations effectively and has limited resources to devote to its devel-

opment functions. As a result, the SEC’s authority to oversee any structural

changes at the two stock exchanges is being undermined. The managements of

the two stock exchanges are unable to regulate and supervise their members’

activities effectively: the exchanges are owned and dominated by brokers, so

their businesses take precedence over the governance of their exchanges.

■ Neither the SEC nor the exchanges have effective automated surveillance sys-

tems that can detect, monitor, and prevent market abuses and malpractices. This

has affected market confidence, which has often been cited by investors as the

major constraint in the development of the capital market.

■ The limited number of listed securities has always been a constraint on improv-

ing the liquidity and market capitalization of the stock market. The main impe-

diments include an inefficient pricing mechanism, issuer’s concerns over poor

corporate governance, and high listing costs. For primary market development,

the IPO approval process, pricing methods, and the capacity of merchant banks

need to be improved. Mechanisms that facilitate securities transactions in the

capital market, such as securities borrowing and lending, need to be introduced.

■ Market participants, including brokers, dealers, and merchant bankers, require a

license to trade from the SEC. However there are no professional standards and

minimal qualification requirements (e.g., examinations and professional train-

44 44

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ing) imposed by the SEC or the exchanges on any of the intermediaries. To

strengthen governance and the quality of market intermediaries, an examination

and minimum qualification standards need to be introduced as a prerequisite for

licensing by the SEC. Only qualified and duly licensed personnel should be al-

lowed to deal with the public in transactions involving securities. Currently,

there are no institutions in Bangladesh which offer courses specifically related to

the functions and regulation of financial intermediaries.

■ The majority Government-owned Investment Corporation of Bangladesh (ICB)

remains the single largest integrated capital market operator. ICB and its sub-

sidiaries accounted for 32% of total combined turnover on the DSE and CSE in

FY2004. To address conflicts of interest in its combined operations, three sepa-

rate subsidiaries were created at ICB in 2002. However, all the objectives of un-

bundling ICB’s operations have yet to be achieved. Other problems include the

followings:

� Lack of infrastructure and physical facilities

� Existence of only dealer-broker-members (no specialist/market maker)

� Market dominated largely by unsophisticated investors

� Lack of diversity in products' availability in the market

� Inefficient capital market—both operational and informational

� Lack of proper and adequate disclosures

� Certifiers of financial statements and property evaluators of the company

are the same/identical

� Management and Owners (Councilors) of DSE are entwined

� Lack of enforcement with the compliance of rules and regulations

� Corporate governance—sponsor-owners are managing the firm. In al-

most all cases, no professional managements are hired to run the affairs

of the listed company.

� Lack of ethical orientation, education about capital & securities markets.

� Lack of trust, self-respect amongst interest groups. These are important

preconditions for building up a healthy and investment friendly market

atmosphere.

� Lack of potential securities and narrow options for the investors.

� Disclosure problem-inadequate disclosure, concealment of facts or some-

times fabricated disclosures appear in the annual reports.

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� Infusion of fake shares.

� Exaggerated projection in prospectuses.

� Credit facilities are inadequate and interest rates are exorbitant.

� Problem of rebuilding the image of presently depressed market.

4.1 Measures to be taken to resolve the problems

Capital market development is related with the financial deepening, which in turn, de-

pends on effective financial intermediation as well as on the availability of a wide va-

riety of financial instruments. In this context, merchant banks have yet to play due role

in revitalizing the stock market. Measures can be initiated to remove the constraints

that merchant banks are facing in order to make them effective are as follows:

� Merchant banks (MBs) should be allowed to deal in secondary securities on

their own account, which are not currently allowed.

� Merchant banks should provide price support/stabilization of their under-

written IPOs in the immediate aftermarket. They would be able to offer

market-making activities in primary and secondary market and to extend

loans to their clients for margin buying of securities, if they could access

funds at softer rates.

� Capital Market stabilization/Development fund should be established at the

Bangladesh Bank (BB). The fund will counter finance merchant banks

through commercial banks to finance their clients' investment activities.

Otherwise, merchant banks should be able to obtain refinancing facilities

from the BB on certain margin basis. This will make MBs active and inject

fresh fund in the securities market.

� MBs as wholesale banking are given more activities in order to be sustaina-

ble and viable ones.

� Making the market information dissemination system perfect and pure.

� Corrective measures to rumors and fake reports and thus making the trad-

ing of securities smooth and uninterrupted.

� Prompt explanations to unusual market actions.

� Refrain companies from misleading potential investors through fake re-

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porting and forecasting.

� Refrain sponsors from buying and selling own company securities without

notifying the exchange through writing.

� Making the sources of rumors ineffective in the trading floor by strengthen-

ing the market intelligence force.

� Quick transformation to Central Depository System, which is expected to

reduce workload of physical deposit and withdrawal of securities.

� Enhancement of ethical standard of all the parties involved in trading.

� Restoring of public confidence through application of educative programs

like schooling on securities market and orientation program.

The following other measures can be undertaken for the development of capital market:

� The listed companies that pay regular dividend should be given tax incen-

tives and tax rebates as well.

� The mode of privatization of industries will be implemented through public

issue of shares. This will deepen the securities market, diffuse ownership

and bring in market disciplines.

� The government should off-load its equity holdings in SOEs and MNCs

through stock market. This will improve the supply of securities in the

market.

� Bond market needs to be developed. The implementation of government

securities with medium-term and long-term maturities will also broaden

the base of bond market.

� Establishment of a separate judicial security tribunal for dealing with cases

related to securities market.

� Disclosure of information to the public in the fullest possible dissemination

system can make the people aware about the latest situation.

� Prompt clarification or confirmation of rumors and reports that may likely

to have an effect on the trading of securities or would likely to have a bear-

ing on investment decision.

� The companies concerned must refrain from disclosure like exaggerated

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reports or predictions which exceeds what is necessary to enable the public

to make informed investment decisions.

� Insider must not trade on the basis of material information which is not

known to investing public. Insider should refrain from trading on principle,

even after material information has been released to the press or through

other media.

� Every director, promoter or person of authority from the sponsoring group

should not involve in buying/selling of its own company's securities unless

fulfilling requirement to report to the exchange in writing about their inten-

tion to buy or sell.

� Ethical standard of all interest groups must be enhanced so that everybody

understands the sanctity of this knowledge based securities industry.

� Public confidence should be restored and confidence building activities

must be carried out through educative programs. Education has no alterna-

tive and thus education about capital and securities market is one of the

most important aspects that help investors taking investment decision.

Education program, orientation program and inclusion of securities and non

securities issues in the syllabus of the secondary and higher secondary le-

vels can build awareness about the capital market and its operations.

It is evident that all interested groups in the marketplace and the Government as well

has to play their respective roles promptly in order to restore the gravity of the market.

Government should play the role of a facilitator, partner in progress and growth foster-

er in the revolutionary movement that is desired to occur in the market.

4.2 Recent initiatives of DSE for securities market expansion

� Signing contract with Dubai-based Info-Tech Company for integrated software

Book Building System has been introduced in Bangladesh Capital Market. Book

Building System, modern and scientific system of price discovery, will be able to

attract the entrepreneurs to get their profitable business ventures listed with

the country’s growing securities market.

� MSA Plus is being up-graded time to time in collaboration with India-based

Cambridge Solutions to start internet-based transaction soon. After the comple-

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tion of up-gradation of this work and commencement of internet-based trading,

transaction facilities of securities would reach the doorsteps of investors across

the world.

� DSE is upgrading its automated trading system time to time to meet up the de-

mand of the capital market. As number of transactions increases, DSE took initi-

atives to tune up its trading Server in December 2009. Present Trading Server

has capacity to handle around 6,00,000 trades/day and to support trader IDs up

to 5,000. At present Trading activities are being operated by around 3200

workstations from more than 1100 locations in 30 districts.

� In November 2009, DSE Implemented Web-based Market Data Server (MDS) for

providing necessary Market Data to different electronic and print media, Cell

Phone Companies, Research Institutes, Brokerage houses etc. DSE signed an

agreement with a number of TV channels to provide real time trade data for

broadcasting continuously during trading hours. Besides, online Trade Data is

also available.

� Plans are already underway to spread trading activities across the country and

to the doorsteps of investors across the world but demand and supply mismatch

has been halting the process.

� With the core intention of executing all the professional works and to build its

existing manpower into truly efficient and highly qualified human resources DSE

has been continuing its tireless efforts to send its staffs to different organizations

and abroad for training.

� For smooth and time-bound supervision of all the professional jobs Chief Oper-

ating Officer and GM (Finance and Accounts) have been recruited. Recruitment

at different levels has been being continued in tune with the growing volume of

activities to accomplish all the activities.

� To continue the present trend of securities market growth DSE Board of Direc-

tors has been maintaining strong communication with the relevant authorities

including Finance Minister, SEC, Bangladesh Bank, National Board of Revenue,

Bangladesh Institute of Capital Market and other relevant institutions, organiza-

tions, personalities and concerned authorities.

� A Complaint Cell/Box has been set to listen to investors, relevant stakeholders

including listed companies and others and necessary steps are taken to come out

44 44

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the crisis time to time.

� For transparent and smooth settlement of securities and to also reduce time DSE

has been trying to establish an Independent Settlement and Clearing Company.

� Meetings of different committees are going on regularly and time to time sug-

gestions and instructions of those committees are carried out to enhance the

departmental activities.

� All the divisions and departments have become prompt in carrying out day to

day activities and also assigned responsibilities in a far better and quicker way

than those of past events.

� DSE Board of Directors visited USA and show-cased Bangladesh capital market

to Non-Resident Bangladeshis to draw their investments in the market.

� DSE has been arranging investors’ awareness program in different cities to make

the investors aware of the real market situation. It has also been co-operating

with Bangladesh Institute of Capital Market authority so that through this newly

established institute, time-bound education and practical training on securities

market related issues may be conducted.

� Plans are also underway to arrange road-shows and investors’ awareness pro-

gram abroad to spread securities market related issues among the NRBs.

� Members of Board of Directors, members of different committees and officers of

DSE have been continuously visiting different related organizations and stock

exchanges and trying to utilize the experience for the better development of

DSE.

� DSE has been requesting the relevant and concerned authorities of Government

and other organizations to simplify the investment procedure of NRBs.

� DSE has placed proposals and continued conversation and discussion with rele-

vant Government authorities to attract shares of state-owned companies. In the

backdrop of DSE’s proposal recently Honorable Prime Minister has intervened in

the issuance of off-loading shares of Government companies and Government

shares in other companies in the country’s capital market. Here it may be men-

tioned that Rupali Bank has sold nearly 30 lakhs share and Mobil Jamuna is

coming with shares of Tk. 609 crore.

� For more consciousness and real information of market DSE has signed agree-

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ment with different print, electronic media and news agency to provide them

with market data which will also enhance market growth.

Because of efforts of DSE face value standardization process has been being imple-

mented by listed companies gradually which helps investors compare the market price

of shares. More dynamism has been put in ICT Division, Operations Division, Finance

Division and Administration Division. All the officers under the leadership of CEO, COO,

CTO, GM (Admin) and Secretary, GM (Finance and Accounts) and DGMs have been

working in a team to carry out their responsibilities smoothly for further development.

Discussions are also underway to attract shares of big business. DSE authorities have

been continuing discussion with the entrepreneurs on regular basis which will further

help increase the depth and dimension of the country’s securities market.

4.3 Actions required for restoring investors' confidence on the market

Present situation of Bangladesh stock markets needs to be strengthened to provide

greater investors' confidence and to improve market liquidity and competitiveness. The

existing trading and settlement systems need to be addressed for reform. To this end,

the issues that deserve immediate attention are as follows:

� The membership of stock exchanges to institutions and corporate sector

with adequate capital is required. Improvement of the flow of informa-

tion, introduction of a system of market-maker in addition to the prevail-

ing order-driven system, credible quicker settlement and the develop-

ment of over-the counter markets (OCT) for large green field projects and

non-listed securities are the prerequisites.

� To redress the problems of the stock markets in Bangladesh, policy pre-

scription should aim at par to the favorable environment within which

the flaws of the market could be mitigated, activities of hidden consortia

would be ineffective and the likely exposure of investors to various mar-

ket abuses including market manipulation should be reduced.

� Due emphasis should be given to implement the existing rules and regu-

lations;

� Regulatory framework should be adequate for the prevention of un-

bridled speculation, market-rigging and insider trading so that erosion in

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public confidence can be contained;

� Attempts should be taken to make the present order-driven system of

automation foolproof so as to eliminate the opportunity of manipulating

the market

4.4 Recommendations

Capital market in Bangladesh is now going through a hard time currently as there are

some upheavals in the market and there exists an upsetting condition in the stock mar-

kets. But as per the past occasions, it is evident that our current capital market has a

good ground now for future developments. We should take this opportunity to boost up

the market as well as contribute to our economy. In addition, our mindset needs to be

changed regarding earning profit from the capital market overnight. Foreign invest-

ments also need to be increased to ensure a sound capital and along with this, the gov-

ernment should make an authentic list of the companies that has credibility and ac-

countability. If we can develop our capital market, it will definitely enhance our national

economy.

4.5 Conclusion

Developing countries which accounts for 75% of the world's population, have an en-

during need to attract capital and technology to improve their infrastructure and stan-

dard of living. Developing economies, thus, look forward to their capital markets as the

engine for future growth as its existence ensures mobilization of surplus funds to the

ones suffering from deficit. In Bangladesh we have a capital market that is yet to be

further nurtured to get the fruit out of it. Without doing this we cannot undergo heavy

industrialization and other capital based development. We have various problems like

the market has been suffering from inadequacy of good scripts. Out of around three

thousands public companies, only two hundred and twenty have issued securities

keeping a large number away from the securities market. It is further observed that

Government is still holding lion portion of many blue chip company shares. We must

overcome these sort of problem to strengthen our capital market. Various methods and

policies may be adapted regarding this, but the investors’ mindset is one of the most

important thing that must be changed to ensure the development of the market. If we

can strengthen the market properly, it is only then we can have a sound economy in

terms of capital and related developments in our country.

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