CONTEXT 1.0 Introduction Capital Market mainly refers to the Stock and Share market of the country.

When banking 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 rais e funds for long-term investments via the capital market. The capital market inc ludes the stock market, the bond market, and the primary market. Securities trad ing on organized capital 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 o pportunities. This paper reveals the various aspects of the Capital Market in Ba ngladesh. 1.1 Objectives Capital market, being an essential element of today's economy, demands an intens ive and special attention. The objective of this study is to look into every asp ect of Bangladesh capital market and identify its various pros and cons along wi th some recommendations to overcome the existing problems. The specific objectiv es of this study are: To give an overall idea about the capital market-its struc tures, functions, importance, etc. To identify the current situations of our cap ital market of Bangladesh. To compare the relative conditions of Bangladesh capi tal market to other countries of the world. To sort out the problems associated with our capital market. To suggest some practicable solutions to these problems . - Page | 1 1 Ch[pt_r 1

Secondary data and information were used in preparing this seminar paper, and th ese were collected through teamwork by adopting the following processes: Visiti ng in person, the following organizations and respective key personnel: Dhaka St ock Exchange (DSE) Dhaka Chamber of Commerce (DCC) Bangladesh Bank (BB) Monetary Policy Department (MPD), BB Consulting books from different libraries of: Bang ladesh Institute of Development Studies (BIDS) Dhaka Chamber of Commerce (DCC) B angladesh Bank (BB) Other Books 1.3 Literature review Keeping the objectives in mind of the present study, we had reviewed the existin g literatures. The Capital Market Development in Bangladesh: problems and prospe cts (Mahmood Osman Imam, October 5, 2000), Capital Market: An Overview (Md. Hasa n 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 Develo pment (Ahmed. M.Farid, 1998), The Stock market and the Economy: The Indian Exper ience (Mookerjee. R., R., 1981), Foreign Portfolio Investment: Return. Growth, D eterminants and Monitoring - A Critical Analysis (Nafisa H., 1998), Financial de epening in Economic Development (Shaw. E., 1973), Fostering Investor Confidence in the Asian and Pacific Capital Markets (Tarumizu, K., 1993). Dhaka Stock Excha nge Monthly Review, (September, 2011), Financial Markets and Institutions (Jeff Madura, 2008) are some of the studies that helped us. However, although these st udies offered various insights into the dynamics of the current capital market o f Bangladesh, their extent of point of discussion are different and reviewed fro m different aspects. In this paper we have tried to compile and explain all the relevant information to make the paper successful. - Page | 2 1 1.2 Methodology

While conducting the study, we were confronted with the following limitations: T here 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 cov erage due to time constraint. We did not have much time to visit all the relevan t places and meet respective personnel. Only secondary data was used, but there is no alternative of primary data to ensure the accuracy and effectiveness of th e study. - Page | 3 1 1.4 Limitations of the study

CAPITAL MARKET IN BANGLADESH 2.1 Definition Capital market can be termed as the engine of raising capital, which accelerates industrialization and the process of privatization. In other words, capital mar ket means the share and stock markets of the country. It is a market for long te rm fund. With the emergence of the need for infrastructural development projects , for setting up of new industries for entrepreneurial attempts-now there are mo re frequent needs of funds. Participants in the capital markets are many. They i nclude the commercial banks, saving and loan associations, credit unions, mutual saving banks, finance houses, finance companies, merchant bankers, discount hou ses, venture capital companies, leasing companies, investment banks & companies, investment clubs, pension funds, stock exchanges, security companies, underwrit ers, portfolio-managers, and insurance companies. 2.2 Functions The functioning of an efficient capital market may ensure smooth floatation of f unds from the savers to the investors. When banking system cannot meet up the to tal 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 f or funds in the business sector has created an immense need for an effective and efficient capital market. It facilitates an efficient transfer of resources fro m savers to investors and becomes conduits for channeling investment funds from investors to borrowers. The capital market is required to meet at least two basi c requirements: (a) it should support industrialization through savings mobiliza tion, investment fund allocation and maturity transformation and (b) it must be safe and efficient in discharging the aforesaid function. It has two segments, n amely, securities segments and non-securities segments. - Page | 4 2 Ch[pt_r 2

The SEC classified firms in terms of A, B, G, N and Z categories that had not on ly 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, de bentures and bonds are being traded in this category). "B" Category Companies: Companies which are regular in holding the AGM but have failed to declare divide nd at least at the rate of 10 percent in a calendar year. "G' Category Companie s: Greenfield companies. "N' Category Companies: All newly listed companies exc ept Greenfield companies will be placed in this category and their settlement sy stem would be like B-Category companies. "Z' Category Companies: Companies whic h 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 af ter adjustment of revenue reserve, if any is negative and exceeded its paid up c apital. 2.4 Importance of Capital Market in the economy The capital market is the market for long-term loans and equity capital. Develop ing countries in fact, view capital market as the engine for future growth throu gh mobilizing 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. Especially in a country like ours, where savings is minima l, and capital market can no wonder be a lucrative source of finance. The securi ties market provides a linkage between the savings and the preferred investment across the business entities and other economic units, specially the general hou seholds that in aggregate form the surplus savings units. It offers alternative investment windows to the surplus savings units by mobilizing their savings and channe- Page | 5 2 2.3 Classification of companies

individuals, irrespective of their means, to share the increased wealth provided by competitive enterprises. Moreover, the stock market also provides a market s ystem for purchase and sale of listed securities and thereby ensures liquidity ( transferability of securities), which is the basis for the joint stock enterpris e system. (The existence of the stock market makes it possible to satisfy simult aneously the needs of the firms for capital and of investors for liquidity.) Esp ecially at times when the banking sector of the country is facing the challenge of bringing down the advance-deposit ratio to sustainable level, the economy of the country is unfolding newer horizon of opportunities. Due to over-exposure le vel of the financial system the securities market could play a very positive rol e, had there been no market debacle. Due to the last market crash and follow thr ough events, it will be difficult to utilize the primary market to raise signifi cant volume of funds. Thus the greatest economic importance of securities market at this point can be understood from the opportunities being lost. Bangladesh h aving its target to become a middle income country must have significant level o f 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 he lps increase savings and investment, which are essential for economic developmen t. An equity market, by allowing diversification across a variety of assets, hel ps reduce the risk the investors must bear, thus reducing the cost of capital, w hich in turn spurs investment and economic growth. However, volatility and marke t efficiency are two important features which will ultimately determine the effe ctiveness of the stock market in economic development. If a stock market is inef ficient due to insufficient informational supply, investors face difficulty in c hoosing the optimal investment as information on corporate performance is slow o r less available. The resulting uncertainty may induce investors either to withd raw from the market until this uncertainty is resolved or discourage them to inv est funds for long term. Moreover, if investors are not rewarded for taking on h igher risk by investing in the stock market, or if excess volatility weakens inv estor'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. - Page | 6 2 lizes them through securities into optimal destinations. The stock market enable s all

Bangladesh capital market is one of the smallest in Asia but within the south As ian r region, it is the third largest one. It has two full fledged automated sto ck exchanges full-fledged namely Dhaka Stock Exchange (DSE), Chittagong Stock Ex change (CSE) and an OTC exchange operFigure 1: Structure of Capital Market of Ba ngladesh ated by CSE. It also consists of a dedicated Capital Market of Bangladesh regulator, the Securities and Exchange Commission (SEC), since, it implements ru les and regulations, mon tors their implications to o monitors operate and devel op the capital. It consists of Central Depository Bangladesh Limited (CDBL), the only Central Dep Depository in Bangladesh that provides facilities for the sett lement of transactions of dematefacilities d rialized securities in CSE market a nd DSE. Dhaka Stock Exchange (DSE) Chittagong Stock Exchange (CSE) Stock and Securities Exchange (SEC) Others 2.6 Bangladesh Stock Market Amid all the formidable obstacles our country's securities market has been gaini ng obstacles, momentum. Even in the backdrop of Global Financial Crisis 2008 whe n the stock ma markets in almost all the developed and developing countries cras hed and Governments of Gover those countries spent thousands of dollars to rescu e the markets. Both depth and d to dimension in Bangladesh capital market has be en becoming gradually strong and secur securities market registered significant growth at the initial stage and later market fell a little bit. The reason is mi ght be that the amou of foreign portfolio in Bangladesh securities amount lio ma rket is more or less only two percent. But lack of supply of fundamentally sound et percent. 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 Tk. 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 a nd supply should match at a certain point to the tune of bringing time und balan ce in the securities market. time-bound 2 2.5 Structure of the Capital Market in Bangladesh

Figure 2: Dhaka Stock Exchange Dhaka arket as to . The Share Market consists of the Dhaka Stock Exchange or DSE, the main share m of Bangladesh. ket Dhaka Share Market is still at its infant i stage and h walk a long way for coming into the radar of the Global FiF nancial Market Chittagong Stock Chitt Exchange (CSE) began its journey in change

10th October of 1995 from Chittagong City through the cry-out trading system wit h the ber cry out sy promise to create a state-of-the art bourse in the country. On April 28, 1954 the DSE was first incorporated as the East Pakistan Stock E E xchange Association Limited. However, formal trading began in 1956 with 196 secu r securities listed on the DSE with a total paid up capital of about Taka 4 bill ion. On June 23, 1962 it was renamed as Dhaka Stock Exchange (DSE) Limited. Afte r 1971, the tra ing activities of trading the Stock Exchange remained suppressed until 1976 due to the liberation war and the ration economic policy pursued by the then government. The trading activities resumed in 1976 with only 9 companie s 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 with a market capitalization of Taka 50,748 million. ization The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its a activities are regulated by it s Articles of Association and its own rules, regulations, and by-laws along with the Securities and Exchange Ordinance, 1969; the Companies Act, 1994; and the S ecurities and Exchange Commission Act, 1993 (DSE, 1999). Trading is done through automated on line system every day except Friday and other on-line ot governmen t holidays. There are four markets in the system: (1) Public Market: Only market s 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 wher bulk quantities of shar es are traded where through pick and fill basis. (4) Odd Lot Market: Odd lot scr ipts are traded here based on pick and fill basis. All transactions in public ma rket of a day, after netting, are settled ne ting, and cleared through the DSE C learing House due on 3rd and 5th working day respectiv Clearin respectively, cal culated from date of trading. Members shall be allowed to carry out transaction of 2 2.7 DSE and CSE: core capital markets of the country

the member through the custodian bank within the fifth day subsequent to the tra ding day, in respect of the transactions carried out on each trading day with in timation to the clearing house. The total number of tradable securities increase d by 1.97 % but the issued capital of all listed securities declined by 5% durin g this period. However, both total turnover of securities and total traded amoun t 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 d uring the period of 1998-99 due to: i) listing of lesser number of new Issues, i i) 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 no nresident Bangladeshis to invest in the capital market. Moreover, they can buy n ewly issued shares/debentures of Bangladeshi companies and can maintain foreign currency deposits (styled as NFCD account) in special accounts for up to five ye ars. A quota of 10% reserved for nonresident Bangladeshis in primary shares (IPO ) has also been initiated. 2.8 Main Board as on August 2011 Main Board as on August 2011 Table 1: Total capital exchange of DSE in August 2011: Total Number of Listed Securities Total Number of Companies Total Number of Mutu al Funds Total Number of Debentures Total Number of Treasury Bonds Total Number of Corporate Bonds Total number of Shares/Certificates: Total Number of Shares & Mutual Fund Certificates of All Listed Securities* Total Number of Shares of Al l Listed Companies Total Number of Certificates of All Listed Mutual Funds Total Number of All Listed Debentures 493 231 36 8 215 3 (No. in millions) 19,877 17,046 2,817 (No. in '000) 409 - Page | 9 2 foreign buyers and/or seller involving a custodian bank to be settled directly b etween

Total Number of All Listed Corporate Bonds Total Securities All Companies Shares All Mutual Funds T-Bonds All Listed Corporate Bonds Total Market ecurities All Listed Companies Shares All Listed Listed Govt. T-Bonds All Listed Corporate Bonds D

Issued Capital of : All Listed All Debentures All Listed Govt. Capitalization of: All Listed S Mutual Funds All Debentures All Conversion Rate: BDT against US

7,069 (Figure Tk. in millions) (Figure US$ in mns) 843,058 272,199 26,269 140 53 7,381 7,069 11,305.47 3,650 352 2 7,206 95 (Figure Tk. in millions) (Figure US$ in mns) 2,906,135 2,326,597 34,915 576 537, 381 6,666 74.57 38,971 31,200 468 8 7,206 89 * Total No. of Shares/Share Capital/Market Capital includes Bonus/Right of share s. 2.9 Sectoral Performance Table 2: Sectoral performance of DSE in August 2011: DSE Sectoral Performance - August 2011 Sector Financial Sector Banks Financial Institutions Insurance Mutual Funds Tota l Manufacturing Foods Pharmaceuticals Textile Engineering 51,810.32 175,334.69 7 1,598.61 120,787.26 53,035.70 199,033.89 96,488.97 128,407.03 2.18 7.38 3.01 5.0 8 2,419.52 7,838.09 9,516.58 6,491.74 7,075.12 19,365.83 31,038.42 24,764.06 2.7 3 8.84 10.74 7.32 716,595.95 274,619.30 136,417.38 34,915.01 1,162,547.64 721,83 2.69 288,529.80 150,538.81 41,101.33 1,202,002.63 30.17 11.56 5.74 1.47 48.94 18 ,157.46 5,532.49 6,493.71 5,038.45 74,944.68 29,312.32 25,206.93 11,778.13 20.48 6.24 7.33 5.68 39.73 Market Capitalization in millions May April % of % of Turn over Tk. in millions total total Mkt Cap Turnover May April 35,222.10 141,242.07 - Page | 10 2 Total Number of All Listed Gov. T-Bonds 5,365

Tannery Paper & Printing Jute Cement Total Fuel & Power Service & Real Estate IT Telecommunication Travel and Leisure Miscellaneous Total Bond Corporate Bond To tal Grand Total 14,663.75 917.70 784.49 85,851.62 558,243.37 292,329.13 19,134.66 4,522.42 242,6 48.91 7,218.08 82,085.73 647,938.94 6,666.40 6,666.40 2,375,396.36 15,257.08 1,043.10 793.55 80,704.11 613,544.91 310,776.16 21,916.06 4,912.58 256 ,016.88 11,334.08 77,306.25 682,262.02 6,653.96 6,653.96 2,504,463.52 0.62 0.04 0.03 3.61 23.50 12.31 0.81 0.19 10.22 0.30 3.46 27.28 0.28 0.28 100 261.56 9.21 14.12 6,084.83 1,136.08 27.51 59.95 12,889.56 0.30 0.01 0.02 6.86 38.46 9.85 0.84 0.57 2.84 2.85 4.78 21.72 0.09 0.09 100 34,093.76 102,628.09 8,731.00 741.06 505.78 2,514.92 2,527.47 4,236.80 19,257.04 75.74 75.74 24,056.30 2,489.72 1,750.18 7,273.96 7,698.74 10,974.66 54,243.55 5 9.29 59.29 Service & Miscellaneous 88,648.65 298,172.99 Table 3: Sectoral performance of DSE in September, 2011: : 0 100 200 300 400 500 600 700 * Values are in million taka Value and quantity of Turnover of DSE in September, 2011 29/09/2011 28/09/2011 27/09/2011 26/09/2011 25/09/2011 22/09/2011 21/09/2011 20/ 09/2011 19/09/2011 18/09/2011 15/09/2011 14/09/2011 13/09/2011 12/09/2011 11/09/ 2011 08/09/2011 07/09/2011 06/09/2011 2 Ceramics 36,494.93 38,781.48

1.54 1,458.12 6,271.56 1.64

STATUS OF CAPITAL MARKET 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 19 54, which started trading in 1956. Initially it was a mutual organization (coope rative body) which was corporatized in recent activity of the Dhaka Stock Exchan ge (DSE) in term of turnover in the name of Dacca Stock Exchange Ltd. During tho se early periods until 1971, all trades in the exchange were conducted using tra ding data collected over telephone from Karachi Stock Exchange. After independen ce of Bangladesh, the operations of the stock exchange remained suspended until August 1976. At that time market trading started with only 14 listed companies h aving market value of only taka 90 million. The trade volume was very thin and c ould not attract investors. Over time some reform initiatives were taken to stre ngthen the market. First time Tk. 1 crore daily trades were recorded in April 19 92. Government adopted the Securities and Exchange Commission Act 1993 and estab lished 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 r egulatory agency oversees the activities of the entire capital market including issue of capital, monitoring the issue of stocks and operation of the stock mark ets including 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 bas is of purchasing power parity. In nominal terms, the per capita income is US $75 0 with a GDP size of nearly US $90 Million, Bangladesh is the 70th largest expor ter and the 4th - Page | 12 3 Ch[pt_r 3

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 , inTable 4: Regional capital market comparison Regional Markets-September, 2011 Country Index DSE-20 Index DSE General Index Al l Share Price Index BSE 30 BSE 100 Karachi 100 CSE All Share Index SET KLSE Comp osite Taiwan Weighted Hang Seng Composite Straits Times P/E 13.28 15.51 15.58 18 .36 17.76 8 17.58 11 16 13 14 11 12 1.55 3.2 3.2 4.5 2.7 2.8 3.5 Yield 3.74 3.14 3.11 1.51 1.44 Interest Rate (%) 12.4 7.25 13.5 7 3.5 3 1.88 0.5 6.56 0.02 creased export earnings, healthy remittance and vibrant demands. domestic Bangladesh India Pakistan Sri Lanka Thailand Malaysia Taiwan Hong Kong China Sin gapore The steady growth of GDP during recent global recessions has demonstrated the resilience of our economy, adding that th e economy has strong fundamentals. Bangladesh is passing Source: The Wall Street Journal (September 23-25, 2011) Trading Economics (Globa l Economic Research, as on August-2011) Weighted Average Interest Rate As of Jun e, 2011) 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 str ong recommendation 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 Moody' 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 Banglade sh and termed the countries macroeconomic outlook stable, putting Bangladesh 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 i ncluded 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 included B angladesh 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 - Page | 13 3 largest RMG exporter in the world, Bangladesh is also the 21st fastest growing e conomy.

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 i s the demographics that justify the inclusion of Bangladesh in the "JP Morgan Fron tier 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 ove r the last few years to reduce poverty, increasing literacy levels and moderatin g 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 wi th 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 pr ofessionals in the service industry 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. Siz e and liquidity of the companies provide some distinguishing features of develop ing markets. The market capitalization ratio, defined as the value of listed sto cks divided by GDP, is used as a measure of stock market size. It has got econom ic 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 b illion in Pakistan, US $ 191.778 billion in South Korea and US $ 199.276 in Mala ysia. This market is also small relative to the size of the economy. Market capi talization 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. - Page | 14 3 analysis to include 13 other emerging economies including Bangladesh in their

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, indicating an 84% growth from the year before. The total turnover h as 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, 20 10. Dematerialization may be successful in stimulating the further growth of Ban gladesh capital market, but to ensure the success of such an initiative, it will be necessary to ensure that the regulatory framework and authority are sufficie ntly strong, in order to strike a balance between the interests of both the memb ers 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 crea ting more instruments for investors and, at the same time, creating some depth i n the capital market. Bond markets can also be utilized by the government in rai sing necessary funds, and can serve as an efficient method of financing in large projects. 3.1.3 Market Capitalization Market statistics shows that the total market capitalization at the country's pr ime Bourse-Dhaka Stock Exchange Limited stood at Tk. 2700.74 billion on 30 June, 2010 against Tk. 1,241.34 billion on 2009. In comparison with the market capita lization of 2009-10 with the corresponding period (2008-09) we see that total ma rket capitalization rose by 117.57 percent and by the amount of Tk. 1459.40 bill ion. 30 June, Figure 3: Market Capitalization in 2009-2010 3 Almost 33 lakh investors are now involved in the capital market at the moment; m ore

20.19 per-cent on 30 June, 2009. But after a huge transaction volume market capi talizacent transa lume c tion has risen to a record high in recent time to Tk. 3 ,680.71 billion on 05 December, 2010 and subsequently market capitalization to G DP also rose to 53.30 per y percent marking significant record. 3.1.4 Graphical Presentation From the graphical presentation it is seen that market capitalization of all the listed s securities at the Dhaka Stock Exchange Limited increased Figure 4: Market Performance from 2006-05 to 2009-10 05 2009 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 cent si gnificant point about the rising trend of market capitali capitalization is that market capitalization has increased to a highest ever Tk. 3680.71 billion on 05 December, 2010 which is 53.30 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 emergin g ma markets are found in different phases of development associated with the st ages of ec economic development process and political stability of a particular country. At the initial phase, velopment equity prices tend to rise. With the im plementing process growth oriented policies and growth-oriented attaining some d egree of economic and political stability, the market started to gain the confid ence of domestic investors and become more widely accepted as an investment a ce pted alternative to bank deposits and often to short short-term government bonds . Equity markets ernment of Belarus, Kazakhstan, Ukraine of the former USSR may be considered in this p phase. The second phase relates to the deregulation of c apital markets for easy access by the international investors and for cheaper ca pital funding by the domestic investors since the equity markets have gained som e degree of credibility at this phase. As market li3 Again the market capitalization to GDP rose to 39.12 percent on 30 June, 2010 ag ainst tion percent

the diversification benefits if investing in these markets. The markets of Brazi l, India, Pakistan, the Philippines, Bangladesh and the like have entered this p hase. The third phase is concerned with expansion. The markets offer prospect of higher return value less volatility and the investors easily absorb new issues of stocks and corporate bonds. These lead to increased trading activity, more ef fective intermediation, while the growing need for a risk transfer mechanism spu rs the development of equity and currency-risk hedging instruments such as deriv atives and index products. Argentina, Indonesia, Malaysia. Thailand and Turkey m ay be considered in this stage. Finally, the market depicts the phase of maturit y. As equity risk premium falls to internationally competitive levels relative t o government treasury bill rates or equivalent short-term money market rates, th e equity market begins to achieve the stable growth that marks a nature of devel oped state. Such condition can be found in Hong Kong, Korea, Singapore and the l ike. Studies have mentioned three reasons for the lack of confidence on the part of individual investors in securities of emerging markets. First, there is a de arth 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, ther e is the inability of the regulatory authorities to effectively monitor and supe rvise the market and thereby protect investors against market manipulation and o ther market abuses. In order to overcome such inefficiencies, credit markets nee d 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 a nd 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 interna tional 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- Page | 17 3 quidity increases and risk-adjusted returns rise, international investors begin to reap

demand both at home and abroad. Consequently within a very short tenure (from Ju ly 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 Mo tijheel thoroughfare. Consequently street based curb market took over the legal trade executed through stock market system. Unsuspecting inexperienced new entra nt investors allured by very quick profit potentials were buying anything withou t understanding substance, legality and validity of their investment. Unscrupulo us market players (which even include some issuers) were minting fortunes by sel ling fake securities to the crowd who were eager to make quick profit from the m arket. Thereafter, for obvious reason the market experienced first major crash i n 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 se gments of population spreading all around the country are affected this time as the market in this period has gained significant growth. The securities market d ebacle in 2010 need to be viewed from different perspectives. The following sect ion attempts to examine 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 develop ment 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 concl uding 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 an d moderate. From January 2007, the market experienced a sharp rise in terms of t ransaction and - Page | 18 3 ther operational nor in terms of legal structure ready to absorb such sudden sur ge in

investment. The emergence of military backed caretaker government (CTG) initiall y encouraged the investors to come back to capital market. At the time of declar ed campaign against corruption, budgetary policy support for legalization of und isclosed income through investment in securities market also encouraged new inve stors to transfer their funds to this market. Besides new civilian investors, in flux 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 s teady rate with national savings rate remaining around 30% of GDP. Such high sav ings rates were attained mostly due to robust growth in inward remittances from expatriate Bangladeshis over the years. While savings rates were good along with rising GDP, the investment rates were not matching. The real ADP in terms of bu dgeted 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 infrastructural and political reasons, the private se ctor investments also could not match the shortfalls in public sector investment s. 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 conn ections. Such policy almost stopped establishment or expansion of new industrial units and even residential buildings. The moratorium was further extended by th e newly elected government until middle of this year. Consequently private secto r investment for manufacturing sector almost stalled for quite some time. The gl obal financial crisis of 2008-09 also made many export oriented business to keep their production facilities partially or totally closed. Therefore, the busines s people having idle funds found incentives to move their funds lo capital marke t. 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 create d significant volume of surplus liquidity at the hands of financial institutions . The financial - Page | 19 3 price level. Especially the political situations in late 2006 made the market li ttle shy of

their liquidity. Almost all the major financial institutions got involved in dep loying 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 t o all concerned feeling the agenda for market reforms. Rules, laws and guideline s are framed and implemented to improve infrastructure and foundation on which t he stock exchanges can operate effectively. Major notable features of capital ma rket reforms implemented so far include: a) Reorganizing SEC to strengthen infrastructure capabilities and build capacity b) Updating rules, laws and guidelines to improve regulation framework: Amendm ent 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 i s also allowed to conduct special audit to detect window dressing in the account s 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 merch ant banks operating in Bangladesh. c) Separation of the management from the ownership at both DSE and CSE d) Inclus ion 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 rep lacing 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. - Page | 20 3 institutions started investment in the securities market as one of the avenue to utilize

others: a) Restructuring Investment Corporation of Bangladesh (ICB) by creating three subsidiary companies carrying out the function of merchant banking, fund managem ent and securities brokerage house b) Divesting government holdings in SOEs and MNCs through securities market c) I ssuing 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, Glob al Financial Crisis 2008 has dented every sphere of Bangladesh. Bangladesh econo my has also been limping since being dented by the blow of financial meltdown. O n 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 countri es' citizens low-priced garments of Bangladesh have been very popular registerin g more growth in the country's apparel sector. But financial collapse in many de veloped countries slowed down the infrastructural development especially constru ction works in Middle East which have pushed many Bangladeshi workers come back. Remittance inflow has risen but number of workers going abroad has fallen drast ically. In the year 2009-10 a record $11 billon remittance has come to Banglades h against $9.76 billion in 2008-09 fiscal year. Country's foreign currency reser ve hit new record of $11.35 billion recently because of low import expenditure a nd rising trend of export earnings. But still 44 percent people are under povert y level; the Government and other concerned organizations should take comprehens ive 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 accelera ted. 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 c ommencing business. Public-Private Partnership has been incorporated in the budg et for 2010-11 but success will depend on time-bound implementation. Instead of eying towards foreign countries, multi-lateral donors and agencies Government sh ould choose country 's capital market to raise fund for development projects esp ecially for - Page | 21 3 However, a few important reform measures are still pending. These include, among

will also ensure people's association in profitable Government properties. Assoc iating general people in lucrative Government venture means to create the way of ensuring equitable distribution of wealth and this is only possible through str ong and vibrant capital market. Because of sluggish economic activities investme nt has not gotten momentum in recent years but for the sake of rapid economic gr owth more savings and investment are also necessary. Another important issue is that tax to GDP (Gross Domestic Product) is very poor in Bangladesh, which has b een another cause of fiscal deficit in almost every year. The Government has bee n regularly depending upon the borrowing both from internal and external sources . Because of huge Government borrowing from the country 's formal banking sector private industrial ventures and other commercial set ups have been on declining trend. Instead of borrowing from banking sources and other foreign lenders Gove rnment should depend on raising fund from the country's capital market. - Page | 22 3 the construction of Padma Bridge, elevated express-way and other big projects wh ich

OBSTACLES TO OVERCOME 4.0 Problems Securities markets in Bangladesh encountered problems both from supply side issu es 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. Som e 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 enf orce regulations effectively and has limited resources to devote to its developm ent functions. As a result, the SEC's authority to oversee any structural change s at the two stock exchanges is being undermined. The managements of the two sto ck exchanges are unable to regulate and supervise their members' activities effe ctively: the exchanges are owned and dominated by brokers, so their businesses t ake precedence over the governance of their exchanges.

Neither the SEC nor the exchanges have effective automated surveillance systems that can detect, monitor, and prevent market abuses and malpractices. This has a ffected 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 improvin g the liquidity and market capitalization of the stock market. The main impedime nts include an inefficient pricing mechanism, issuer's concerns over poor corpor ate 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 mar ket, 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- P age | 23 4 Ch[pt_r 4

strengthen governance and the quality of market intermediaries, an examination a nd minimum qualification standards need to be introduced as a prerequisite for l icensing by the SEC. Only qualified and duly licensed personnel should be allowe d to deal with the public in transactions involving securities. Currently, there are no institutions in Bangladesh which offer courses specifically related to t he 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 subsi diaries accounted for 32% of total combined turnover on the DSE and CSE in FY200 4. To address conflicts of interest in its combined operations, three separate s ubsidiaries were created at ICB in 2002. However, all the objectives of unbundli ng ICB's operations have yet to be achieved. Other problems include the followin gs: Lack of infrastructure and physical facilities Existence of only dealer-brok er-members (no specialist/market maker) Market dominated largely by unsophistica ted investors Lack of diversity in products' availability in the market Ineffici ent capital market--both operational and informational Lack of proper and adequa te disclosures Certifiers of financial statements and property evaluators of the company are the same/identical Management and Owners (Councilors) of DSE are en twined Lack of enforcement with the compliance of rules and regulations Corporat e governance--sponsor-owners are managing the firm. In almost all cases, no prof essional managements are hired to run the affairs of the listed company. Lack of ethical orientation, education about capital & securities markets. Lack of trus t, self-respect amongst interest groups. These are important preconditions for b uilding up a healthy and investment friendly market atmosphere. Lack of potentia l securities and narrow options for the investors. Disclosure problem-inadequate disclosure, concealment of facts or sometimes fabricated disclosures appear in the annual reports. - Page | 24 4 ing) imposed by the SEC or the exchanges on any of the intermediaries. To

Exaggerated projection in prospectuses. Credit facilities are inadequate and int erest rates are exorbitant. Problem of rebuilding the image of presently depress ed market. 4.1 Measures to be taken to resolve the problems Capital market development is related with the financial deepening, which in tur n, depends on effective financial intermediation as well as on the availability of a wide variety of financial instruments. In this context, merchant banks have yet to play due role in revitalizing the stock market. Measures can be initiate d 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 sec ondary securities on their own account, which are not currently allowed. Merchan t banks should provide price support/stabilization of their underwritten 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 Marke t stabilization/Development fund should be established at the Bangladesh Bank (B B). The fund will counter finance merchant banks through commercial banks to fin ance their clients' investment activities. Otherwise, merchant banks should be a ble to obtain refinancing facilities from the BB on certain margin basis. This w ill make MBs active and inject fresh fund in the securities market. MBs as whole sale banking are given more activities in order to be sustainable and viable one s. Making the market information dissemination system perfect and pure. Correcti ve measures to rumors and fake reports and thus making the trading of securities smooth and uninterrupted. Prompt explanations to unusual market actions. Refrai n companies from misleading potential investors through fake re- Page | 25 4 Infusion of fake shares.

Refrain sponsors from buying and selling own company securities without notifyin g the exchange through writing. Making the sources of rumors ineffective in the trading floor by strengthening the market intelligence force. Quick transformati on to Central Depository System, which is expected to reduce workload of physica l deposit and withdrawal of securities. Enhancement of ethical standard of all t he parties involved in trading. Restoring of public confidence through applicati on of educative programs like schooling on securities market and orientation pro gram. The following other measures can be undertaken for the development of capi tal market: The listed companies that pay regular dividend should be given tax i ncentives and tax rebates as well. The mode of privatization of industries will be implemented through public issue of shares. This will deepen the securities m arket, diffuse ownership and bring in market disciplines. The government should off-load its equity holdings in SOEs and MNCs through stock market. This will im prove the supply of securities in the market. Bond market needs to be developed. The implementation of government securities with medium-term and long-term matu rities will also broaden the base of bond market. Establishment of a separate ju dicial security tribunal for dealing with cases related to securities market. Di sclosure of information to the public in the fullest possible dissemination syst em 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 tra ding of securities or would likely to have a bearing on investment decision. The companies concerned must refrain from disclosure like exaggerated - Page | 26 4 porting and forecasting.

to make informed investment decisions. Insider must not trade on the basis of ma terial information which is not known to investing public. Insider should refrai n from trading on principle, even after material information has been released t o the press or through other media. Every director, promoter or person of author ity from the sponsoring group should not involve in buying/selling of its own co mpany's securities unless fulfilling requirement to report to the exchange in wr iting about their intention to buy or sell. Ethical standard of all interest gro ups must be enhanced so that everybody understands the sanctity of this knowledg e based securities industry. Public confidence should be restored and confidence building activities must be carried out through educative programs. Education h as no alternative and thus education about capital and securities market is one of the most important aspects that help investors taking investment decision. Ed ucation program, orientation program and inclusion of securities and non securit ies issues in the syllabus of the secondary and higher secondary levels can buil d 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 thei r respective roles promptly in order to restore the gravity of the market. Gover nment should play the role of a facilitator, partner in progress and growth fost erer 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 attrac t the entrepreneurs to get their profitable business ventures listed with the co untry's growing securities market. MSA Plus is being up-graded time to time in c ollaboration with India-based Cambridge Solutions to start internet-based transa ction soon. After the comple- Page | 27 4 reports or predictions which exceeds what is necessary to enable the public

transaction facilities of securities would reach the doorsteps of investors acro ss the world. DSE is upgrading its automated trading system time to time to meet up the demand of the capital market. As number of transactions increases, DSE t ook initiatives 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 I Ds 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, DS E Implemented Web-based Market Data Server (MDS) for providing necessary Market Data to different electronic and print media, Cell Phone Companies, Research Ins titutes, Brokerage houses etc. DSE signed an agreement with a number of TV chann els 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 investo rs 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 it s existing manpower into truly efficient and highly qualified human resources DS E has been continuing its tireless efforts to send its staffs to different organ izations and abroad for training. For smooth and time-bound supervision of all t he professional jobs Chief Operating 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 cont inue the present trend of securities market growth DSE Board of Directors has be en maintaining strong communication with the relevant authorities including Fina nce Minister, SEC, Bangladesh Bank, National Board of Revenue, Bangladesh Instit ute of Capital Market and other relevant institutions, organizations, personalit ies and concerned authorities. A Complaint Cell/Box has been set to listen to in vestors, relevant stakeholders including listed companies and others and necessa ry steps are taken to come out - Page | 28 4 tion of up-gradation of this work and commencement of internet-based trading,

For transparent and smooth settlement of securities and to also reduce time DSE has been trying to establish an Independent Settlement and Clearing Company. Mee tings of different committees are going on regularly and time to time suggestion s and instructions of those committees are carried out to enhance the department al 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 s how-cased Bangladesh capital market to Non-Resident Bangladeshis to draw their i nvestments in the market. DSE has been arranging investors' awareness program in different cities to make the investors aware of the real market situation. It h as also been co-operating with Bangladesh Institute of Capital Market authority so that through this newly established institute, time-bound education and pract ical training on securities market related issues may be conducted. Plans are al so underway to arrange road-shows and investors' awareness program abroad to spr ead securities market related issues among the NRBs. Members of Board of Directo rs, members of different committees and officers of DSE have been continuously v isiting different related organizations and stock exchanges and trying to utiliz e the experience for the better development of DSE. DSE has been requesting the relevant and concerned authorities of Government and other organizations to simp lify the investment procedure of NRBs. DSE has placed proposals and continued co nversation and discussion with relevant 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 Governmen t companies and Government shares in other companies in the country's capital ma rket. Here it may be mentioned that Rupali Bank has sold nearly 30 lakhs share a nd Mobil Jamuna is coming with shares of Tk. 609 crore. For more consciousness a nd real information of market DSE has signed agree- Page | 29 4 the crisis time to time.

with market data which will also enhance market growth. Because of efforts of DS E face value standardization process has been being implemented by listed compan ies gradually which helps investors compare the market price of shares. More dyn amism has been put in ICT Division, Operations Division, Finance Division and Ad ministration Division. All the officers under the leadership of CEO, COO, CTO, G M (Admin) and Secretary, GM (Finance and Accounts) and DGMs have been working in a team to carry out their responsibilities smoothly for further development. Di scussions are also underway to attract shares of big business. DSE authorities h ave been continuing discussion with the entrepreneurs on regular basis which wil l further help increase the depth and dimension of the country's securities mark et. 4.3 Actions required for restoring investors' confidence on the market Present situation of Bangladesh stock markets needs to be strengthened to provid e greater investors' confidence and to improve market liquidity and competitiven ess. 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 m embership of stock exchanges to institutions and corporate sector with adequate capital is required. Improvement of the flow of information, introduction of a s ystem of market-maker in addition to the prevailing order-driven system, credibl e quicker settlement and the development of over-the counter markets (OCT) for l arge green field projects and non-listed securities are the prerequisites. To re dress the problems of the stock markets in Bangladesh, policy prescription shoul d aim at par to the favorable environment within which the flaws of the market c ould be mitigated, activities of hidden consortia would be ineffective and the l ikely exposure of investors to various market abuses including market manipulati on should be reduced. Due emphasis should be given to implement the existing rul es and regulations; Regulatory framework should be adequate for the prevention o f unbridled speculation, market-rigging and insider trading so that erosion in - Page | 30 4 ment with different print, electronic media and news agency to provide them

Attempts should be taken to make the present order-driven system of automation f oolproof 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 markets. But as per the past occasions, it is evident that our current ca pital 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 addi tion, our mindset needs to be changed regarding earning profit from the capital market overnight. Foreign investments also need to be increased to ensure a soun d capital and along with this, the government should make an authentic list of t he companies that has credibility and accountability. If we can develop our capi tal market, it will definitely enhance our national economy. 4.5 Conclusion Developing countries which accounts for 75% of the world's population, have an e nduring need to attract capital and technology to improve their infrastructure a nd standard of living. Developing economies, thus, look forward to their capital markets as the engine for future growth as its existence ensures mobilization o f surplus funds to the ones suffering from deficit. In Bangladesh we have a capi tal market that is yet to be further nurtured to get the fruit out of it. Withou t doing this we cannot undergo heavy industrialization and other capital based d evelopment. We have various problems like the market has been suffering from ina dequacy of good scripts. Out of around three thousands public companies, only tw o 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 proble m 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 th at 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 ca pital and related developments in our country. - Page | 31 4 public confidence can be contained;

R_f_r_n]_s 1. Imam, O. Mahmood, The Capital Market Development in Bangladesh: problems and prospects, October 5, 2000 2. Imam, M. Hasan, Capital Market: An Overview, 2005 3. Nazimuddin, AZM, An Overview of Bangladesh Capital Market, 2007 4. Ahmed, M. Farid, Emerging Stock market and the Economy: The Case of Bangladesh, Soufheast Asian Studies Series, 33. The Research Institute of Southeast Asia, Nagasaki Uni versity, 2000. 5. Ahmed. M.Farid, "Equity Market Performance in Bangladesh: An E valuation", Savings and Development. Vol. XXII, No. I. 1998. 6. DCCl. Report of the Round Table Discussion on Capital Market - A Vehicle for Industrialization a nd Privatization, August 10. 1999. 7. El-Erian. M.A., "Middle East Financial Mar kets: Potential for Development and Internationalization", Middle East Executive Report, June 1994. 8. Mookerjee. R., R., "The Stock market and the Economy: The Indian Experience 1949-1981'. Indian Economic Journal, Vol. 36. No. 2, 1988. 9. Moore. G.H., "Stock prices and the Business Cycle", Journal of Portfolio Manage ment, Vol. 1 No. 3. 1975. 10. Nafisa H., Foreign Portfolio Investment: Return. G rowth, Determinants and Monitoring -A Critical Analysis. Internship Report. Depa rtment of Finance and Banking. University of Dhaka, 1998.' 11. Nishat, M. and Sa ghir. M., The Stock Market and Pakistan Economy4, Savings and Development, Vol., 2. No. XV. 1991. 12. Shaw. E., Financial deepening in Economic Development. Oxf ord University Press. New York. 1973. 13. Stiglitz. J.E. and Weiss. A., "Credit Rationing in Markets with Imperfect Information", American Economic Review. Vol. 71. No. 3. June 1981. 14. Tarumizu, K., "Fostering Investor Confidence in the A sian and Pacific Capital Markets." Pacific-Basin Financial Journal, Vol. 1, 1993 . - Page | 32 -

15. Wai, U.T. and Patrick, H.T., "Stock and Bond Issue and Capital Markets in Le ss Developed Countries". IMF Staff Papers. July 1973. - Page | 33 -