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Executive Summary

Bangladesh is a developing country from south Asia. So we have a powerful economy to


run our huge people. Our economic strength is expanding day by day. Share market is an
important part for any country. The aim of the thesis is to determine current position
ofBangladesh share market and prospect of our share economy. The background of the
study includes brief introduction of Bangladesh stock market with its structure and
different regulatory and intermediary organizations. It also describes future prospects of
Bangladesh share market. For the theoretical part investigation report of other research
paper is used as the main secondary resource. The report helps to get background of the
Bangladesh share market with description of share market crash reasons and role of
different regulatory and intermediary organizations and future prospects of Bangladesh
share market. Self-administered questionnaire is used to obtain primary data for the study.
I presentsomequestionnaires to employees of broker houses and general investors to
develop this paper. The result of the Self-administered questionnaire helped me to find
some other reason behind the stock market crash in addition with reasons provided in the
investigation report. Moreover, the result shows developments of market by the regulators
and government since the crash. Finally, imake recommendation to the regulators,
government and investor.

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Table of Contents
Particulars Page No:
Chapter: Introduction
1.1 Introduction:
1.2 Objectives of the Study:
1.3 Purpose of Bangladesh Stock Market
1.4 Scope and Objective of Bangladesh Stock Market
Chapter-02: Conceptual Issus
2.1 Dhaka Stock Exchange
2.2 Chittagong Stock Exchange
2.3 Objectives
Chapter-03: Problems of Stock Markets in Bangladesh
3.1 Problems of Stock Markets in Bangladesh:
3.2 Motivation behind choosing the topics:
3.3 Bangladesh stock market contains some institutions:
3.4 Functions of DSE
3.5 Structure of Bangladesh stock market:
3.6 Problems of Bangladesh stock market
3.7 Causes of that problem
3.8 Bangladesh stock market collapsing and its effects
3.9 Stock Market Crash of Bangladesh In 2015-16:
3.10 Factors contributed to the crash:
3.11 Prospects of Bangladesh share market
3.12 Effective steps that government took after the crash:
Chapter-04: Findings of the Study
4.1 Findings:
Chapter-05: Recommendations and Conclusions
5.1 Recommendations
5.2 Conclusions
References:

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Chapter-01
Introduction
1.1 Introduction:
Share market scamming is a course for Bangladeshi economics. But how it has occurred
and why people lost their money? We need to discover about this game, I will try to move
on main fact. Bangladesh Market has been the subject significant changes in recent years.
DSE has also taken significant steps towards the development of its capital market. The
market is one of the most important sources for companies to raise money. This allows
businesses to be publicly traded, or raise additional capital for expansion by selling shares
of ownership of the company in a public market. The liquidity that an exchange provides
affords investors the ability to quickly and easily sell securities. This is an attractive
feature of investing in stocks, compared to other less liquid investments. History has
shown that the price of shares and other assets is an important part of the dynamics of
economic activity, and can influence or bean indicator of social mood. Rising share prices,
for instance, tend to be associated with increased business investment and vice versa.
Measures have been taken for privatization, economic liberalization, relaxation of foreign
ex-change controls, and easing of regulations on repatriation of profits, investment, and
operation of financial institutions.

1.2 Objectives of the Study:


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

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1.3 Purpose of Bangladesh Stock Market
Stock markets in Bangladesh provide the lifeblood of Stockism. Companies turn to them
to raise funds needed to finance the building of factories, office buildings, airplanes, trains,
ships, telephone lines, and other assets; to conduct research and development; and to
support a host of other essential corporate activities. Much of the money comes from such
major institutions as pension funds, insurance companies, banks , foundations, and
colleges and universities. Increasingly, it comes from individuals as well. As noted in
chapter 3, more than 40 percent of U.S. families owned common stock in the mid-1990s.
Very few investors would be willing to buy shares in a company unless they knew they
could sell them later if they needed the funds for some other purpose. The stock market
and other Stock markets allow investors to buy and sell stocks continuously. The markets
play several other roles in the Bangladeshi economy as well. They are a source of income
for investors. When stocks or other financial assets rise in value, investors become
wealthier; often they spend some of this additional wealth, bolstering sales and promoting
economic growth. Moreover, because investors buy and sell shares daily on the basis of
their expectations for how profitable companies will be in the future, stock prices provide
instant feedback to corporate executives about how investors judge their performance.

1.4 Scope and Objective of Bangladesh Stock Market


Bangladesh offers immense opportunities for raising funds from banks and other domestic
sources for necessary business expansion said former finance and planning adviser to
caretaker government Dr AB Mirza Azizul Islam at a seminar. The country's banking
sector was not exposed to the toxic items that led to the global financial meltdown, and the
Stock market here is one of the best performing markets around the world," he said.
Bangladesh's Stock market is vibrant and sound, its Stockization accounts for around 21
per cent of the gross domestic product (GDP), while the banking sector has escaped the
fallouts from the global meltdown, he said. Urging the German entrepreneurs to invest in a
number of prospective sectors here including manufacturing, agro-processing,
telecommunication, energy, transport and water resources,
The GDP growth would not be sustained without developing the energy sector, said Dr
Sattar, a former World Bank senior economist. He said non-integration of the country's
financial system with the global system might be a weakness too, as they were losing a lot
of opportunities due to it.

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Chapter-02
Conceptual Issus
2.1 Dhaka Stock Exchange
Dhaka Stock Exchange (Generally known as DSE) is the main stock exchange of Bangladesh. It
is located in Motijheel at the heart of the Dhaka city. It was incorporated in 1954. Dhaka stock
exchange is the first stock exchange of the country. As of 31 December 2007, the Dhaka Stock
Exchange had 350 listed companies with a combined market capitalization of $26.1 billion.

History
It first incorporated as East Pakistan Stock Exchange Association Ltd in 28 April 1954 and
started formal trading in 1956. It was renamed as East Pakistan Stock Exchange Ltd in 23
June 1962. Again renamed as Dacca Stock Exchange Ltd in 13 May 1964. After the
liberation war in 1971 the trading was discontinued for five years. In 1976 trading
restarted in Bangladesh. In 16 September 1986 DSE All Share Price Index was started.
The formula for calculating DSE all share price index was changed according to IFC in 1
November 1993. The automated trading was initiated in 10 August 1998. In 1 January
2001 DSE 20 Index was started. Central Depository System was initiated in 24 January
2004. As of November 16 2009, the benchmark index of the Dhaka Stock Exchange
(DSE) crossed 4000 points for the first time, setting another new high at 4148 points.

Management
The management and operation of Dhaka Stock Exchange is entrusted on a 25 members
Board of Director. Among them 12 are elected from DSE members, another 12 are
selected from different trade bodies and relevant organizations. The CEO is the 25th ex-
officio member of the board. The following organizations are currently holding positions
in DSE Board:
 Bangladesh Bank
 ICB
 President of Institute of Chartered Accountants of Bangladesh
 President of Federation of Bangladesh Chambers of Commerce and Industries
 President of Metropolitan Chambers of Commerce and Industries
 Professor of Finance Department of Dhaka University
 President of DCCI (Dhaka Chamber of Commerce and Industry)

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2.2 Chittagong Stock Exchange
Background
The Chittagong Stock Exchange (CSE) began its journey in 10th October of 1995 from
Chittagong City through the cry-out trading system with the promise to create a state-of-
the art bourse in the country.
Founder members of the proposed Chittagong Stock Exchange approached the Bangladesh
Government in January 1995 and obtained the permission of the Securities and Exchange
Commission on February 12, 1995 for establishing the country's second stock exchange.
The Exchange comprised of twelve Board members, presided by Mr. Amir Khosru
Mahmud Chowdhury (MP) and run by an independent secretariat from the very first day
of its inception.
CSE was formally opened by then Hon'ble Prime Minister of Bangladesh on November 4,
1995.
Mission
The Chittagong Stock Exchange believes that a dynamic, automated, transparent stock
exchange is needed in Bangladesh. It works towards an effective, efficient and transparent
market of international standard to serve and invest in Bangladesh in order to facilitate the
competent entrepreneurs to raise capital and accelerate industrial growth for overall
benefit of the economy and keep pace with the global advancements.

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

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Chapter-03
Problems of Stock Markets in Bangladesh:
3.1 Problems of Stock Markets in Bangladesh:
The unexpected rise and fall in share prices mostly followed from the general confidence
of the investors about political stability, euphoria of investment in shares, prospect of
quick capital gains, a vacuum in respect of institutional presence in the share market,
monopolistic dominance of member brokers, inefficiency of the SECS to cape with the
developments, existence to Kerb market , absence of proper application of circuit breaker
etc. Delivery versus payment mechanism was used as one of the main vehicles of
manipulation. Kerb market gave birth fake and forged share certificates. Although there
are increasing trends in all the indicators, DSE, CSE are not free from problems, The
problems of DSE, CSE may be summarized as under:
Price manipulation
It has been observed that the share values of some profitable companies has been
increased fictitiously some items that hampers the smooth operation of Stock market.
Delays in Settlement:
Financing procedures and delivery of securities sometimes take an unusual long time for
which the money is blocked from nothing.
Irregulations in Dividends:
Some companies do not hold Annual General Meeting(AGM) and eventually declare
dividends that confused the shareholders about the financial positions of the company
Selection of Membership:
Some members being the directors of listed companies of DSE, CSE look for their own
interest using their internal information of share market.
Improper financial statement:
Many companies do not focus real position of the company as some audit firms involve in
corruption while preparing financial statements. As a result the shareholders as well as
investors do not have any idea about position of that company.

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OTHER
 The concept of centralization of the securities market has not been implemented
that areise technical problems and political infighting.
 The intrinsic values for securities traded are sometimes estimated without
considering the current market prices of the securities.
 The absence of comprehensive legal and supervisory framework.
 Lack of skilled manpower as well as financial and non-financial institutions
involved in the securities market.
 The lack of proper policy framework that provides incentives and protection to
investors.
 The dominance of bigger public sector and borrowing of public sector as well as
government form the institutional sources rather than the market.

3.2 Motivation behind choosing the topics:


Stock market collapsing is a security concern for Bangladeshi people and economy. I am
very keen to keep records of Bangladesh stock market especially Dhaka Stock Exchange
because of my personal interest. The author personally experienced the dramatic rise of
the market for last couple of years before the crash. Moreover, a lot of investors who lost
their savings are author`s friends, relatives and family members too. Another important
motive behind choosing the topic is to be familiar with the common reasons of a crash in
this market. So that author can be aware of those like other investors before investing in
this market. The author wants to enrich his knowledge by studying different books,
reports, researches and articles on the topic.

What is a stock market?


stock market has same features like a normal market with buyers, sellers and agreed price.
He also added that there will be a middleman who guides investor to deal offers of buying
and selling shares in the stock market. We usually find stock exchange, regulatory
organizations, investors, listed companies with securities, broker houses, merchant banks,
and other intermediary organizations in a stock market with co-operation of central bank
and government of the country.

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Bangladesh stock market:
This part of the study explains history of the Bangladesh stock market with role and
functions of Dhaka and Chittagong stock exchanges. It also explains about the capital
market structure of the country, Security & exchange commission as the market regular-
tor and CDBL as an important organization of the market.

3.3 Bangladesh stock market contains some institutions:


Dhaka Stock Exchange (DSE)
Dhaka Stock Exchange is the first & biggest stock exchange of the country. The operation
of Dhaka Stock Exchange started on May 14, 1964 after renaming East Pakistan Stock
Exchange Limited. Dhaka Stock Exchange (DSE) is registered as a Public Limited
Company and its activities are regulated by its Articles of Association rules & regulations
and bye -laws along with the Securities and Exchange Ordinance - 1969, Companies Act -
1994 & Securities & Exchange Commission Act - 1993.In the beginning DSE was a
physical stock exchange and used to trade in the open outcry system. After that to secure
smooth, timeliness & effective operation on the market, DSE uses automated trading
system. The system was installed on 10th August, 1998 and was upgraded time to time.
The latest upgrading was done on 21st December, 2008. There are 238 members and total
507 listed securities in Dhaka Stock Exchange. The working days of DSE is 5 days in a
week without Saturday, Sunday public holidays & other government holidays. The trading
time is from 11:00 am to 15:00 pm (local time). Investment options for an investor in this
market are ordinary share, Debenture, Bond & Mutual funds. As mentioned by Fellowes
(2008), “Every stock market has its indices to show move-ments in the market as a
whole”. In the beginning DSE had only one index. However, now there are three different
indices which are DSI (All share), DGEN (A, B, G & N) and DSE 20.

3.4 Functions of DSE


 The major functions are:
 Listing of Companies (As per Listing Regulations).
 Providing the screen based automated trading of listed Securities.
 Settlement of trading (As per Settlement of Transaction Regulations).
 Gifting of share / granting approval to the transaction/transfer of share outside the
trading system of the exchange.

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 Market Administration & Control.
 Market Surveillance.
 Publication of Monthly Review.
 Monitoring the activities of listed companies.
 Investors grievance Cell (Disposal of complaint by laws 1997).
 Investors Protection Fund (As per investor protection fund Regulations 1999).
 Announcement of Price sensitive or other information about listed com-panies
through online.

Chittagong Stock Exchange (CSE)


Chittagong Stock Exchange is the 2nd stock exchange of Bangladesh. It is said that CSE is
the pioneer of the modern capital market of the country as it introduces modern
technology & sophisticated logistic support. It was incorporated as a self-regulated non-
profit organization on 1st April, 1995 and formally opened on November 4, 1995. It
started its trading through cry-out system. Then Chittagong Stock Exchange started first
automated trading bourse of the country. CSE started its automated trading on 2ndJune,
1998 and internet trading service on 30th May, 2004.The trading time of CSE is between
11:00 am to 15:00 pm. The working days & holidays of CSE are same as like as DSE.
CSE consists of 25 members of whom 12 are elected through election of CSE members,
12 members are elected from different major economic & social arena of Bangladesh and
CEO is nominated and appointed by its own board but the approval of SEC mandatory.
Now CSE has 147 members and 238 of listed securities. There are four different markets
in CSE too which are public, Spot, Block & Odd Lot market. Trading is done through all
these four markets. A, B, N, G and Z these are the 5 categories of company listed in CSE
and it is mentionable that in G category there is not any company. Chittagong Stock
Exchange has its own indices to calculate movements of its total market value. CSE
maintained only one index that was All Share Price Index until 10th October, 1995. Now
CSE has 3 indices in the stock exchange. Indices are All Share Price Index (CASPI), CSE
Selective Index (CSE30) and CSE Selective Categories' Index.

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3.5 Structure of Bangladesh stock market:
Primary Market: Initial Public Offerings (IPOs), new share issuance of a company comes
through primary market. Companies can issue new securities after getting permission from
the market regulators.
Secondary Market: Secondary market deals with existing securities or previously issued
securities. Securities can be sold or bought from this market. In a stock exchange most of
the trading figures comes from the secondary market. This market is also divided
according to its different trading characteristics.
Public Market: Instruments are traded on this market in normal volume which is called lot
share.
II. Spot Market: Trading is done in normal volume under corporate actions and must be
settled in 24 hours.
III. Block Market: In this market bulk volume of instruments are trades through pick & fill
basis.
IV. Odd lot Market: Odd lot refers to a quantity of shares that is less than market lot. Odd
lots of all instruments are traded through pick & fills in this market. Basically odd lots
generated from bonus and rights issues.

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3.6 Problems of Bangladesh stock market
As a new developing country Bangladesh has some weakness in the scope of stock market.
But in recent days we are fall on a big catastrophe. The capital market of Bangladesh is
small, inefficient and underdeveloped. Of the total financial system, the ‘non securities’
sector accounts for more than ninety percent of the financial activities in the countries. But
this bank based system is virtually on the verge of collapse due to huge nonperforming
loans and colossal volume of classified and default loans. So, we are concerned with
‘securities segment’ because the securities market can develop the national economy. The
rate of institutional investment is very low in Bangladesh. The capital market has not yet
attained the credibility as an reliable avenue for investment from the side of the general
public. The main problems of capital market of Bangladesh are; serious dearth of risk free
assets in the secondary market to individual buyers, absence of varied tradable financial
Instruments. The availability of low financial instruments in market, the capital in the
market is low comparatively to the developed country and the investors – both institutions
and individual are not attracted to invest in capital market in Bangladesh. Introduction of
new instruments of finances will provide the opportunities to the companies for getting
required fund at lower cost. The introduction of new financing sources will increase the
investor’s participation in the future offering of companies. This will raise more funds.
The research aims are to evaluate the growth and development of existing financial
instruments and to recommend for introducing new financial instruments in the capital
market of Bangladesh. The traditional instruments are not attractive to the investors. So, it
is assumed that new instruments will increase the attraction of investors and volume of
capital market and will reduce the dependency on bank based credit. Now I share some
points that are responsible for problems of Bangladesh share market.
The unexpected rise and fall in share prices mostly followed from the general confidence
of the investors about political stability, euphoria of investment in shares, prospect of
quick capital gains, a vacuum in respect of institutional presence in the share market,
monopolistic dominance of member brokers, inefficiency of the SECS to cape with the
developments, existence to Kerb market, absence of proper application of circuit breaker
etc. Delivery versus payment mechanism was used as one of the main vehicles of
manipulation. Kerb market gave birth fake and forged share certificates. Although
there are increasing trends in all the indicators, DSE, CSE are not Free from problems,
The problems of DSE, CSE may be summarized as under: Price manipulation Market

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manipulation has been less thoroughly examined in the academic literature but is a
growing concern on many emerging stock markets. The possibility that the markets can be
manipulated is an important issue for both the regulation of trading and the efficiency of
the market. Security regulators generally prohibit market manipulations on the basis that
they distort prices, hamper price discovery, and create deadweight losses. It has been
observed that the share values of some profitable companies has been increased
fictitiously some items that hampers the smooth operation of Stock market. In modern
financial markets, manipulations are often done in hidden ways that cannot be easily
detected and outlawed. While manipulative activities seem to have declined on the main
exchanges, it is still a serious issue in the Bangladesh’s capital market. Although several
theories on stock market manipulation have been investigated, empirical evidence about
stock manipulation is still scarce. When investigating the possibility of a manipulation,
there are many signs that may indicate whether price rigging has occurred. The sudden
debacle in the stock market in Bangladesh is definitely a result of market manipulation
which has left general investors with a great loss of their invested capital even there were
warning signs in the market before the crash which were not been grasped by the general
investors. Lack of knowledge Mostof the investors in Bangladesh have a very little
knowledge about Stock market. Most of them take their investment decision based on
rumor. Since stock market is not a place of gambling, rather it’s a place of knowledge
based game.

3.7 Causes of that problem


There are many problem have behind the scene when coming question about causes of
share market problem. Now answer is..
 Inconsistency in regulatory activities
 Supporting and legalization of unethical activities of Big Investors
 Irresponsible Behavior/Weakness in many areas
 Formulating policies to support market Players Formulating policies to support
market Players (Manipulators)
 Lack of Due Diligence
 Lack of Co-ordination between SEC and Stock exchanges
 Allowing Financial Institutions to invest in capital market aggressively
 SEC Failed to take measure against manipulation of Financial statements

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 Stock price “Manipulation”
 Stock split Stock split
 Asset revaluation
 Price manipulation
It has been observed that the share values of some profitable companies has been
increased fictitiously some items that hampers the smooth operation of Stock market.
Delays in Settlement: Financing procedures and delivery of securities sometimes take an
unusual long time for which the money is blocked from nothing. I regulations in
Dividends: Some companies do not hold Annual General Meeting(AGM) and eventually
declare dividends that confused the shareholders about the financial positions of the
company Selection of Membership: Some members being the directors of listed
companies of DSE, CSE look for their own interest using their internal information of
share market.
Improper financial statement:
Many companies do not focus real position of the company as some audit firms involve
incorruption while preparing financial statements. As a result the shareholders as well as
investors do not have any idea about position of that company.
The concept of centralization of the securities market has not been implemented that are is
a-
Other problems are:
 Technical problems and political infighting.
 The intrinsic values for securities traded are sometimes estimated
withoutconsidering the current market prices of the securities.
 The absence of comprehensive legal and supervisory framework.
 Lack of skilled manpower as well as financial and non-financial institutions
involved in the securities market.
 The lack of proper policy framework that providesincentives and protection to
investors
 So that is main causes for share market problem of Bangladesh.

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3.8 Bangladesh stock market collapsing and its effects
We know that Bangladesh stock market collapsed on October 2016, 1987, 1996 and many
investors lost their many. Many people suicide for their money and wealth. Now I present
some information about share market of Bangladesh and its collapsing and its effects on
our economy and peoples.
Stock Market Crash of 1987:
In the last century the most significant stock market crashes were crash of 1987. This part
of the study will briefly explain about the stock market crash of 1987.
Stock market crash of Bangladesh in 1996: The scenario of stock market crash in 1996
and crash in 2010-11 are totally different. The number of BO account holders was only
300,000 and most of them were very new in the market. During the crash of 1996 paper
shares used to be sold in front of DSE and it was not easy for investors to identify fake and
original shares. The market was enough developed to gain confidence of investors. There
was no automated trading sys-tem, surveillance was not enough strong and no circuit
breakers as well as international protections. (Hossain, 2016)From 1991 to the end of 1995
DGEN price index gained by 139.3% and reached to 834 point. But in 1996 the market
experienced dramatic change and pushed the price index up by 337%. DGEN Index
recorded high growth from July and stood at 3648.7 points or by 280.5% on 5thNovember
1996.Besides, Chittagong Stock Exchange experienced the same change and grew by
258%. Chittagong stock exchange index increased from 409 to 1157 points in 1996 within
one year time. (Bepari&Mollik, n.d.)During the ‘Bull Run’ period new records were
posted almost every day in both bourses for example market capitalization achieved to $2
billion which is equal to 20% of totalGDP. As market became overheated government
took step by selling state owned institutions and Taka 2 billion will be given to ICB for
buying shares and support the market. But the steps taken by the government did not work.
The Dhaka Stock Exchange Index was at a 10-year high in the 2007 year end (up 66
percent), which made it Asia's top performer after China. The steady investment
atmosphere prevailing throughout 2007 is considered to be one of the main reasons behind
this surge. Good return prospects, stable market growth, and uninterrupted trading as a
result of political stability attracted foreign investors to local securities. In 2007, foreign
investors bought shares worth$205.7 million, while the amount of selling was $78.6
million, according to a DSE statistic. According to the DSE, in 2007, net foreign or
portfolio investment on the Dhaka Stock Exchange surged 8.3x to $129 million. The

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banking sector, followed by the power, pharmaceutical and cement sectors, received the
most foreign investment. The caretaker government has also attracted investors by
pledging to sell state enterprises. The state-owned companies -- Jamuna Oil Company Ltd.
and Meghna Petroleum Ltd. -- debuted in the bourses early this month. Some analysts
think that the market had been undervalued before the surge, and the uphill trend,
therefore, played the role of an upward correction of the market. The P/E ratio now stands
at 20x as compared to 14.1x for emerging markets. It seems sustainable if the planned big
IPOs of a few SOEs and the top telecom companies take place. More such large issues are
required, which can emerge out of the energy, infrastructure and public sectors

3.9 Stock Market Crash of Bangladesh In 2015-16:


History of the stock market crashes show that ‘Bull Run’ before a stock market crash is
Kind of normal phenomenon. There was no exception for the stock market crash of
Bangladesh in 2010-11. Most important factors that guided to the Bull Run are de-scribed
here. Due to political unrest of Bangladesh state of emergency was declared and military
took power of the country in 2007. During military-backed regime investment in real
sectors as well as FDI decreased but the inflow of foreign remittance increased. Investors
tried to find alternative investment sector to invest their savings and found stock market as
an attractive alternative. (Khaled, 2016)According to CPD (2016), the total number of BO
Account holders on 20th December, 2010 reached to 3.21 million though the number was

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1.25 million in December 2014. Most of these new investors don’t have enough
knowledge about the stock market but invest their most or all savings in the market. 238
brokerage houses opened 590 branches at 32 districts. As CPD (2016) found, internet-
based trading operation, opening branches of brokerage houses across the country, easy
access to the market information, arranging a countrywide 'share mela (fair)' are the
factors for increasing investors. But supplies of new securities through IPOs were not
enough to chase huge capital of too.

Many investors in the market. Banks & other financial institutions of Bangladesh had a lot
of excess liquidity due to less business opportunities in the recession period of 2014-10.
To minimize the cost of bearing excess liquidity and as a great opportunity, theses
financial institutions & its officials as well as other people took loan and invest in the
share market. This made a huge influx of liquidity in the share market. It was seen that the
daily transaction in the share market was on an average from Taka 20,000 to 30,000
million in 2010 and the figure was double comparing to 2014. (Raisa, 2016)To grow
Bangladesh`s economy by 7-8% per year Bangladesh Bank adopted accommodative
monetary policy during the high inflation periods to support investment. Bangladesh Bank
has pegged Taka against dollar to support exports. As Taka has been undervalued it has
made excess growth in money supply. Last couple of years broad money made excess
liquidity and the main motive behind it was Bangladesh Bank`s ex-change rate policy. A
big portion of this excess liquidity had gone to the stock market but there were very few
shares in the market. The policy that was adopted by BB to grow economy by increased
exports & investment eventually misguided and ended up blowing the mother of all
bubbles. Then government again fuelled the bubble after per-mitting whitening of black
money through tax breaks and schemes. (Rahman, 2016).

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Time of historical fall Dec 2015 to Jan 2016:
Timeline of historical fall of the crash has been divided into two sections which are De-
cember 2010 and January 2016.5.2.1 December 2010It has been stated by Bhuiyan (2016)
that 5thDecember, 2010 as the last glorious day of the year for the investors of
Bangladesh stock market. On this day DSE General Index (DGEN) gained its all-time
highest 8, 918.51 point& broke all old records of DSE turnover by Taka 32.50 billion.
Security & Exchange Commissions and Bangladesh Bank applied a lot of directives to
keep the market under control in 2010. But in December both BB & SEC changed many
of their previous directives and applied new more. On 6th December, 2010 SEC
introduced a directive saying that buy orders will be performed after encashment of
Investor`s cheque.

On the following day another directive called “netting facilities” was applied. This
indicates that no investor will be able to purchase securities against the sale proceedings of
any other securities during the settlement & clearance period. But both directives of 6th&
7thDecember were cancelled on 8thDecember. The reason of cancel-ling these directives
was a significant fall of share prices on 8thDecember. (Bhuiyan, 2016).SEC changed
directive of margin loan ratio by increasing it from 1:0.5 to 1:1 on 13thDecember and later
it was again hiked to 1:1.5 & 1:2 because of free fall of share prices. (Bhuiyan, (2016).
Bangladesh Bank got a complaint that Banks are investing money in the stock market
from their reserve. On the 1stday of December BB sent 50 teams in different banks of
Dhaka & Chittagong to investigate and found some banks in such irregularities. (Raisa,
2016)
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3.10 Factors contributed to the crash:
The factors that contributed to the crash are mostly those commonly blamed by different
market analysts, economists and stakeholders. As Hossain (2016) criticized “this time
liable factors are –omnibus account, placement share, book building method, rumors and
so on. Misuse of those factors causes the capital market debacle”. According to M.
ShamsulHaque professor of finance and Vice Chancellor, Northern University Bangladesh
says “Combination of wrong information to the investors, illegal participation of banks
and institutions in the stock markets, weak accounting functions are at the core of the
crisis that saw billions of Tk. wiped out”. The crash and recommendations with couple of
case studies on 7thApril, 2016. The report has identified a group of manipulators including
key officials, auditors, issuers, issue-managers, brokers, individual investors and some
other stakeholders.

Its effects
Trading has been halted at Bangladesh’s main stock exchange amid protests over the
largest single day loss in the bourse’s 55-year history. The exchange halted trading on
Monday as per orders from the Securities and Exchange Commission after the benchmark
index plunged 9.25 per cent within the first hour of trading. Buses of riot police were
deployed to the stock exchange building in the capital Dhaka where protesters chanted
slogans against the government and market regulators. Some protesters burned vehicles as
riot police struggled to keep control, firing tear gas and charging the crowd with batons.
AL Jazeera’s Nicolas Haque, reporting from the capital, said: “Because Bangladesh’s
stock market is largely driven by individual retail investors, many investors have lost their
savings.”

Monirul Islam, an investor attending the protests, told the AFP news agency: “I lost
$70,000 dollars. This is insane – my whole savings are gone. “Of course, initial impact of
bubbles influences future outlook in a positive way, generating expectations of further
rise. Obviously, stock market crash is not triggered by fundamental news or by a certain
level of share overvaluation. Instead, it happens because of a drastic change in the
behavior of market players. So, dear investors don't be misled by bubble predictions-a
sharp price fall happens due to bubble burst or bad news. Bottom-line is that stock market
bubble artificially creates short-term fluctuations inside the market territory. Financial

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bubble is very important factor in stock market crash. So, proper investment plan and
goals is the key here to keep the balance between market swings and bubble as well. Total
countries economy is collapsed. Market price is rising day by day.

Criticism of regulators
Some syndicate is responsible and government weakness is major cause for share market
collapsing. As Hussein (2016) criticized “this time liable factors are –omnibus account,
placement Share, book building method, rumors and so on. Misuse of those factors causes
the capital market debacle”. According to M. ShamsulHaque professor of finance and
Vice Chancellor, Northern University Bangladesh says “Combination of wrong
information to the investors, illegal participation of banks and institutions in the stock
markets, weak accounting functions are at the core of the crisis that saw billions of Tk.
wiped out”. Bangladesh government commissioned a committee consisting of four
members led by Mr. Khondkar IbrahimKhaled (chairman) to find out individual or
institution involved in the recent share market scam. The committee submitted a report
consisting of the reasons for the crash and recommendations with couple of case studies
on 7thApril, 2016. The report has identified a group of manipulators including key
officials, auditors, issuers, issue-managers, brokers, individual investors and some other
stakeholders.

Role of market regulators and their employees: The role of SEC to control & monitor
capital market, working in favor of manipulators, approving unethical proposal and issuing
wrong directives which lead to unexpected market conditions deteriorated the image of
SEC. Investigation report mentioned some names of corrupt employees of the market
regulators who were directly or indirectly responsible in the market manipulation. There is
a job overlapping between SEC and exchanges. Such as, DSE & SEC both organizations
have surveillance department for the same job but there is no co-ordination. Listing
committee of DSE & CSE examines listing application of company but SEC doesn’t do it
properly and approve it.
Demutualization of Exchanges: There are both elected & nominated members In DSE
and CSE Basically, elected members run the administration due to less interest & relation
of nominated members. As a result, the players of the capital market act as controllers.
Meanwhile, controllers are inactive during unethical activities due to conflict of interest.
In the investigation report it was said that different stake holders of capital market and
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civil society support & demand for demutualization of exchanges. The meaning of
Demutualization is separating controlling functions from controller’s functions,
empowering controller and taking decisions without being motivated by the market
players.

Investment of bank in the capital market: In 2014 & 10 banks and financial institutions
invested huge amount of deposit money in the stock market. As a result share prices sky
rocketed until December 2010. When Bangladesh Bank restricted more than 10 percent
investment of deposited money, increased CRR and SLR ratio, created liquidity crisis
and market crashed.
Pre-IPO & IPO process: Investigation committee considered that due to Pre-IPO & IPO
manipulation share prices sky rocketed and that is the main reason for the share market
crash. Manipulators illegally & unethically created a Kerb market in Pre-IPO stage.
Without recommendation by the listing committee application for IPO was accepted. SEC
did not examine abnormal asset revaluation and indicative price. As a result in Pre-IPO or
IPO stage placement process and placement trade Kerb market overvalued share prices.
This eventually generated liquidity crisis in the capital market.

Some method of regulators was also responsible for this crash:


Regulatory Failure
 Inconsistency in regulatory activities
 Supporting and legalization of unethical activities of Big Investors
 Irresponsible Behavior/Weakness in many areas
 Formulating policies to support market Players Formulating policies to support
market Players (Manipulators)
 Lack of Due Diligence
 Lack of Co-ordination between SEC and Stock exchanges
 Allowing Financial Institutions to invest in capital market aggressively
 SEC Failed to take measure against manipulation of Financial statements

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Primary Issue related Problems:
 Faulty Methods of IPO
 High premium for stock listing
 Illegal Private placement market
 Illegal Private placement market
 Asset Revaluation of Companies before listing to charge higher premium.
 Secondary market related problems:
 Circular trading in Secondary market
 Stock Split
 Stock Price Manipulation through Omnibus Accounts.

3.11 Prospects of Bangladesh share market


At first we need to take some actions that can make change our stock market. Those
are. Within 3 to 6 months 8 large profitable government enterprises are going to be
listed under Direct Listing Method adding value worth another 1 billion Dollar.
 The Telecom Giants in Bangladesh are finalizing their offers for IPO in the market.
 Power and energy sectors demand for capital is 5 to 10 billion dollar within short
time to meet the immediate needs of 5000 MW power demand.
 A deep sea port requiring 1 billion dollar is going to start with a policy decision
that it will also be listed.
 The Pharmaceutical sector and API enjoying WTO benefit is growing sharply
Textile sector as backward linkage to thriving export oriented garments industries
is booming.
 Export oriented food processing industry needs huge capital and technical capacity
to meet the growing standards in global market for marine food, fruits and poultry.
 IT sector with our talented developers, yet to demonstrate the massive potentials
of software industry of the country.
 The dominance of bigger public sector and borrowing of public sector as well as
government form the institutional sources rather than the market.
Suggestions to improve the activities of Stock Market
 To introduce automated monitoring system that may control price manipulation,
malpractices and inside trading.
 To introduce full computerized system for settlement of transactions.

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 To force the listed companies to publish their annual reports with actual and
proper information that can ensure the interests of investors.
 To control and abolish kerb market form premises of stock market.
 To take remedial action against the issues of fake certificates.
 The composite Quotation system (CQS) should be introduced and implemented
that available the exchange specialist bid-ask quotes to the subscribers.
 To make arrangement to set-up merchant banks, investment banks and floatation
of more mutual funds particularly in the private sectors.
 Banks, insurance companies and other financial institution should be encouraged
deal in share business directly.
 The brokers should not be allowed to deal in the Scripps on their own accounts.
 The management of DSE and CSE should be vested with professionals and should
not in any way be linked with the ownership of stock exchange and other firms.

3.12 Effective steps that government took after the crash:


Respondents answered that the government of Bangladesh took initiatives to improve the
stock market situation mentioning different strategies, tools, policies and rules-regulations
taken by Bangladesh government. The effective steps taken by the government to
improve the market condition are following:
 Opportunity to whiten the black money by investing in stock market
 Appointing new chairman and members in SEC
 Establishment of law division
Role of government to prevent this kind of crash in future The answer of the question
contains recommendations of steps or actions for government that should adapt to prevent
or avoid and tackle same kind of crashes in future Recommendations are given following:
 Actions should be taken against those who were involved in this recent stock
Market crash
 Improving security laws and penalty for breaking those
 Balancing of demand and supply of shares
 Follow-up the market and protect against any kind of manipulation

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Chapter-04
Findings of the Study
4.1 Findings:
Within 3 to 6 months 8 large profitable government enterprises are going to be listed under
Direct Listing Method adding value worth another 1 billion Dollar.
 The Telecom Giants in Bangladesh are finalizing their offers for IPO in the market.

 Power and energy sectors demand for capital is 5 to 10 billion dollar within short
time to meet the immediate needs of 5000 MW power demand.

 A deep sea port requiring 1 billion dollar is going to start with a policy decision
that it will also be listed.

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

 Textile sector as backward linkage to thriving export oriented garments industries


is booming.

 Export oriented food processing industry needs huge capital and technical capacity
to meet the growing standards in global market for marine food, fruits and poultry.

 IT sector with our talented developers, yet to demonstrate the massive potentials of
software industry of the country.

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Chapter-05
Recommendations and Conclusions

5.1 Recommendations
Some recommendations now I want to provide, Margin loan decision would be taken by
broker houses and merchant banks not SEC
 Sponsor director mandatory holds individually 2% and all together 30% shares
 Book building method in IPO has been developed
 Bangladesh Bank imposed limitations on Bank & financial institutions about
their exposure in the market. Respondents mentioned that there should be more
development of rules and regulations in following ways:
 Adoption of Software (surveillance) and surveillance team to monitor overall
trading activities.
 Trustworthy IPO approval process
 Actual book building process should be introduced
 Offloading government shares
 Margin loan decision should be taken by broker houses and merchant banks not
SEC
 Insider trading would be strictly prohibited

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5.2 Conclusions
To expedite the market development process, it may be a good idea to decide on certain
milestones and link them to the disbursement of Development Credit Support of the World
Bank. The government is making good progress in other sectors, including monetary
management, corporatization of public-sector banks and others through this linkage. The
missing link between the SEC, Bangladesh Bank, Bangladesh Telecom Regulatory
Commission and other regulatory bodies is now getting established. Individually, they
were not serving each other’s interests, and there was no effective coordination among
them, hence the country was deprived of great initiatives. A dedicated financial market
cell at the Ministry of Finance could be formed to coordinate with these regulators as well
as other ministries. In terms of creating market depth, more profitable state-owned-
enterprises should be listed. The supply of securities can be increased if the SOEs are
allowed to operate through the stock exchanges. Floatation of SOE scrip’s is expected to
expand the market by couple of times.

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