Term Paper On:

Stock Market crisis in Bangladesh

 Term Paper On:

Stock Market crisis in Bangladesh

(This Term Paper is Submitted For the Partial Fulfillment of the Degree of Bachelor
of Business Administration with a Major in Finance)
Submitted To:
Ms Fahmida Saima
Lecturer
Faculty of Business Studies
Premier University, Chittagong.

Submitted By:
Name:
ID NO:
Batch: 23rd
Major: Finance
Program: BBA

Submission Date: 06 -03-2016

PREMIER UNIVERSITY
CHITTAGONG
 Letter of Transmittal
Date: 06 -03-2016

To
The Supervisor

Faculty of Business Studies

Premier University, Chittagong.
Sub: Application for the Submission of report on “Stock Market crisis in Bangladesh”

Dear Madam
Here I submit the report, you permitted me to prepare on ““Stock Market crisis in
Bangladesh” “as a part of my Bachelor of Business Administration (BBA) Program.

Lastly, I would be thankful once again; you please give your judicious
advice on my effort and grant my paper to fulfill the requirements of BBA
program.

Thanking You

Sincerely Yours,

………………………
Name:
ID NO:
Batch:
Major: Finance
Program: BBA
 ACKNOWLEDGEMENT

I would like to express the deepest sense of gratitude; all sorts of praises to the “Almighty
Allah ”, the omnipotent, whose blessing have enabled me to complete this report on
“Stock Market crisis in Bangladesh”

First, my heartiest gratitude to my Supervisor, Faculty of Business Administration, whose

enthusiastic guidance and critical comments during the entire phase of the study, and
valuable suggestions in writing this report, made possible for me to prepare this report.

I also thank to all the Executives with whom I discussed all my problems during the
study. And a sincere thanks to those who helped me in giving information personally and
institutionally regardless of their busy schedule. This paper is not free form limitation.
There might still be some minor mistakes including typing errors despite my utmost care.
I apologize for this over all.
Introduction
Stock market is one of the most important financial institutions of any economy as well as
Bangladesh. It opens door for companies to raise huge amount of capital from a lot of
individual investors inside & outside of a country.
Investors participate voluntary to buy ownership of a company in the public market. It is
said that stock market is an intermediary institution to adjust a gap between surplus units
and deficit units of an economy. In these days for millions of middle class educated
people in Bangladesh investing in stocks is more popular than investing in any other
investment sectors. For an investor, stocks are more liquid than any other investment
sources as it gives ability to sell and buy ownership anytime without any hassle.
Since 2007 share prices of Bangladesh stock market have been increasing steadily over
the past four years and it outperformed almost all the world´s markets.
The financial year 2008-09 is known for the global financial and economic crisis. Many
developed and developing countries fall into recession. However, it could not affect
Bangladesh economy greatly. So, the stock market of the country did not see any
significant changes or fall. As CPD (2011) reported, financial year 2008-09 was a volatile
year but during this year Bangladesh economy benefited from low prices of import-able
and was able to avoid negative pressure on its export of goods and services. Consecutive
outstanding performance of Bangladesh stock market in recent years before the crash
lured millions of investors to the stock market to invest their little savings. Before the stock
market crash the market had become a route of easy money for too many new individual
investors. That is why millions of fresh investors invest their small saving in the market
during this period. For these fresh investors investing in this market provided a way to
avoid working a job. Even some BO account holders worked as intermediaries of friends,
relatives to invest their money in the stock market.
Finally, the stock market crashed and taught these investors that investing money in the
stock market involves risk too. But the lesson that investors are taught wreaked havoc on
the lives of millions of innocent investors. The crash wiped out billions of taka from the
market where fresh, illiterate investors were the main victim. It has been more than a year
since the crash occurred.
Generally market crash occurs because of a sudden dramatic fall of stock prices across a
significant cross-section of a stock market, resulting in a significant loss of paper assets.
Crashes are driven by panic as much as by underlying economic factors. They often
follow speculative stock market bubbles. Stock market crashes are social phenomena
where external economic events combine with crowd behavior and psychology in a
positive feedback loop where selling by some market participants drives more market
 participants to sell. Generally speaking, crashes usually occur under the following
conditions, a prolonged period of rising stock prices and excessive economic optimism, a
market where P/E ratios exceed long-term averages, and extensive use of margin debt
and leverage by market participants.

Objectives of the study

The objectives of the study are as follows:

1. To   identify   socio­economic   profiles   of   retail   investors   and  their   respective   degree   of

confidence in having success in the stock market of Bangladesh before and after the
market crash of 2010. 
2. To   show   an   overview   of   retail   investment   scenario   and   the   motivation   for   retail
participation in the stock market of Bangladesh. 
3. To explore and weigh up the retail investors’ perceptions on the reasons behind stock
market crash of 2010 in Bangladesh. 
4. To   verify   the   retail   investors’   perceptions   on   the   proposed   suggestions   and
recommendations to ensure stock market stability after that major crash. 

Limitations of the Study

i. Due   to   lack   of   professional   skills   and   knowledge   of   individual   investors,   they   ware
reluctant to provide relevant data for the study. 
ii. Though the study covers/involves a few limited but representative retail investors, we could
not uphold the standard theory of sampling and sample size for our study 
iii. In this process, some major issues of reasons and recommendations could not be placed or
modified. For example, “unrestricted bulk­trading and serial­trading” as a reason for the
recent stock market crash or “stock market demutualization” as a measure for stock market
stability were omitted finally from the survey questionnaire after our field test results had
come up. 
iv. Due to lack of adequate textbook and previous study in Bangladesh, literature review could
not be extensive. 
Procedure
There are a few basic requirements that need to be in place before an individual can start
the process of buying, holding and selling shares. This document is a basic guideline to
explain these requirements. Please note that this document does not provide any advice
on what shares to buy or what investment strategy suits an individual. This is a getting
started guide for individuals based on my own experiences.

The 3 basic things needed for getting started are:

* Dmat Account
* Trading Account
* Bank Account

Dmat Account

A Dmat account is like a Bank Account, with the difference being that instead of cash, a
Dmat account holds shares. So, if shares are bought, they are deposited into the buyers
Dmat account and if shares are sold, they are reduced accordingly from the Dmat
account. The shares that are deposited to or reduced from the Dmat account are electronic
shares. For an individual wishing to trade in shares, it is compulsory to trade only in
Dmat (dematerialized) shares. Physical shares cannot be traded. Dmat shares have many
advantages in terms of ease of handling etc.

A Dmat account can be opened through most banks and financial institutions, after filling
up the required forms and providing identity and address proofs. The usual charges
associated with a Dmat account are: 1. Account opening charges
2. Yearly charges for maintaining the Dmat account
3. Recurring periodic charges for holding shares in the Dmat account
4. Other service charges based on transactions carried out. Usually, there are no
transaction / service charges when shares are bought. The charges will be levied when
shares are sold.

The above charges may not be the same across different service providers but a big part is
likely to be the same as regulatory agencies like Securities and Exchange Board of India
(SEBI) specify certain norms.

Trading Account

A Trading account is required if an individual wishes to trade, i.e. buy and sell shares in
the stock exchange. The 2 main stock exchanges in India are the National Stock
Exchange (NSE) and the Bombay Stock Exchange (BSE). A Trading account can also be
opened with most banks and financial institutions, after filling up the required forms and
providing identity and address proofs. The actual trading can be done by phone, internet
or using transaction slips that are provided at the time of opening the account. Personally,
I have found buying and selling using the internet fairly convenient. There are options to
specify the price at which to buy or sell and it is easy to track the status online.

There is a brokerage charge that is incurred for both buying and selling of shares. This
charge varies across different trading houses. Also, government levies like the Securities
Transaction Tax (STT) will be incurred on such transactions.

Bank account
Needless to say, a Bank account is required for carrying out various financial transactions
associated with trading of shares. This is where the money on sale of shares will be
credited or money for buying shares will be debited from. A normal Savings Account is
enough and nothing additional needs to be done with the Bank account.

Trading process

Once the Dmat account, Trading account and Bank account are in place, an individual is
ready to start trading. While it is not necessary to have the Dmat account, Trading
account and Bank account with the same organization, I feel that having it with the same
organization offers additional convenience, especially for individuals trading using the
internet. The following example of buying and selling using a Trading account on the
internet illustrates the convenience of having the Dmat account, Trading account and
Bank account with the same organization.

Buying shares: When an individual wants to buy a share, he/she logs into the Trading
account and specifies the details like the Company name, no. of shares to buy and the
price at which to buy. Depending on this information, the required amount from the Bank
account is set aside for this trade. When the desired price is reached, this trade is executed
and the amount (after adjusting for charges) is debited from the Bank account and the
shares are credited into the Dmat account.
If the Bank account had been with a different organization, then for carrying out this
trade, it would have been necessary to move the amount into the Trading account.

Selling shares: When an individual wants to sell a share, he/she logs into the Trading
account and specifies the details like the Company name, no. of shares to sell and the
price at which to sell. Depending on this information, the required no of shares from the
Dmat account is set aside for this trade. When the desired price is reached, this trade is
executed and the shares are debited from the Dmat account and the amount (after
adjusting for charges) is credited to the Bank account.
Reason
On   the  basis   of   which  the   questionnaire   had  been   made   to  know   the   retail   investors’   views
regarding the market collapse.
Reason ­1­   Overvaluation of the share price by manipulation
Reason­2­ Extreme amount of money invested by the banks and other industries in the market 
Reason­3­ Free entrance of black money
Reason­4­    Wrong application of “Book Building” method.
Reason­5­ Secret news revealed by the dishonest persons and related authorities. 
Reason­6­ Rumor spread by the dealer and the broker
Reason­7­ Rumor and misinterpretation of information of shares spread by the media and the 
newspaper.
Reason­8­ Poor inspection of DSE, CSE, SEC and ACC in the stock market. 
Reason­9­ Face value inequality
Reason ­10­ False and misleading information stated by the company and their related auditor. 
Reason­11­ Illegal issuance of Right and Bonus shares.
SWOT Analysis of Stock Market

SWOT analysis is a strategic planning method used to evaluate the Strengths,

Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It
involves specifying the objective of the business venture or project and identifying the
internal and external factors that are favorable and unfavorable to achieve that objective.
The technique is credited to Albert Humphrey, who led a convention at Stanford
University in the 1960s and 1970s using data from Fortune 500 companies.
A SWOT analysis must first start with defining a desired end state or objective. A SWOT
analysis may be incorporated into the strategic planning model. Strategic Planning has
been the subject of much research.
Strengths: characteristics of the business or team that give it an advantage over others in
the industry.
Weaknesses: are characteristics that place the firm at a disadvantage relative to others.
Opportunities: external chances to make greater sales or profits in the environment.
Threats: external elements in the environment that could cause trouble for the business.
Strength, weakness, opportunity, and threats (SWOT) of Bangladesh Stock Market are
given below:
Strength:
The first and for most thing of strength of Bangladesh stock market is its ability to
provide high return.
Regulatory body of Bangladesh stock market that protects the interest of the
investors.
Large number of securities which provides medium for investment.
Large number of Brokers who plays a role of facilitator for investment.
Weakness:
The weak point of Bangladesh stock market is its volatility.
It is a kind of gambling where no guarantee of return and some time it depends on
luck also.
Opportunity:
Stock market provides an opportunity to money lender and money seeker to invest
and use money for their plan.
 It provides an opportunity to the investor to be the owner of the company and
contribute in the business decision of the company.
Stock market is a kind of indicator of the economic growth of the country where it
provides an opportunity to gain according to the inflation of the country or more than that.
Threats:
There are many competitors of stock market such as post office savings, public
provident fund, company fixed deposits, fixed deposits with bank etc. which provides fixed
and assured returns.
Changing of economic condition.
Capital market instrument is highly risky then money market.
Changing of government rules and regulations.
Speed of growth in Capital Market not complemented by the controlling agency.

Findings

Causes of stock market crash in 2011

1. From the graph we find that most of the BO accounts were opened during June
’2009 to January ’2011 that indicated that more than half of the investors could be treated
as new investors. During 2009, stock exchanges, Institutional investors and SEC make
many campaigns within and outside the country to attract new investor that seems to be
successful as the BO accountholders was doubled in last two years that might be treated
as a potential for market development.
Increase of BO a/c
But due to scarcity of new securities market price increased substantially. This demand-
supply mismatch along with inadequate investor’s knowledge made the stock prices in a
new height and finally turned into a big depression that is still going on.
2. increase of listed securities
The fundamental strength of the market essentially comes from financial strength of the
listed companies. The market witnessed that last few years many fundamental
companies with strong financial strength have been listed in the market. From the graph,
it is seen that number of security listing are increasing year to year and highest amount is
in the year 2011.
But growth of market demand for stock was much then that of supply that inflated the
market in recent years and made the market most volatile one in the region
3. Increase of Market Cap and Turnover value.
The graph shows that market capitalization and turnover of Dhaka stock exchange, prime
bourse of Bangladesh increased substantially in consecutive three years that might be
considered as a good factor for capital market development. But as the supply side
response was poor, stock price might go up due to excess liquidity. SEC had nothing to
do with this as they had no direct tool to control money supply and also they cannot force
companies to come to the market.
The DSE General Index (DGEN) crossed 3000 marked point in December 2007 for the
second time. Since the third quarter of FY09, the DGEN gained sharply and it jumped to
8918.51 in December 2010 increased by 5908.51 points or 197 percent from the index of
end June 2009(3010 points).
4. Fluctuation of DGEN
In December 2010, DSE index had crossed 8500 points. The market had called bullish
during this period. After this period, the market became bearish. The exchange lost 1800
point between, December 2010 and January 2011. In January 2011, the General Price
Index (DGEN) fall 660 points. Again that during December 2011 to January 2012 Dhaka
Stock Exchange general Index (DGEN) felled by more than 50% during that period, i.e.,
DGEN lose its value by 50% during the period that says that this is not simple volatility
and it can be defined as a collapse.
January 2011, the General Price Index (DGEN) fall
Graph gives the highly volatile and sharply falling index trend of DSE general Index that
started to increase from 2600 points in January 2009 and crossed its zenith price of 8600
in December 2010.
After climbing the highest point it started to fall sharply and came down below 4000 in
December 2011 to January 2012 less than half of the highest point.
From graph, we find that DSE general index, Daily trade value and market capitalization
of DSE increased substantially during last 4 years. But number of listed securities
remained almost the same during the period that implies that supply side response was
less relative to demand side response and market capitalization and index increased due
to increased demand for securities.
5. Faulty listing methods
In the year 2010, regulator introduced Book building method to attract new companies to
the market. Some companies abused this opportunity to exploit maximum benefits from
listing that inflated the market. SEC allows companies to float securities through IPO
(Fixed Price and Book Building method), Direct Listing and Repeat IPO where Book
building method is used mostly in the year 2010.
In Bangladesh, following companies used book building method for listing in the
capital market:
Name of Company Premium value Offer price Collected capital

(Million Tk.)Market Price (02/02/12) MJL Bangladesh Ltd.142.40152.40569068.10MI

cement Ltd.101.60111.60305065.20Khulna power company
Ltd.184.25194.25960043.20Ocean containers Ltd.(OCL)135145160046.20RAK Ceramics
Ltd.3848131054.07
From the Table it is found that first four companies charged very high premium for its
share where and withdrawn huge amount of capital from market. When these companies
asked for very high price, shares of other companies of same industry tends to rise on an
expectation that it is highly undervalued that increases the general price index which is
the most important factor behind the recent stock market volatility in Bangladesh.
6. Recently listed Companies with financial information
Twenty three companies (including three direct listing companies) raised new equity of
Taka 18.2 billion in the capital market in FY10, higher than the Taka 5.9 billion raised by
the sixteen companies in FY09.
The volume of public offerings in FY10 was oversubscribed more than nine times
indicating the high demand of new securities in the primary market. Bonus shares valued
at Taka 27.6 billion were issued in FY10 by one hundred and twenty one companies
against retained profits, higher than the Taka 16.2 billion issued in FY09 by ninety one
companies.
Currently 493 securities (Debt and Equity securities) are being traded in Dhaka stock
exchange. Few numbers of companies are making fresh issue every year. 13, 18 and 10
companies listed their securities respectively in 2009, 2010 and 2011. [In appendix]
Traditionally DSE used fixed price method for flotation of new companies. But fixed price
method does not attract good companies always. So, to attract new companies, SEC
decided to introduce Book building method that is a globally acceptable method for IPO.
But in Bangladesh, Book Building method is handled very roughly that caused loss for
millions of investors.
7. Changes in Face Value (Stock Split) of Securities
With similar financial condition or weaker financial conditions lower face value companies
were overvalued relative to higher face value companies in same industries. This
situation was persisting for many years and regulator failed to identify the face value of all
listed companies that created some overvalued securities in the market. Investors were
eager to buy the securities of these companies that were going to change face and before
split price of these were jumping.
7. Stock price Manipulation:
Stock price manipulation was very common in last few years as some company’s stock
price grew by more than 4000% in one year without any significant change in company
fundamentals. Stock price was inflated with the help of serial trading by few numbers of
big investors that was one of the reasons of recent collapse of stock market in
Bangladesh.
8. 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.
9. Investment of bank in the capital market
In 2010 & 11 banks and financial institutions invested huge amount of deposit money in
the stock market. As a result share prices sky rocketed until December 2010. When
Bangladesh Bank restricted more than 10 percent investment of deposited money,
increased CRR and SLR ratio, created liquidity crisis and market crashed.
10. Omnibus account
Investigation report found Omnibus accounts of ICB and merchant banks as another
major reason behind the stock market debacle. Every branch of merchant bank operates
only one omnibus account. There could be 3-10 thousands BO Accounts under the
omnibus account which are not under the surveillance of SEC. So, information of
individual accounts and its transaction 40 are kept only with merchant banks. As
investigation reports shows that this kind of account made a lot of illegal transactions. It
publishes name of 30 big players including ICB for a lot of suspicious transactions and
says most manipulators traded from the omnibus accounts. It was also reported at least
Taka 2.5 billion has been traded from hidden or omnibus accounts.
11. Asset revaluation & Rumor
By taking chance of weak asset revaluation method companies have overvalued their
asset. In this process dishonest auditors generated artificial audit reports. So, calculating
of NAV on overvalued asset indicates wrong signal. Some companies issued Bonus
shares against unrealized gain of revalued asset price which is a faulty accounting
practice. There is rule to maintain provision against “deferred tax” during asset
revaluation to pay tax in future, but companies are not following it.
12. Block placement
There was a lot of suspicious block trading of mutual funds. Some investors got
enormous amount of placement time to time.
13. Direct listing:
With the approval of SEC few companies have been directly listed in the stock exchange.
These companies come to the market with inflated share prices.
14. Suspicious transaction of top players
Investigation report reveals some names of individual and institutional investors as top
buyers and sellers during abnormal increase and decrease of index in different time
periods. The transactions of these investors were suspicious and affected the market
heavily and liable for abnormal rise and fall.
15. Serial and artificial trading
Some manipulators created artificial active trading environment among themselves
through bulk transaction and increased share 41 prices. Moreover serial trading and price
manipulation by many buy-sell orders through different accounts and broker houses
which overheated the market.
The above reasons can be categorized in the following way:-
Background of the 1996 crash
The scenario of stock market crash in 1996 was totally different. The number of BO
account holders was only 300,000 and most of them were very new in the market. During
the crash of 1996 paper shares used to be sold in front of DSE and it was not easy for
investors to indentify 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.
From 1991 to the end of 1995 DGEN price index gained by 139.3% and reached to 834
point. But in 1996 the market experienced dramatic change and pushed the price index
up by 337%. DGEN Index recorded high growth from July and stood at 3648.7 points or
by 280.5% on 5th November 1996.
During the ‘Bull Run’ period new records were posted almost every day in both bourses
for example market capitalization achieved to $2 billion which is equal to 20% of total
GDP. 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 mar-
ket. But the steps taken by the government did not work.
Finally abnormal rise of share prices started to fall and Bangladesh stock market
experienced its first crash of the history in 1996. The index lost over 233 points on Nov 6,
1996. After the bubble burst DGEN index dropped to its lowest point and stood at 957 in
April 1997. It stood at around the same point where it was 10 months before and DSE
General Price index lost almost 70 percent from its highest point of November 1996.
Reasons of the 1996 crash
Manipulation
Some foreign portfolio, 28 managers, few brokers and sponsors of few listed companies
were behind the stock price manipulation in October 1996. As a result all share price
index of DSE dramatically sky rocketed to 3600 point from 1000 point in six months time.
Few foreign & local investors that had inside information made huge profit and a lot of
general investors paid heavily.
Demand Supply mismatch
The cause of stock market crash in 1996 was the failure of market regulators mentioned
by Afroz (2006). Stock exchanges did not take any action against the dramatic price in-
crease of listed securities during June to November 1996. Bubble formed due to
abnormal demand of securities by new investors where the numbers of listed securities
were very few. The reason of huge influx of investors was political stability in the country
and bringing confidence in investor`s mind.
Defective (DVP) system
The delivery versus payment (DVP) system of trading used to allow buyer-seller to settle
their transactions between them without stock exchange participation. Many
brokers/dealers used it as a tool to show fake trading to increase demand of share from
the general investor’s side. According to Bangladesh Bank analysis that there was an
unauthorized kerb market consisting of over 25,000 investors outside the stock exchange
where securities were traded at a very high price. Moreover, SEC could not handle the
crisis for its defective infrastructure. Weak regulations and surveillances could not monitor
market manipulators and market intermediaries. Even information inefficiency, artificial
financial statements certified by chartered accountants, false information and rumor were
other important factors that overheated the market and burst the bubble.
Background of the 2011 crash
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.
According to CPD (2011), the total number of BO Account holders on 20th December,
2010 reached to 3.21 million though the number was 1.25 million in December 2009.
Most of these new investors don’t have enough knowledge about the stock market but
invest their most or all savings in the market.
As CPD (2011) 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.
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.
Moreover Security & Exchange Commissions was not capable to monitor the market
conditions properly. Due to the poor monitoring & market surveillance share prices of Z
Category Companies and small companies increased dramatically
15th December, BB increased CRR and SLR by 0.5 percent and increased to 19 & 6
percent. Another important directive initiated by BB was withdrawal of illegally invested
industrial loans by December 31, 2010. As a lot of the reserved money was invested in
capital market, banks started selling shares and withdrawing that money from the market.
By the time investors became panicked. To handle the disastrous & assure the panicked
investors BB extended its deadline for submitting and adjusting loans. For the merchant
banks the deadline was January 15, 2011 and for the commercial bank February 15,
2011.
Institutional investors including financial institutions started selling shares from the be-
ginning of December to show high return on investment at their balance sheet. As the
Institutions & banks started selling their shares from the beginning of December the
turnover of DSE was the highest ever in its history on 5th December. (Raisa, 2011)
19th December was a historical day of the financial year 2010-11 in Bangladesh stock
market. On this day DSE witnessed its biggest one day fall in 55 years history until the
date with losing 551.76 points or 6.71 percent. The losing index was even higher than
284.78 points or 3.32 percent of 12th December. Prices started to nosedive in an hour
after the trading started and about 200 points were wiped off. In the middle of the session
it recovered little bit and ended up the session at 7654 point.

Comparison between two years

 2011 1996

trading was automated trading was not automated

surveillance was strong surveillance was weak

circuit breakers and international protections were in place circuit breakers and international protections were not properly in

place

Being automated there were no forged shares traded and the Being not automated there were no forged shares traded and

kerb market the kerb market

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

the BO account value was 35 lacs compared to 3 lacs before

2011 crash was an asset bubble the 1996 crash was a result of a speculative bubble

while in 2011 it lost up to 660 points, nearly 10 percent In the end, in 1996 the index lost 232 points,
Recommendations & Conclusion
Recommendations

A   recent   survey   has   revealed   that   70%   of   the   total   investors   don’t   know   about   the   training
program   of   DSE  regarding share  market.  The   success  of  others   brings  huge  investors  in the
market. The people who are investing in the market are now considering the share market as a
place   of   short   term   investment.   Before   investment,   the   retail   investors   must   have   sound
knowledge about financial factors like dividend growth rate, Price to earnings ratio, EPS ratio and
recent and past stock market’s performance. The rational thinking of the investors along with the
structural efficiency controlled by the government can give a stable scenario of the Bangladesh
stock market.

For share market stabilization, the following are the recommendations:
• To maintain financial discipline in the money market and strengthen its coordination with
the capital market. 
• To take necessary actions immediately, the government should undertake the required
measures and form a task force to initiate investigation into the fraudulent practices in the
country bourses. 
• To   reduce   the   misuse   of   the   multiple   B/O   accounts,   the   government   should   take
necessary measures to make the submission of TIN document mandatory for all B/O
accounts   for   ensuring   transparency   of   transactions   in   the   share   market   and   also
submission of income statement of the NBR. 
• To   inspect   the   application   of   book   building   method   carefully   by   the   governments’
appointed auditor to defend the situation like major market crash. 
• To   clarify   the   reasons   of   the   issuance   of   Right   and   Bonus   shares,   each   and   every
company must state their income statement and the balance sheet so that every retail
investors can understand and take the right decisions. 
• To reduce problems associated with the day to day operation in the DSE. The alienation
of ownership and management of DSE/CSE from brokerage house is required. 
• To remove market manipulation, the demutualization is a must at DSE/CSE under strong
monitoring of the SEC. 
• To avoid the share market collapse, the enforcement of strict surveillance activities of
SEC, DSE and CSE, especially on brokers and dealers and amendment of present rules,
and enactment of new rules and regulations and restructuring DSE, CSE and ACC are
very much necessary. 
Conclusions

Conclusion
From our analysis we have found that major indicators of the country’s major stock
exchange is becoming more volatile over time and the regulators are not efficient enough
to guard this volatility. But, for a developing country like Bangladesh, the importance of
sound development of the market cannot be undermined. Although the SEC has been
trying to maintain a continuous flow in the market, very often its role meets the broad
economic objectives. In order to make the market less volatile, SEC itself should be
strengthen both in terms of number of manpower and quality of the professionals involved
with special focus on independent research, monitoring mechanism and prompt decision
making.
Security and Exchange Commission (SEC) of Bangladesh and government should take
the short term and long term initiatives to stabilize the market. They should encourage
more public limited companies to offer more share to meet the current demands. Income
tax rebate, Injection of Market Stabilization Fund, Mandatory holding certain percentage
of share among the board of directors, short term incentives packages should be
introduced to get back the confidence among the existing investors. Regulatory bodies of
Bangladesh stock market must educate the current and potential investors about the
market mechanism and provide them the accurate information so that investors trade
their shares carefully. Unless, there are any corrective measures, Bangladeshi stock
market will be facing this irrational downward of DGEN Index again in the near future.
To guide and restore the confidence of individual investor in capital market, the regulatory
authority should take necessary actions to encourage corporate governance rating
among listed companies, which will enable investors to differentiate the good governance
companies from the rest and can then attach higher value to those firms as well. And,
without improving the governance of the market and eliminating scope of manipulation, it
will be difficult to attract good scripts at the desired level. In this endeavor, regulators
must adapt continuously to the changes in the economy and the pressures of
globalization.
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