Growth and Development of Capital Market – A Study on

Chittagong Stock Exchange, Chittagong

(THIS INTERNSHIP REPORT IS SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE DEGREE OF
MASTERS OF BUSINESS ADMINISTRATION WITH A MAJOR IN FINANCE & BANKING)

Prepared By:

Md. Fahad
Program: RMBA
R- 171124
Semester: Autumn 2017
Major In Finance & Banking

Internship Duration: February 10th to April 10th 2017(2 Months)

Submission Date: 4th May, 2018

Department of Business Administration

Faculty of Business Studies
International Islamic University Chittagong

2
Growth and Development of Capital Market – A Study on
Chittagong Stock Exchange, Chittagong.
(THIS INTERNSHIP REPORT IS SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE DEGREE OF
MASTERS OF BUSINESS ADMINISTRATION WITH A MAJOR IN FINANCE & BANKING)

Prepared By:
Md. Fahad
Program: RMBA
R- 171124
Semester: Autumn 2017
Major In Finance & Banking

Supervised By:
Mr. Md. Ibrahim
Assistant Professor
Department of Business Administration
International Islamic University Chittagong

Signature of Supervisor

Submission Date: 4th May, 2018

Department of Business Administration

Faculty of Business Studies
International Islamic University Chittagong

3
 Letter of Submission

4th May, 2018

The Convenor,
Internship/Dissertation committee,
Faculty of Business Studies
International Islamic University Chittagong

Subject: Submission of Internship Report

Sir,
With due respect, I have the pleasure to submit my internship report on “Growth
and Development of Capital Market” to partially fulfill the requirements of the MBA
course. It has been a worthwhile experience for me undertaking such a report work
to get exposure to the real life of stock market. I have tried my best to satisfy the
academic requirements.

In my report, I have tried to reflect a partial scenario of the growth and development
of capital market. I have to put in effort & hard work to the preparation of this report
with the help of the stock market.

Within the time limit, I have to make this report as comprehensive as Possible but
there may be some mistakes due to various limitations for this reason, I ask for your
kind consideration in this regard.

Thank you.
Sincerely yours

Md. Fahad
ID: R-171124
Major in Finance & Banking
International Islamic University Chittagong

4
 Acknowledgment

Alhamdulillah, it's a great pleasure for me to work with the report based on a topic
'Growth & development of Capital Market' which is very much significant for
economy. We hope working on this topic will help us to gather various exposures to
practical field. At the very beginning we would like to express our gratitude to
almighty Allah (SWT) for whose kindness we are sound mentally and physically
enough to prepare this report.
At first I would like to give my sincere thanks to my respected supervisor Mr.
Md.Ibrahim, Assistant Professor, Department of Business Administration.
International Islamic University Chittagong I am deeply indebted to him for his
dynamic guidance, cordial cooperation and time to time forbearance assistance.
Without his cooperation, this report may not be prepared.
We wish to express my heartiest sense of gratitude, sincere appreciation to our
honourable own advisors of internship from our university and college by whom
massive support, supervision and advice was instrument in preparing this report.
Then I would like to thank the CSE authority to give me this opportunity to work
there. Without their support and help this paper could never have been completed. I
would like to offer a special thanks to MR. Mohammed Jabed Sarwar, assistant
manager, training and awareness department and MR. Hanjala Bin Kadar, assistant
manager H.R. & Mr. Md. Sakib, Officer, without their contribution, it could not
possible for me to conduct of this work.
However, to my best I tried very hard and work sincerely to prepare this report as
an informative one. At last, my sincere apology goes to the readers for my any
conceptual errors and printing mistakes, if there is any.

5
 Executive Summary

This is an internship report of two month on the growth and development of capital
market of Chittagong Stock Exchange. It has been prepared to fulfil the requirement
of MBA Degree. In year 1995, 10th October Chittagong Stock Exchange started its
operation. The main objective of the report is to analyse of the performance of
market capitalization of Chittagong Stock Exchange. This report has been prepared
by collecting secondary data over five years (2013-2017) on performance analysis.
Besides, different books, articles, reports, brochures and newspapers have been
reviewed to prepare this report.
The topic of my report is “Growth & development of Capital Market”. The main
purpose of the report becomes very clear from the topic of the report becomes very
clear from the topic of the report. The report discusses about the Market
Capitalization.

This study makes an attempt to cover within its scope almost all the significant
aspects of the financial system of the selected companies in CSE.

The report is basically divided into five major chapters. In the first introductory
chapter we focus on origin, objective, methodology rationality and limitation of the
report. In the, second chapter of our report we’ve focused on overview of Chittagong
Stock Exchange includes Background of CSE, Regulatory Structure of CSE,
Chapter Three focused on market capitalization, effect on Capital Market, Chapter
Four performance of CSE and Chapter five findings, recommendations and
conclusion.

The report finds that, Most of the members of CSE are not rendering optimum
services to the investor’s. Annual turnover we found that there was a fall in 2014 for
which the index was trended down but from next year it started gaining, Number of
share trade we found that the number of share trades had been decreased to an
extent.

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The Report recommends that, CSE may introduce more easy access to the market
so that well performing companies come to the market. The government can also
play role in this regard. CSE should give importance in developing market
capitalization. Number of listed companies in CSE should growth their performance
by establishing surety for the companies which are listed in CSE. The average
investor must have access to all information that might help the right investment
decision. SEC can institute either a set up or to encourage the formation of investors
associations under its umbrella.
The key limitations of this report are, short period of internship (only two months),
inadequate research experience, bank does not provide confidential information.
Though this report has some limitation, it will help me to fulfil my degree, it also
helps other students to make their reports and finally, bank may finds their positive
as well as negative sides of their activities.

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 Table of Contents
Serial No. Particulars Page

CHAPTER 1: BACKGROUND OF THE STUDY

1.1 Introduction 11
1.2 Objectives of the study 12
1.3 Methodology of the report 12
1.4 Scope of the study 12
1.5 Limitations of the report 13

CHAPTER 2: CAPITAL MARKET OF BANGLADESH

2.1 Introduction 15
2.2 History of stock exchange 15
2.3 The role of stock exchange 16-17
2.4 Problems of capital market in Bangladesh 17
2.5 Securities and exchange commission 18-19
2.6 Dhaka stock exchange 19-21

CHAPTER 3: AN OVERVIEW OF CSE

3.1 Historical background of CSE 23
3.2 Objectives of CSE 23-24
3.3 Revaluation in the trading system of CSE 24-25
3.4 Listing procedures 25-26
3.5 Membership section 26-28
3.6 Trading and operation section of CSE 29
3.7 Grouping of securities under CSE 30-32

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 CHAPTER 4: PERFORMANCE ANALYSIS ON THE GROWTH AND
DEVELOPMENT OF CSE
4.0 Introduction 34
4.1 Number of listing companies 34
4.2 Security listed 35
4.3 Market capitalization 36
4.4 Number of share trade 37
4.5 Daily average turnover 38
4.6 Annual turnover 39
4.7 Number of trades (Contracts) 40
4.8 CSE all-share price index 41
4.9 CSE 30 index 42
4.10 Comparative analysis of the market 43
4.11 Development of CSE 44-45

CHAPTER 5: SUMMARY OF FINDINGS AND RECOMMENDATIONS

5.1 Summary of the findings 47-48
5.2 Recommendations 48
5.3 Conclusion 49

9
 CHAPTER ONE
BACKGROUND OF
THE STUDY

10
1.1 Introduction
Capital market is the most significant part of national economy of Bangladesh.
Capital market plays vital role for industrialization and economic development of a
country. An active capital market may help the development processes in many
ways such as growth of savings, ensuring efficient allocation of investment
resources and better utilization of existing resources. It is, for that reason, very
important that concentration should be paid to the development of capital market as
a substitute channel for intermediate function. Capital market is also advantageous
for entrepreneurial classes not merely because it provides access to surplus savings
of investors, including many small ones, but also because they do not incur fixed
repayment obligations, as in the case with bank financing. Besides an orderly and
transparent capital market enables small savers to participate in the fruits of
economic development. Capital market is yet to play its potential role in Bangladesh.
Against this backdrop, the reports provides a brief description of the evaluation of
capital market in Bangladesh, where it stands now and the measures under way to
enhance its role.

The stock exchange is secondary market, trading market. The primary market is
where capital is actually raised by the company; selling stock to investors. Company
is separated arenas from the stock market perform the capital raising function. The
stock exchange is a trading vehicle place where buyer and seller are brought
together all profit and loss to directly to the investors, less communication and fees.
The stock market is structure to provide liquidity and marketability to the securities
industry. It is a worldwide system designed to bring buyer and sellers together
company owner and stockholders. Whether part of management, venture capitalists
or investor, needs a way to turn their stock certificates back into cash. The stock
markets provide this price set by supply and demand. It is an auction market, where
investors, through their intermediaries-broker bid for stock, with a simple phone call;
an investor can buy or sell stock, virtually in minutes.

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1.2 Objective of the study
The main objective of the report is to analyse the growth and development of capital
market of Chittagong Stock Exchange more specifically:
 To have an idea about Bangladesh capital market.
 To evaluate and analyse the growth and development of
Chittagong Stock Exchange.
 To identify different hindrances faced by CSE.
 To recommend some solution to overcome those
problems.

1.3 Methodology of the study

This report has been prepared by collecting secondary data over five years (2013-
2017) on Chittagong Stock Exchange (CSE). Besides, different books, articles,
reports, brochures and newspapers have been reviewed to prepare this report.
The secondary sources are following:
1. Chittagong stock exchange annual report,
2. Books
3. Brochures
4. Information regarding the financing sector through website.

1.4 Scope of the study

The study is on CSE only. The scope of this study is confined to the growth and
development of CSE in different aspects during last few years. The data collected
and inference drawn is applicable to most part of Bangladesh capital market. It is
confined to the growth and development aspect of capital market.

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1.5 Limitation of the study
There were some sincere effort to make the report complete and error free. In spite
of that there may have some mistakes due to interest limitations. Such as-

• Allocated times are not sufficient to make a complete report on much this.
• Lack of information in this internet.
• It is prohibited to collect information to those which are interrelated with
Sensitive manner.

13
CHAPTER TWO
CAPITAL MARKET
OF
BANGLADESH

14
2.1 Introduction
A stock exchange is a mutual organization which provides ‘trading’ facilities for
stock brokers and traders, to trade stocks and other securities. Stock exchanges
also provide facilities for the issue and redemption of securities as well as other
financial instruments and capital events including the payment of income and
dividends. The securities traded on stock exchange include: shares issued by
companies, unit trusts, derivatives, pooled investment products and bonds. To be
able to trade a security on a certain stock exchange, it has to be listed there.
Usually there is a central location at least for record keeping, but trade is less and
less linked to such a physical place, as modern markets are electronic networks,
which gives those advantages of speed and cost of transactions. Trade on an
exchange is by members only.
The initial offering of stocks and bonds to investors is by definition done in the
primary market and subsequent trading is done in the secondary market. A stock
exchange is often the most important component of a stock market. Supply and
demand in stock markets are driven by various factors which, as in all free markets,
affect the price of stocks.

2.2 History of Stock Exchange

In 11th century France the countries were concerned with managing and regulating
the debts of agricultural communities on behalf of the banks. As these man also
traded in debts, they could be called the first brokers.

Some stories suggest that the origins of the term ‘bourse’ come from the Latin
bursa meaning a bag because, in 13th century Bruges, the sign of a purse hung on
the front not the house where merchants met.

However, it is more likely that in the late 13th century commodity traders in Bruges
gathered inside the house of a man called Van der burse, and in 1309 they
institutionalized this until now informal meeting and became the ‘Bruges Bourse’.
The idea spread quickly around Flanders and neighbouring countries and ‘bourses
soon opened in Ghent Amsterdam.
In the middle of the 13th century, Venetian bankers began to trade in government
securities. In 1351, the Venetian government outlawed spreading rumours intended
to lower the price of government funds. There were people in Pisa,Verona,Genoa
and Florence who also began trading in government securities during the 14 th
century. This was also possible because these were independent city states ruled
by a council of influential citizens, not by a duke.

15
On may 17, 1792, twenty four supply brokers signed the Buttonwed agreement
outside 68 wall Street in New York underneath a buutonwood tree. On march 8,
1817, properties got renamed to New York stock & exchange Board. In the 19 th
century, exchanges got substantiated to trade futures contracts and then choices
contracts.

2.3 The Role of Stock Exchanges

Stock exchanges have multiple roles in the economy, this may include the
following:
2.3.1 Mobilizing Savings for investment
When people draw their savings and invest in shares, it leads to more rational
allocation of resources Because funds, which could have been consumed, or kept
in idle deposits with banks, are mobilized and Redirected to promote business
activity with benefits for several economic sectors such as agriculture, Commerce
and industry, resulting in stronger economic growth and higher productivity levels of
firms.

2.3.2 Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase
distribution channels, Hedge against volatility, increase its market share, or acquire
other necessary business assets. A takeover Bid or a merger agreement through
the stock market is one of the simplest and most common ways for a Company to
grow by acquisition or fusion.
2.3.3 Profit sharing
Both casual and professional stock investors, through dividends and stock price
increases that may result in capital gains, will share in the wealth of profitable
business.

2.3.4 Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve
on their Management standards and efficiency in order to satisfy the demands of
these share holders and the more Stringent rules for public corporations imposed
by public stock exchanges and the government. Consequently, it is alleged that
public companies tend to have better management records than privately-held
companies. However, some well documented cases are known where it is alleged
that there has been considerable slippage in corporate governance on the part of
some public companies. The dot-com Bubble in the early 2000s, and the subprime
mortgage crisis in 2007-08, are classical examples of corporate mismanagement.
Companies like pets.com (2000),Enron corporation (2001), One

16
Tel(2001),Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom
(2002), parallax (2003), American International Group (2008), Lehman Brothers
(2008), and sat yam computer services (2009) were among the most widely
scrutinized by the media.

2.3.5 Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares
is open to both the large and small stock investors because a person buys the
number of shares they can afford. Therefore the stock exchange provides the
opportunity for small investors to own shares of the same companies as large
investors.

2.3.6 Government capital-raising for development projects

Governments as various levels may decide to borrow money in order to finance
infrastructure projects such as sewage and water treatment works or housing
creates by selling another category of securities known as bonds. These bonds can
be raised through the stock exchange whereby members of the public buy them,
thus loaning money to the government. The issuance of such bonds can obviate the
need to directly tax the citizens in order to finance development, although by
securing such bonds with the full faith and credit of the government instead of
collateral, the result is that the government must tax the citizens or otherwise raise
additional funds to make any regular coupon payments and refund the principle
when the bonds mature.

2.4 Problems of Capital Market in Bangladesh

 There are lots of problems in the development of capital market. From the
different perspectives, those are given bellow.
 The environment around the capital market is full of rumours of serious and
wrong dealing.
 Brokers are accused of manipulating prices; Companies are accused of
mispricing their stocks, floating rumours, Misrepresentation of performance.
 There are frequent violations of regulations such as failure to hold AGMs on
a timely basis; failure to distribute
 Announced dividends, lack of clarity in the right issues, and failures to settle
trade correctly.
 There is scarcity of good scripts in the market.

17
  The disclosed financial statements are different from actual financial
statements.
 There is lack of investment fund.
 Investors lost their confidence on the market due to multiple reasons resulting
incorrect financial statements, lack of commitment of the issuers, issuing
shares at a higher price which is not backed by equivalent asset value.
 Majority of the companies in Bangladesh are family held.

2.5 Securities and Exchange Commission (SEC)

SEC as established in June 1993 through enactment of the Securities and
Exchange Commission Act, 1993 as a regulator of capital market of Bangladesh.
SEC is an autonomous body. It is the central regulatory agency which acting as
watch dog to protect the interest of interest of investors in stocks and securities,
developing and regulating the securities market. Its main function is to over entire
capital market including the establishment of fair trading practices and close
supervision of listed companies, markets and playing the role as policy making and
oversight body.

2.5.1 Missions of SEC:

•Ensuring proper issuance of securities
•Protection of the interest of investors in securities
•Development of the capital and securities markets; and
•Regulation of the capital and securities markets in Bangladesh
2.5.2 Objectives of SEC

 To control the financial institutions.

 To regulate the capital market
 To protect the interest of investors in securities
 To develop the securities market
 Ensuring the proper issuance of securities and compliance of law relating to
securities.
2.5.3 Functions of SEC

SEC mainly undertakes the following activities

 Regulating the stock and securities market

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  Registering regulating the business of stock-brokers, sub-brokers, shares
transfer’s agents, Bankers and managers to the issues, register to an issue,
investment advisors and other intermediaries in the securities market.
 Registering, monitoring and regulating of collective investment schemes
including all forms of mutual funds
 Promoting monitoring and regulating all authorized self-regulatory
organizations in the securities market.
 Regulating substantial acquisition of shares or stock and takeover of
companies.
 Compiling, analysing and publishing indices on the financial performance of
any issuer of securities.
 Conducting research and publish information for the above purpose.

2.6 Dhaka Stock Exchange

The Dhaka stock exchange is a self-regulatory non-profit organization. It has a 24
member’s council of which 12 are elected from the exchange members and 12 are
nominated from the non-exchange members by the elected exchange member-
councillors, subject to the approval of SEC.

The exchange power of DSE is vested in the chief executive officer (CEO) and
under the leadership of CEO the executive body conducts the daily affairs of DSE.
The board of directors of DSE appoints the CEO with the approval of CSE.

The necessity of establishing a stock exchange in the east Pakistan was first
decided by the government when, early in 1952. It was learn that the Calcutta stock
exchange had prohibited the transactions in Pakistani shares and securities. The
provincial industrial advisory council soon thereafter set up an organizing committee
for the formation of a stock exchange in East Pakistan. A decisive step was taken
the second meeting of the organizing committee held on the 13th march, 1953. In
the cabinet room, Eden building, under the chairmanship of Mr A. Khaleeli,
secretary government of east Bangle, commerce, labour and industries department
at which various aspects of the issue were discussed in detail. The then central
government’s proposal regarding the Karachi stock exchange opening a branch at
Dhaka, did not find favour with the meeting who felt that East Pakistan should have
an independent stock exchange. It was suggested that Dhaka Narayangangj
chamber of commerce & industry should approach its members for purchase of
membership cards at rs.2000 each for the proposed stock exchange. The location
of the exchange it was thought should be either Dhaka Narayanganj or Chittagong.
An organizing committee was appointed consisting of leading commercial and

19
industrial personalities of the province with Mr. Mehdi Ispahan as the convener in
order to organize the exchange.

The chamber informed its members and members of its affiliated associations of
the proceedings of the above meeting, requesting them to intimate whether they
were interested in joining the proposed stock exchange. This was followed by a
meeting, at the chamber of about 100 persons interested in the formation of the
exchange on 07.07.1953. the meeting invited 8 gentlemen to become promotes of
the exchange with Mr. Mehdi Ispahani as the convener and authorized them to
draw up the memorandum and article of association of the exchange and proceed
to obtain register under the company’s act.1913. The other 7 promotes of the
exchange were Mr. J M Addison-Scott, Mr. Mohammed Hanif, Mr. A C Jain, Mr. A.K
Khan, Mr. M Shabbir Ahmed and Sakhawat Hossin.

It was also decided that membership fee was to be rs. 2000 and subscription rate at
15 per month. The exchange was to consist of not more than 150 members. A
meeting of the promoters was held at the chamber on 03.09.1953 when it was
decided to appoint Or Dignam & co. solicitors to draw up the memorandum and
articles of association of the stock exchange based on the rules of stock exchange
existing in other countries and taking into account local conditions.

The 8 promoters incorporated the formation as the East Pakistan stock exchange
ltd. On 28.04.1954. As public company on 23.06.1962 the name was revised to
East Pakistan stock exchange Ltd. Again on 14.05.1964 the name of East Pakistan
stock exchange Ltd. Was changed to “DHAKA Stock Exchange Ltd”.

At the time of incorporation the authorized capital of the exchange was Rs. 300000
divided into 150 shares. Of Rs. 2000 each and by an extra ordinary general
meeting adopted at the extra ordinary general meeting held on 22.021964 the
authorized capital of the exchange was increased to tk. 500000 divided into 250
shares of tk. 2000 each. The paid up capital of the exchange now stood at tk.
460000 divided into 230 shares of tk. 2000 each. However 35 shares out of 230
shares were issued at tk. 8000000 only per share of tk. 2000 with a premium of tk.
7998000.

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2.6.1 Functions of DSE:
 Listing of Companies.(As per listing regulations)
 Providing the screen based automated of listed securities.
 Settlement of trading.(As per settlement of transaction Regulations)
 Gifting of shares / granting approval to the transaction/ transfer of share
outside the trading system of the exchange (As per listing Regulations)
 Market administration & control.
 Market Surveillance.
 Publication of monthly review.

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CHAPTER THREE
AN OVERVIEW
OF
CSE

22
3.1 Historical Background of (CSE)

The Chittagong Stock Exchange is also a self-regulated non-profit organisation and

formation of the board of directors, size and rules of election of directors are also
similar to DSE. The executive power of CSE is also vested in the CEO, and the
executive body conducts the daily affairs of the exchange. The CEO is appointed by
the board with the approval of him commission.

Chittagong was missing one very important element of an industrialized economy –

a stoke exchange, which is an indispensable vehicle to channel funds to the
entrepreneurs.
Leaders at CSE felt the need, and also realised that the only Dhaka Stock
Exchange is not enough to meet the primary objective of having an exchange .In
the backdrop of the scenario CSE was establish in 1995 with the mission : to
create an effective, efficient and transparent market atmosphere of international
standard to save and invest in Bangladesh in oeder to facilitate the competent
entrepreneurs to raise fund and accelerate industrial growth for overall benefit of
the economy .Seventy reputed business personalities under the leadership of Amir
Khosru Mahmud Chowdhury MP, the founder president establish the bourse in the
commercial capital Chittagong .
TO make the stock market competitive and to provide more service to the investors,
the CSE was created. CSE is a public limited company. It has started trading on
October 10, 1995. Only 30 securities was listed on the first trading day of the
exchange, when market capitalization stood at US $0.2 billion. In January 1996,
CSE become the corresponding member of federation of International Stock
Exchange based in France. CSE got membership in the federation of Euro-Asian
stock Exchange on October 1996.

Now CSE pioneered fully automated trading system on wide area network
connecting Dhaka, Sylhet, Rajshahi, Barisal, and cox’s Bazar based brokers to
Chittagong enabling hundreds of thousands of people to visit in the security market.

3.2 Objectives of CSE

The CSE works with the following objectives-
 To develop a strong platform for entrepreneurs raising capital.
 To provide an investment opportunity for small and large investors.
 To develop a transparent market thereby ensuring investor’s interest.
 To attract the non-resident Bangladeshis to invest in Bangladesh stock
market.

23
  To attract the foreign institutional investors to invest in Bangladesh.
 To collect preserve and disseminate data and information on stock
exchange.
 To develop a professional service culture through mandatory corporate
membership.
 To develop a research cell for analysing status of the market and economy.

3.3 Revolution in the Trading system of CSE

The Chittagong stock exchange was established in 1995. it has started trading on
October 10,1995. In the beginning of CSE, it used floor trading system. It was the
legal procedure to transact the shares. There was another way for trading, it has
called curve market outside the CSE and it was the illegal procedure. CSE starts to
use the internet trading system in 2002. in 1998, CSE starts automation Trading
system. CDBL was not established yet. CDBL starts its journey in 2004.And it takes
over the control on trading system through CDS.
Now all the types of trading system are discussing below:

3.3.1 Floor trading (FT)

Floor trading is the most ancient trading system in CSE. CSE has used this trading
system for three years from 1995 to 1998. it was the way to trade shares and
securities in CSE trading floor. Under this system, some authorised brokers were
gather in a specific place (CSE trading floor) to trade shares and securities.
Different company’s shares were presented by the CSE authorities for sale and the
representatives from different broker house were put there buy or sale price.

3.3.2 Curve Market (CM)

Curve market was not the legal procedure to buy or sale shares and securities.
Actually, curve market was established outside the CSE. Here, some false trader
traded shares and securities without any legal documents (Money receipt, share
documents) outside the share market to those share businessmen who were totally
ignorant about the share market. Some ignorant person also bought shares actually
which had no physical existence, no official authorization.

3.3.3 Trading system Automation (TSA)

Introduction of automated trading system replacing the practice and culture of age-
old manual cry-out system of trading in the stoke market of Bangladesh was a
revolutionary step made by the cse in the history of the country’s capital market.
This automation ushered in many positives changes in stock market, which helped
grow the market gradually protecting the investor’s interest’s interest to the

24
maximum extent possible. Stock investment had been confined to Dhaka, to be
more specific-to motijheel since the early fifties until CSE came up and open up
wide avenues of investment through wide area telecommunication network in 1998
connecting the cities of Dhaka, Chittagong and Sylhet. It was truly a giant leap
forward in providing the millions of common people a gateway of investment in
stocks through the CSE trading network. The network later expended to Rajshahi,
Barishal and cox’s bazaar from where thousands are trading everyday through CSE
member brokers, most prominently the investment corporation of Bangladesh (ICB).

3.3.4 Central Depository System (CDS)

CSE spearheaded many modern capital market concepts in the country and
perhaps CDS most important among them. The founder president Mr. Amir Khosru
Mahmud Chowdhury MP started promoting the idea of CDS from the very
beginning of operations of CSE and eventually raised a CDS bill in the parliament.
The parliament passed the depository act 1999 providing a legal basis for
depositories in Bangladesh.

3.4 Listing Procedure:

3.4.1 Highlight of CSE listing requirements

Company’s willing to expand market for their securities may apply for listing with.
The CSE according to the manner prescribed in the listing regulation.

Highlights of the listing regulations or CSE are narrated below:

Eligibility
 The company has to be a registered public limited company
 Minimum paid up capital has to be TK. 10 million
 Shares to be subscribed by a minimum of 250 no. of
subscribers

Documents
Papers to be submitted at the time of applying for listing have been
mentioned in the enclosed Checklist.

25
3.4.2 Fees
Initial listing fees
• Initial listing fees: An amount equivalent to one fourth of 1% of
total paid up capital.

3.4.3 Delisting and Suspension:

A listed company may be de-listed or suspended for any of the following
reasons:
a) If its securities are quoted below 50% of face value for a continuous period of
three calendar years. Provided that if the shares of company quoted at 50%
or above of their face value then such a rate is maintained for a continuous
period of 30 working days.

b) If it has failed to declare dividend or bonus:

I. For five years from date of declaration of last dividend or
bonus; or
II. In the case of manufacturing companies, for five years from
date of commencement
III.Of commercial production; and
IV. For five years from date of commencement of business in all other cases.

c) If it has failed to hold its AGM for continuous period of three years;
d) If it has gone in to liquidation either voluntarily or court order;
e) If it has failed to pay the annual listing fees as prescribed in these regulations
payable to the exchange for a period of two years or penalty imposed under these
regulations or any other dues payable to the exchange for a period of two years;
f) If it has failed comply with the requirements of any of these regulations;

3.5 Membership Section

Nobody can participate in the stock trading without being a member of stock
exchange. There are two types of members:
a) Dealer: They can act as principle and buy for their own accounts and sell
securities from their own inventories.
b) Broker: They act as agents of others and receive a commission from their clients.
They have no rights to buy or sell from their own inventories.

› Application for Membership

As per company resolution, to get the membership in CSE, It is necessary to form a
limited Company and one director will have to be selected as the representative for

26
dealing with the Stock exchange. An application to be submitted as per ‘form- ka’
along with following
Documents:
 Memorandum of association & articles of association of the company.
 Tax clearance certificate.
 Letter regarding permission for on-line trading.
 Deed of declaration as per clause 5(b) of general rules and regulations of
CSE
 Registration fees of TK. 1000.00
 ID card fee TK. 100.00
 Two copies of stamp size recent photograph.
› Membership Fee
Initially the membership fee was TK. 3,00,000 (Three lakhs) only. But
thereafter, this has Been enhanced from TK.3,00,000 to TK.50,00,000.
These amount can be segregated by:
Face value TK. 3,00,000
Admission fee TK.7,00,000
Premium TK. 40,00,000
———————————————————
Total TK. 50,00,000

Besides, annual membership fee was TK. 25,000. This amount this been reduced
in the year From TK.25,000 to TK. 5,000 only. Every member can appoint
maximum five authorised assistant to transact shares and securities with the stock
exchange.

3.5.1 Demutualisation System

Board Structure:
Until otherwise determined in a shareholders general meeting of the exchange with
prior approval of the commission, number of directors shall be 13 (thirteen) with the
following composition:

a) Independent Directors: There shall 7 (seven) independent directors. The

board of directors of the exchange, as per recommendation “Nomination and
Remuneration Committee” will propose at least 2 (two) names against each post of
independent directors and then submit to the commission for approval through the
board, provided that if the commission does not approve the proposed names of

27
independent directors, then CSE has to re-submit a fresh list of candidates (two
names against each post) of independent director;
b) Shareholder Directors: There shall be 5 (five) shareholder directors from
amongst the shareholders and strategic investor(s). Among the shareholder
directors at least 1 (one) post will be reserved for strategic investors, provided that
1 (one) post of director from the strategic investor(s) shall remain unfilled pending
the entrance of strategic investor(s)
c) Managing Director: The Managing Director / CEO shall be Ex-Office
member of the Board with voting right.

3.6 Trading & Operation section of CSE

A central regulatory agency which is the securities & exchange
commission (SEC) overseeing the activities of the entire capital market
including issue of capital, monitoring the issue of stock & operation of
the stock markets. In the first Chittagong stock exchange follows kerb
market System up to 1998. It follows automation trading system which is
introduce in first time in Bangladesh .It increases the accuracy and
efficiency of stock market. Trading and operation System is discussed
below:

3.6.1 Trading system of primary market in CSE

Initial public offer (IPO), B/O Account, how to apply for IPO, IPO
distribution system Refund Warrant / allotment of IPO, Sell/ hold, how
an NRB apply for IPO, what to know before Applying for IPO.

3.6.2 Trading system of secondary market in CSE

It is a market where you can buy and sell stocks. We shall discuss:
i) How can I start? (contract with a stock broker, Observe first and
study the market, place your buy/sell order, get buy /sell confirmation,
you can hold or sell it if price increases
If you hold it you may get cash dividend or stock dividend).
ii) What to know before investing? (Fundamental analysis &
Technical analysis)
iii) places to the complaints
iv) How CSE helps you?

28
3.6.3 Market Operation Schedule:
Time session Activity
11.00 AM-11.20 AM Pre-opening a) Members log into the system
b) Only limit orders may be entered
c) Disseminate any information of
the listed company
Opening a) System is not available for use
11.20AM-11.30 AM during this session.
b) Opening price for each script is
computed.
c)Trade will be executed from
among orders entered during pre-
opening session as well as pending
orders from the last trading day, at
opening price.
11.30AM-15.00 PM Trading Normal trading i.e. All types of
orders, deals accepted.
Closing a) System is not available for use
15.00 PM-15.10PM during this session.
b) Closing price for each script is
computed.
Closing price trading a) In this session, Orders that have
15.10 PM-15.30 PM been input trading Session would
be executed if opposite order found.
b) Members may SUBMIT buy and /
or sell orders only in close price
order type.

14.30PM-15.15PM Post-closing Report print.

Odd -lot a) For odd lot trading.
11.30 AM-14.50 PM b) This session is independent of
other session and may overlap with
any of them.
[Source: www.csebd.com-official web site of CSE]

29
 3.7 Grouping of securities under CSE
There are five categories of Companies:
1. A- Category Companies
2. B- Category Companies
3. Z- Category Companies
4. G- Category Companies
5. N- Category Companies

3.7.1 A-Category Companies

Companies, which are regular in holding the current annual general meetings and
have declared dividend at the rate of ten percent or more in the last English
calendar year provided however that transaction for odd lots or multiple of market
lots and big lot may be kept outside the adjusted due position mechanism for
settlement.

Settlement cycle in order

Group – A

Trading day T+0

Settlement day T+ 1

Pay out T+ 2

30
3.7.2 B-Category Companies
Companies which are regular in holding the annual general meetings but have
failed to declared dividend at least ate the rate of ten percent in the last English
calendar year.
Settlement cycle in order

Group - B

Trading day T+ 0

Settlement/Pay in day T+ 1

Pay out T+ 2

3.7.3 Z- Category companies

Companies which failed to hold the current annual general meetings or have failed
to declare any dividend or which are not in operation for more than six months or
whose accumulated loss after adjustment of revenue reserve, if any, is negative
and exceeded its paid up capital.
Settlement Cycle in order

Group -Z

Trading day T+ 0

Settlement day/Pay in
T+3

Pay out T+6

31
3.7.4 G -Category Companies

G- Category Companies are basically Greenfield companies. The companies which

are not started its operation but call subscribers to invest to their company. They
basically call for capital in primary market.

Settlement Cycle in Order

Group- G

Trading day T+ 0

Settlement day/Pay in T+1

Pay out T+ 2

3.7.5 N- Category Companies

The Companies which are already in operation and enters into primary market to
collect money, falls into N- Category Companies.

Settlement cycle in order

Group - N

Trading day T+0

Settlement day/Pay in T+ 1

Pay out T+2

32
 CHAPTER FOUR
PERFORMANCE ANALYSIS
ON THE
GROWTH AND DEVELOPMENT
OF
CHITTAGONG STOCK
EXCHANGE

33
 4.0 Introduction
The security market has registered significant growth during last few years by
compared to the size of securities market in south Asian countries, the Bangladesh
security market is still very small. But gradually day by day stock market in
Bangladesh are going to be modern and in some extent big too. And people are
now more aware about the stock market operation by the various publication of
CSE. CSE always keeps the update of all types of information related with the stock
market by their various publications. It has a great impact on the investor
investment decision and helps to make the decision fruitful. For this reason, to
analyse the impact of these publications of CSE, we have conducted a research
program.

4.1 Number of listing companies:

The number of new listing for last five years is given here in the
following table and graph.
Year Number of new listing
2013 16
2014 23
2015 14
2016 14
2017 16

Figure 1: Graphical presentation of number of listing companies during 2013-2017

Number of Listing Companies

25 23

20 16 16
14 14
15
10
5
0
2013 2014 2015 2016 2017

Number of Listings

Description: The Figure 1 shows that the number of listing are decreasing in this
graph so that we can analyse the number of new listings here. In 2013 there was 16
listing companies in CSE but gradually the number had been increased among
2014-2017.

34
4.2 Securities Listed
The securities listed for last five year is given here in the following table and graph.

Year Securities
2013 217
2014 225
2015 241
2016 255
2017 269

Figure 2: Graphical presentation of Securities Listed during 2013-2017

Security Listed
300
269
255
250 241
225
217

200

150

100

50

0
2013 2014 2015 2016 2017

Security Listed

Description: The figure 2 shows that the number of security listing was in increasing
level during the 5 years statements. In 2013 it was 217 and in 2017 it got 269 listed
securities in CSE.

35
4.3 Market capitalization
The market capitalization for last five years is given here
in the following table and graph.
Year Market capitalization (MN.TK.) Growth Rate (%)
2013 2983929 -
2014 1470807.05 -50.71
2015 1972423 34.10
2016 1784461 -9.53
2017 2023261 13.38

Figure 3: Graphical presentation of Market capitalization during 2013-2017

Market Capitalization
3500000
2983929
3000000

2500000
1972423 2023261
2000000 1784461
1470807.05
1500000

1000000

500000

0
2013 2014 2015 2016 2017

Market Capitalization

Description: The figure 3 shows a positive capitalization state on 2013 which was
increased but in 2014 it started falling. In 2015 it got corrected but in 2016 it got
decreased again but in 2017 it was on the positive flow. The average growth rate is
(2.55) percent.

36
4.4 Number of share trade
The number of share trade for last five year is given here in the following table and
graph.

Year Number of shares trade (MN) Growth Rate (%)

2013 2518282.47 -
2014 1338780 -46.84
2015 2129129 59.04
2016 2863509.68 34.49
2017 2763476.05 -3.49

Figure 4: Graphical presentation of Number of shares traded during 2013-2017

Number of Shares Traded

3500000
2863509.68 2763476.05
3000000
2518282.47
2500000 2129129
2000000
1500000 1338780

1000000
500000
0
2013 2014 2015 2016 2017

Number of Shares Traded

Description: the figure 4 shows that there was a sharp increase in trade shares
except the year of 2014. In 2013 it was 2518282.47, in 2017 it got 2763476.05. The
average growth rate is 8.64 percent.

37
4.5 Daily Average Turnover

Year Daily Turnover (In BDT. MN) Growth Rate (%)

2013 988.06 -
2014 416.12 -57.89
2015 491.2 18.04
2016 664.01 35.18
2017 792.92 19.41

Figure 5: Graphical presentation of Daily average turnover 2013-2017

Daily Average Turnover

1200
988.06
1000
792.92
800
664.01
600 491.2
416.12
400

200

0
2013 2014 2015 2016 2017

Daily Average Turnover

Description: The figure 5 shows that there was a down trend for the last three years
in the daily turnover. In 2013 was Tk.988.906 million but 2014 it was 416.12 only. In
2017 market again started moving sharply though it was a tough situation between
2014 & 2015. The average growth rate is 2.95 percent.

38
4.6 Annual Turnover
Year Turnover (In BDT. MN) Growth Rate (%)
2013 162019.31 -
2014 99037.54 -38.87
2015 186336.54 88.15
2016 116905.22 -37.26
2017 340929.30 19.16

Figure 6: Graphical presentation of Annual turnover during 2013-2017

Annual Turnover
400000
340929.3
350000

300000

250000
186336.54
200000 162019.31
150000 116905.22
99037.54
100000

50000

0
2013 2014 2015 2016 2017

Annual Turnover

Description: The figure 6 shows that, in the year after the year of 2013 the market
had faced a sudden crash on 2014 so that the turnover rate was decreased from
162019.31 to 99037.54. But after the year 2014 the market had some positive
turnover & among that 2017 was remarkable. The average growth rate is 6.24
percent.

39
4.7 Number of Trades (contracts)
The number of trades for last five year is given here in the following table and
graph.
Year Number of trades (MN) Growth Rate (%)
2013 7415220 -
2014 4403202 -40.62
2015 3896618 -11.50
2016 4375574 12.29
2017 6059995 38.49

Figure 7: Graphical presentation of No. of trades (Contracts) during 2013-2017

No. of trades (Contracts)

8000000 7415220

7000000
6059995
6000000

5000000 4403202 4375574

3896618
4000000

3000000

2000000

1000000

0
2013 2014 2015 2016 2017

No. of trades (Contracts)

Description: The figure 7 shows that the number of trades (Contracts) ups-down
trend during the year of 2013-2017. In 2013 It was 7415220 and after 2017 it was
6059995. The average growth rate is (.268) percent.

40
4.8 CSE all shares price index

The CSE all shares price for last five years is given here in the following table and
graph.
Year CSE share price Growth Rate (%)
2013 13181.37 -
2014 23448.99 77.89
2015 14880.37 -36.54
2016 12854.80 -13.61
2017 13202.94 2.71

Figure 8: Graphical presentation of CSE all-share price index during 2013-2017

CSE all share price index

25000 23448.99

20000

14880.37
13181.37
15000 12854.8 13202.94

10000

5000

0
2013 2014 2015 2016 2017

CSE all share price index

Description: The figure 8 shows that there is a sharp decreasing in the annual
turnover for the last Three years. CSE share price was 13181.37 and before crash fall of
indices the rate was 23448. After the years it was 14880 in 2017. The average growth
rate is 6.09 percent.

41
4.9 CSE 30 Index
The CSE 30 index for last five years is given here in the
following table & graph.

CSE 30 Index
CSE 30 Index

25000
20988.17
20000
13826.94
15000 10306.86
11021.98 10839.28
10000

5000

0
2013 2014 2015 2016 2017

Figure 9: Graphical presentation of CSE 30 index during 2013-2017

Year CSE 30 Index Growth Rate (%)
2013 10306.86 -
2014 20988.17 10.36
2015 13826.94 -34.12
2016 11021.98 -20.29
2017 10839.28 -1.66

Description: The figure 9 shows that there was a sharp decrease in the annual
turnover.
We can see the line in graph that shows 10306 in 2013 and after the years it
increased to 20988.17. After 2017 it was 10839 which was in decreasing point. The
average growth rate is (9.14) percent.

42
4.10 Comparative analysis of the market performance of CSE
Comparative analysis of the market performance of CSE highlighting index,
turnover, market capitalization etc. is presented below.

Description 2017

Total turnover (MN.TK) 99037.54

No. of trades 3896618
Trading days 238
Daily average turnover(MN.TK) 416.12
Turnover volume 2763
(MN. SHARES)
Market capitalization(MN.TK) 2023261
Market capitalization(MN.US$) 26023
Market capitalization to GDP (%) 17.03
IPO/RPO 14
New listing 16
Listed securities 269
Securities in OTC market 53
Companies declared dividend for the (FY) 94
CSE all-share price index 13202.94
CSE-30 Index 10839.28
CSE selective category Index 8377.36
Source: As per historical database of trades of CSE

43
4.11 Development of CSE:
Chittagong Stock Exchange has always been playing significant role to make the
capital market of Bangladesh more efficient. Some of the initiatives taken by CSE in
FY 2013-14 and FY 2014-15 in this regard have been summarized below:
a. Lunching of CSE e-Library & New Website:
CSE lunched e-Library in order to boost investors’ education and enhance in
house capacity of R&D. CSE e-library is enriched with many famous national
and international publications. CSE also lunched enriched website to cater
both local and foreign market.

b. CSE and DSE sign MoU to set up Clearing Company:

A MoU was signed between Chittagong Stock Exchange and Dhaka Stock
Exchange to establish a clearing company on August 21, 2013 in Dhaka. The
impact of this MoU, would help Derivatives, Commodity etc. to be traded as
new products in the market.

c. T+2 Settlement Cycle Introduced:

CSE introduced T+2 pay-out settlement cycle of securities of A, B, G & N
category from earlier T+3 with effect from November 3, 2013. This is a
pragmatic step to attract investors from home and abroad because of the
advantage of faster settlement which may lead to increase in turnover value
as well as volume of trade.

d. CSE proposed using specialized audit software for proper evaluation of

Financial Statements:
To properly evaluate the financial statements of the listed companies, CSE
proposed to use specialized Audit software. CSE requested BSEC to
introduce directives so that the listed companies and Asset Management
companies can submit their Financial Reports in specific digital format.

e. CSE is working for modernizing the OTC Market and establish a

separate market for Alternative Investment:
CSE started working to reconstruct the OTC Market in Bangladesh in 2013 for
the greater interest of the investors. In continuation to this CSE has been
working to bring the OTC companies back to the normal market and establish
a separate market platform for the SME and growth companies.

f. CSE and NSE Sign MoU

In continuance of CSE’s earlier initiatives and subsequent meeting of CSE
President and CSE CEO at National Stock Exchange of India (NSE) in
Mumbai in November 2012, CSE and NSE finally signed a Memorandum of

44
 Understanding (MoU) in August 2013. Through this MoU, CSE will be able to
tap the NSE’s help and expertise for its development issues.

g. Proposed amendment to the existing Market Maker Regulation:

CSE in consultation with the National Stock Exchange of India has prepared a
proposal for change in the existing market maker regulation to make it
realistic and functional for increasing market depth/liquidity in CSE. The
proposal has already been sent to BSEC for approval.

h. CSE unveils new logo:

In July 2015 CSE unveiled its new logo with the promise of new future for all
the listed companies and investors. CSE Chairman Dr. Muhammad Abdul
Mazid unveiled the new logo at CSE Dhaka office. A wave called ‘Fibonacci
Bands’ was the inspiration of the new logo.

i. Future outlook:
Within a year of demutualization, CSE has strengthened its human resources
and its mission and vision for future growth. As part of its long term plan, CSE
will use the digital media as much as possible to supply real time and
authentic market information the investors.

j. CSE launches Shariah Index and CSE-50 Benchmark Index

In October 2014 Chittagong Stock Exchange launched CSE Shariah Index
and CSE-50 Benchmark Index at its Dhaka office. CSE in collaboration with
the National Stock Exchange of India has developed these new indices. CSE-
50 Benchmark Index was developed by India Index Services and Products
Ltd (IISL) and CSE Shariah Index has been developed under the Shariah
Screening Framework and Shariah Screening services provided by the
Taqwaa Advisory and Shariah Investment Solutions (TASIS) of India Ltd. The
indices are now being maintained by CSE and periodically reviewed by NSE
India with help of IISL and TASIS. The indices would help the investors to be
aware of the compliant securities and the market as well.

45
 CHAPTER FIVE
SUMMARY
OF
FINDINGS AND
RECOMMENDATIONS

46
5.1 Summary of the Findings

 Dhaka Stock Exchange (DSE) is a public limited company. It is formed and

managed under Company Act 1994, 1 April 1995 CSE incorporated as a
company.
 Security market has registered significant growth during last few years by
compared to the size of securities market in south Asian countries.
 Number of listing we found that new companies entry had been fluctuated
trend during the year 2013-2017.
 Securities listed we found that the number of listed securities had been
increased yearly during 2013-2017.
 Market capitalization we found that the capital amount had been decreased
from 29383929 to 1470807 among the year 2013 & 2014 respectively. But as
day went out the amount had been increased and the average growth rate is
(2.55) percent.
 Number of share trade we found that the number of share trades had been
decreased to an extent in 2014. But when holders got positive news they
started trading shares which is reflecting on the year 2015-2017 and the
average growth rate is 8.64 percent.
 Daily average turnover we found that there was a stable turnover in 2013 but
it got negative in 2014 incident but market started gaining points from 2015 to
2017 and the average growth rate is 2.95 percent.
 Annual turnover we found that there was a fall in 2014 for which the index
was trended down but from next year it started gaining except 2016 and the
average growth rate is 6.24 percent.
 Number of trades (contracts)we found that there was ups-downs trend during
2013-2017.In 2013 it was 7415220 and in 2017 it was 6059995.The average
growth rate is (.268) percent.

47
  CSE all price index we found that the price of index had been increased in
2014 than 2013 and the average growth rate is 6.09 percent.

 CSE 30 Index we found that the price of indices increased 20988 in 2014
from 10306 in 2013 and the average growth rate is (9.14) percent.

5.2 Recommendations

 CSE may introduce more easy access to the market so that well performing
companies come to the market. The government can also play role in this
regard.
 CSE should give importance in developing market capitalization.
 Number of listed companies in CSE should growth their performance by
establishing surety for the companies which are listed in CSE.
 CSE should increment the number of trades (contracts) that will be fruitful for
stock market.
 CSE should increase the volume of shares for ensuring the trust of
shareholders that will never fall again.
 Banks, insurance companies and other financial institution should be
encouraged deal in share business directly.
 The management of CSE should be vested with professionals and should not
in any way be linked with the ownership of stock exchange and other firms.
 To introduce automated monitoring system that may control price
manipulation, malpractices and inside trading.
 CSE should strengthen the market regulation, supervision and develop
capital market infrastructure.
 Govt. should focus on reducing the bank rates so that the policy might
encourage the investors.

48
5.3 Conclusion
Since Bangladesh has adopted free market economy as her national policy to
achieve her goals of higher growth and rapid privatization, it must revive its stock
markets and make them capable of working as the main vehicle for mobilizing and
allocating funds needed to finance the industrial and other development activities of
the country. In fact, no alternative path is suitable like a stock market to strengthen
the financial base of a country, gear up its development activities and achieve its
all-out economic emancipation. There is no time to lose, and right away concerted
steps must be taken to rescue our capital market from its current dire straits.

Chittagong Stock exchange has been eminently supportive in many ways in this
journey of capital market development in Bangladesh. The more the investors will
be aware the more the development and advancement will be occurred. Market will
be big too gradually. People now can enrich their knowledge at home about the
stock market through these publications. Investors can make proper decision
through their own calculation by the help of this publications. Stability of the stock
market slightly depend of CSE. In this brief span of its existence CSE has played a
noteworthy role in the development of capital market in Bangladesh. CSE’s
contribution is enormous in shaping where we stand now.
Actually, no better alternatives way is suitable like a stock market to strengthen the
financial base of a country, to rise up its development activities and gain economic
release.

It is to be expected that the capital market will increase more transparency and will
be able to create a center of attention to the investors from beginning to end
through its improved efficiencies and positive atmosphere with the supporting
activities of CSE from time to time.

49
References

1. CSE Bazaar Porikroma - A monthly Magazine published by CSE. Ltd,

2017

2. ‘Portfolio’ of Chittagong Stock Exchange.

3. SEC quarterly review and Annual Report June-July, 2016 & 2017

4. Official website:
a) www.csebd.com
b) www.dsebd.org

5. Annual Report and monthly Review of CSE, June-July, 2017

50