Introduction

Stock Exchange is an organized and regulated financial market where securities (bonds, notes, shares) are bought and sold at prices governed by the market forces of demand and supply. Stock exchanges basically serve as primary markets where corporations, governments, municipalities, and other incorporated bodies can raise capital by channeling savings of the investors into productive ventures; and secondary markets where investors can sell their securities to other investors for cash, thus reducing the risk of investment and maintaining liquidity in the system. To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but there is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only. Trades in the older exchanges are conducted on the trading floor of the exchange itself, by shouting orders and instructions. On modern exchanges, trades are conducted over telephone or online. Almost all exchanges are auction exchanges where buyers enter competitive bids and sellers enter competitive orders through a trading day. The first stock exchange was opened in Amsterdam in 1602; the three largest stock exchanges in the world are New York Stock Exchange (NYSE), London Stock Exchange (LSE), and Tokyo Stock Exchange (TSE). Dhaka Stock Exchange (generally known as DSE) is the main stock exchange of Bangladesh. It is located in Motijheel at the heart of the Dhaka city. The total market capitalization is Taka 3467909.522 million with 445 companies listed as on 23 rd December 2010. It first incorporated as East Pakistan Stock Exchange Association Ltd. In 28th April 1954 and started formal trading in 1956. It was renamed as East Pakistan Stock Exchange Ltd. in 23rd June 1962. Again renamed as Dacca Stock Exchange Ltd. in 13 1964. After the liberation war in 1971 the trading was discontinued for five years but the trading restarted again in 1976. Dhaka Stock Exchange is a public limited company. It is formed and managed under Company Act 1994, Security and Exchange Commission act 1993, Security and Exchange Commission Regulation 1994 and Security Exchange Regulation 1994.

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

Trading
The Dhaka Stock Exchange is open for trading Sunday through Thursday between 11:00A.M 3:00P.M BST, with the exception of holidays declared by the Exchange in advance.

Major Functions
Listing of Companies (As per Listing Regulations). Providing the screen based automated trading of listed Securities. Settlement of trading.(As per Settlement of Transaction Regulations) Gifting of share / granting approval to the transaction/transfer of share outside the trading system of the exchange (As per Listing Regulations 42) Market Administration & Control. Market Surveillance.

Publication of Monthly Review. Monitoring the activities of listed companies. (As per Listing Regulations). Investors grievance Cell (Disposal of complaint bye laws 1997). Investors Protection Fund (As per investor protection fund Regulations 1999) Announcement of Price sensitive or other information about listed companies through online.

Executive Committee
Mr. Md. Shakil Rizvi Mr. Mohammed Nasir Uddin Chowdhury Mr. Md. Rafiqul Islam Mr. Md. Rakibur Rahman Mr. Ahmed Iqbal Hasan Mr. Saiful Islam Mr. Md. Feroz Khan Mr. Khwaja Ghulam Rasul Mr. Sharif Ataur Rahman Mr. Md. Shahjahan Ms. Lailun Nahar Ekram Mr. Masudul Haque President, DSE Senior Vice- President, DSE Vice- President, DSE Director, DSE Director, DSE Director, DSE Director, DSE Director, DSE Director, DSE Director, DSE Director, DSE Director, DSE

DSE Vision 2013 Market Based Targets

To increase market capitalization from US$13 billion to US$ 30 billion. Market Capitalization to GDP ratio shall increase to 35 per cent from its present contribution of 19.74 per cent. Daily trade volume to increase from Tk 300 core to Tk 2,000 crore. Trading facilities to expand across the country. Introduction of Book Building Method Introduction of Financial Derivatives Fixed income investment market to be activated. Introduction of Internet trading 3 million families to integrate with the trading.

Internal Visions for DSE

To set up true On-line National Clearing House. Review necessary Rules and Regulations to match vision 2013. Strengthening Investors awareness program.

Volatility in Stock Market

Bangladesh securities market experienced the worst turmoil in 1996. Until, mid 1996 Bangladesh securities market failed to attract investors, both local and international. However between July and mid- November 1996, both Dhaka and Chittagong Stock Exchanges experienced an unprecedented bullish run. During this period, market capitalization went up by 265% and the average daily turnover increased by over 1000%. There were about 192 securities listed with both the stock exchanges at that time. According to the official record, price index at Dhaka Stock Exchange increased by 281% and at Chittagong Stock Exchange increased by 258%. Then the bubble burst share

prices of both the stock exchanges dropped by 25% from their peak in mid-November. It was reported that outside in the informal market the prices went down further. The regulatory move to control the situation was very slow. The regulatory authority took time to realize the possible of index crash on the entire economy. The Bangladesh Securities and Exchange Commission (SEC) declared that the market would be viewed as normal till the index remained above the 1500 points. The government carried on a massive media campaign striking out any possibility of crash and further promised recovery measures only if the index dropped below 1500. The Finance Minister even made public statement to the effect that its not at all a crashing situation. The market has become over heated and now it is stabilizing through correction. It was only in late December 1996 that the SEC constituted an enquiry committee to investigate into the irregularities of stock market activities during July 1996. In March 1997, the enquiry committee prepared a lengthy report identifying a number of companies being in breach of specific provisions of securities market regulation and commented that such companies were guilty of fraudulent acts in relation to securities trading. The enquiry committee also identified some of the countys biggest brokers who were apparently involved in market manipulation. Based upon the enquiry committee report, the SEC obtained warrants of arrest against 32 people in 7 brokerage firms and 8 listed companies. The SEC also filed 15 share scam cases in the high court division of the supreme court of Bangladesh. A Case of Regulatory Failure It is unfortunate that the enquiry committee report failed to address the regulatory aspects in a comprehensive way. The said report served two purposes; (a) it identified some of the market manipulators involved in many fraudulent activities during the period in question; and (b) it brought into light the irregularities involved in the day-to-day operation of the stock exchanges. The report however, completely ignored the role that should have been played by the SEC as a regulatory body to handle the crisis.

Regulatory Failure by the Stock Exchanges During June-November, 1996 the two stock exchanges were aware of many irregularities and mal-practices that took place at the exchanges. However, the exchanges remained indifferent towards regulation such activities. According to the records, the exchanges, even though were experiencing sharp increase of prices in most of their listed shares, they did not take any action to investigate or control the situation. Further the trading procedure at both the stock exchanges was susceptible to fraudulent misuse by vested quarter. The delivery versus payment system of trading method at the stock exchanges allowed the buyers/seller of the share to settle the transactions directly between them and without involving the stock exchanges. This system was misused by many brokers/dealers to show artificial trading so that the investors would be induced to buy and demand more shares. Also, the usual practice of T+4 settlement procedure was not followed at the Dhaka Stock Exchange. Forward deals, though forbidden under law, took place in the exchanges at very high prices. Also, the management system of the Dhaka Stock Exchange was not appropriate; there was no clear demarcation between management and operation and as such, conflict of interest was bound to grow. In addition, such concentration of control in the same group of people actually discouraged to take strict actions against members of the stock exchanges engaged in unethical practices. It was also observed that the stock exchanges did not have internal auditing system for their day-to-day operation. Regulatory Failure by the SEC It is true that in 1996, securities market of Bangladesh had only a few years of experience in active trading. Therefore, the SEC, as the central regulator of the securities market, should have been more careful in performing its duty as a market watchdog. However, over the period June-November 1996 the SEC was rather in conscious disregard of market movements. The SEC failed to take necessary steps to control unauthorized and unregulated kerbed market activities and thereby the SEC failed miserably to watch and guard the interest of the market.

The SEC also failed to carry on necessary inspection to monitor the activities of market intermediaries. Irregularities at the stock exchanges or by the brokers/dealers could have been guarded in proper time had the SEC become a bit more vigilant in protecting the interest of the market. Also, the SEC needed to be more alert to the cases of insider trading and market manipulation, which ultimately results in loosing of market confidence. Finally, it is the duty of the securities market regulators to be alert and prepared for any crash situation. However, in 1996, the regulatory response to merely identify a crash was far behind the time. A more regulatory effort to carry on market surveillance could enable the SEC to make a timely response to the crash. Further it is essential for regulators to make it apparent to the market that they have a power to control the market, as and when necessary. Enforcement mechanism, exercised by the regulators, encourages the market to move towards proper direction. By adhering to strict enforcement mechanisms against market culprits, the regulators can always discourage such happening in future. However, it is argued that during June-November 1996, the SEC unfortunately failed to enforce securities market regulations against the market malpractices. It became apparent that from June-November 1996, the stock exchanges were not selfregulating themselves well and market intermediaries were in breach of a number of legal provisions; there was wide range of insider trading taking place to manipulate the market price of the shares. There were even serious allegations regarding the registered chartered accountants certifying false financial statements along with the valuation of assets and property. Many of these activities could amount to fraud and would clearly violate specific provisions of the already existing securities market laws of the country. However, the SEC, even though entrusted with wide regulatory power, failed to take strict action against such market misbehavior/malpractices. For example, the SEC failed to prosecute under Order 17 and/or to impose penalty under Order 24 of the Securities and Exchange Ordinance 1969 against 'insider trading' committed by director or sponsor of the issuers. Similarly, the SEC even though observed that during 1996 a number of companies management were making public disclosure of false information, it failed to

take any timely action against those companies. Also, the market manipulation activities of the brokers/dealers clearly fell under the fraudulent activities as stated in Ordinance 17 of the Securities and Exchange Ordinance of 1969 and therefore, would attract the penalty provision under Ordinance 24. Nevertheless, the SEC failed to take any reasonable regulatory measure to control such activities.

DSE sees steepest ever fall in stock price

Stock prices at the Bangladeshs main bourse the Dhaka Stock Exchange witnessed the steepest ever single-day fall 551 points or 6.71 percent in 19th December 2010, forcing angry retail investors to stage rowdy street protests in Dhaka and some other district towns. Out of 243 issues traded, only 05 gained, 236 declined and two remained unchanged. Banking and insurance issues were the major losers on the day when total turnover stood at Tk. 14.90 billion, up by 17 per cent compared to that of the last trading session. The general index (DGEN) at the DES has lost 2264 points or 25 percent from 5th 19th December. The market shed 547 points within 80 minutes from the start of the days trading on December 8th. But stock prices started regaining mysteriously as a section of investors took to the streets and resorted to violent protests and ended the day with 105 points lower. On December 13, Sunday, the market went through major price correction-285 points. Stock prices at the DSE more than doubled over period of last one year with the active participation of both institutional and general investors. Market insiders listed the profit taking by banks at the end of their accounting year, liquidity shortage in view of the hike in the rate of CRR (cash reserve requirement) Statutory Liquidity Ratio (SLR) and central bank's instruction relating to banks' exposure to stock market as major reasons for the ongoing erosion in stock prices. The enhanced CRR has created a liquidity crunch in the market and forced some banks to sell their stocks instead of buying to meet the reserve requirement. The Bangladesh Bank raised the CRR for commercial banks by 50 basis points to six percent, sending financial institutions scrambling for funds. It was also aimed at stopping credit-flow to non-productive sectors. The central bank also issued another directive asking financial institutions to adjust their stock investment exposure by December 2010. From January 2011, no institution will be allowed to invest more than 10 percent of its

total liabilities in the stock market, and the exposure will be calculated based on market price, not cost price. The International Monetary Funds prescription to Bangladesh Bank for addressing the overexposure of commercial banks to the stock market also propelled the unprecedented fall. The SECs excessive initiatives to cool the market in a short time are also blamed for the crash. The measures and unexpected, unnecessary intervention of a donor agency took a big toll on the market. At this steepest fall of stock price, share market investors have lost 20 to 30 percent of their portfolios, with the Dhaka Stock Exchange losing around Tk. 22,000 crore in market capitalization. Small and new investors, who have just entered the market, are the most affected by the plunge as many of the large investors have already withdrawn a significant amount of their investment or booked profit anticipating the huge fall. The recent bubble in the share market gave rise to the fear that the 1996 was returning. In 1996, when the Awami League government was in power, the benchmark index of the DSE soared from 1000 in June to 3627 on November 16 before the market crashed. The market first bubbled and then burst. The general index came down to as low as 484 points in 2000 from 3627 in November 1996. The crash was considered the biggest share scam in the countrys history. It took four years for the market to gain stability after the 1996 crash, with it beginning to rebound in mid-2000. Before the latest crash began, the general index has soared in 29 trading days from 7522 points on October 20 to 8918.51 points on December 5. The money market virtually stopped injecting funds in the capital market while other institutional investors also went for huge selling. When the DSE index started to fall, small investors panicked and went for bulk selling on the day. An intense selling pressure from the institutional investors also pushed down the market, resulting in most of the small investors losing their investment.

Actions Taken by SEC to Rebound the Market

The stock market regulator took initiatives to help the market rebound but their all decisions are seen useless. The Securities and Exchange Commission suspended the computation based on net asset value (NAV) in providing share credit by lenders. According to the NAV-based calculation, a merchant banker or a stockbroker gives loan on the basis of the value of a stock by adding the market value to NAV and dividing the sum by two. The SEC increased the share credit ratio to 1:1.5 from 1:1. It means and investor will get a loan of Tk. 1.5 against shares worth Tk.1. The commission also withdrew a directive on members margin, but it will take effect from January 2, 2011. The SEC on November 25 asked the members or stockbrokers to double their deposits against any additional trade exposure to the capital market in a bid to control the liquidity flow. The regulator also directed the bourses to put the stocks of Grameenphone and Marico Bangladesh back on public market or under normal trading system, instead of spot market transaction.

Conclusion
Since the stock market is volatile market despite of knowing that people enter into this market without having basic knowledge. The presence of insider trading makes the DSE much more volatile because of which small investors are suffering from massive capital loss. Securities and Exchange Commissions late decision making trend leads to such market crash in 1996 and in 2010. When the DSE general index was soaring from the start of 2010 the DSE and SEC both failed to take any decision. As we all know that prevention is better than cure but here SEC is waiting for cure after market crash. Its a time to raise a question about the ability of DSE and SEC members, whether they are capable person for that post? If yes then why they fail to take corrective action in time? Or if no then why they are still in that position? As the capital market is a part of financial system so the failure in this part will ultimately affect the entire financial system. So it is the responsibility of DSE and SCE to protect this capital market which is able to attract the local, foreign institutional and general investors generating huge revenue in the government account.