Stock Market: Bangladesh Perspective

1.0 INTRODUCTION 1.1 Origin of the report:

FIN 453

As part of the Financial Market & Institutions (FIN 453) course requirement, we were assigned to prepare a report on Stock Market. Throughout the report we tried to discover the stock market and we tried to find out its nature in Bangladesh. How the stock market operates, being regulated and functions were the main focus of this report. We have decided to make a report on Stock Market: Bangladesh Perspective.

1.2 Objective of the report:

To learn what stock market is and gain an overall idea about it is the main objective of our report. The projected objectives are given below: Specific objective: To know what stock market is. To identify the functions performed by stock market. To discover how stock market operates. To analyze stock market in Bangladesh. To figure out current situations of Bangladeshi stock market.

1.3 Methodology

1.3.1 Data sources:

Data has been collected from the existing data available on the internet.

Stock Market: Bangladesh Perspective

1.4 Limitations

FIN 453

Limitation of time was one of the most important factors that shortened the present study. Due to time limitation many aspects could not discussed in the present study. Confidentiality of data was another important barrier that was faced during the conduct of this study. Every organization has their own secrecy that in not revealed to others.

1.6 Report Preview

The report contains five parts. Part one is the Introduction part, which includes objective of the report, limitations, and methodology. Part two consists of literature review. Part three contains the overview of stock market, its operations, and functionality. Part four provides overview of Bangladesh stock markets and its current situations. Part five contains a general discussion on the topics covered in the report. Finally, Sixth part consists with justifiable recommendations and conclusion.

Stock Market: Bangladesh Perspective

2.0 Literature Review

FIN 453

Stock Market: Bangladesh Perspective

3.0 Stock Market: An overview 3.1 Stock Market

FIN 453

A stock market or equity market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion at the start of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market capitalization, is the New York Stock Exchange (NYSE). In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Brse (Frankfurt Stock Exchange). In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV.

Stock Market: Bangladesh Perspective

3.2 History of Stock Market

FIN 453

Established in 1875, the Bombay Stock Exchange is Asia's first stock exchange In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common misbelief is that in late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. Italian companies were also the first to issue shares. Companies in England and the Low Countries followed in the 16th century. The Dutch East India Company (founded in 1602) was the first joint-stock company to get a fixed capital stock and as a result, continuous trade in company stock emerged on the Amsterdam Exchange. Soon thereafter, a lively trade in various derivatives, among which options and repos, emerged on the Amsterdam market. Dutch traders also pioneered short selling - a practice which was banned by the Dutch authorities as early as 1610.

Stock Market: Bangladesh Perspective

FIN 453

There are now stock markets in virtually every developed and most developing economies, with the world's largest markets being in the United States, United Kingdom, Japan, India, China, Canada, Germany (Frankfurt Stock Exchange), France, South Korea and the Netherlands.

3.3 Market Participants of Stock Market A few decades ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, usually with long family histories to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (like pension funds, insurance companies, mutual funds, index funds, exchangetraded funds, hedge funds, investor groups, banks and various other financial institutions). The rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the brokers' solid front on fees. (They then went to 'negotiated' fees, but only for large institutions. However, corporate governance (at least in the West) has been very much adversely affected by the rise of (largely 'absentee') institutional 'owners'.

3.4 Functions of Stock Market The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is

Stock Market: Bangladesh Perspective

as real estate.

FIN 453

an attractive feature of investing in stocks, compared to other less liquid investments such

History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up-and-coming economy. In fact, the stock market is often considered the primary indicator of a country's economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison d'tre of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as possibly employment. In this way the financial system is assumed to contribute to increased prosperity.

3.5 Behavior of Stock Market From experience it is known that investors may 'temporarily' move financial prices away from their long term aggregate price 'trends'. (Positive or up trends are referred to as bull markets; negative or down trends are referred to as bear markets.) Over-reactions may occurso that excessive optimism (euphoria) may drive prices unduly high or excessive

Stock Market: Bangladesh Perspective

markets are 'generally' efficient.

FIN 453

pessimism may drive prices unduly low. Economists continue to debate whether financial

According to one interpretation of the efficient-market hypothesis (EMH), only changes in fundamental factors, such as the outlook for margins, profits or dividends, ought to affect share prices beyond the short term, where random 'noise' in the system may prevail. The 'hard' efficient-market hypothesis is sorely tested by such events as the stock market crash in 1987, when the Dow Jones index plummeted 22.6 percentthe largest-ever one-day fall in the United States. This event demonstrated that share prices can fall dramatically even though, to this day, it is impossible to fix a generally agreed upon definite cause: a thorough search failed to detect any 'reasonable' development that might have accounted for the crash. It seems also to be the case more generally that many price movements are not occasioned by new information; a study of the fifty largest one-day share price movements in the United States in the post-war period seems to confirm this. However, a 'soft' EMH has emerged which does not require that prices remain at or near equilibrium, but only that market participants not be able to systematically profit from any momentary market 'inefficiencies'. Moreover, while EMH predicts that all price movement is random, many studies have shown a marked tendency for the stock market to trend over time periods of weeks or longer. Various explanations for such large and apparently nonrandom price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and Value at Risk limits, theoretically could cause financial markets to overreact. But the best explanation seems to be that the distribution of stock market prices is non-Gaussian. Other research has shown that psychological factors may result in exaggerated stock price movements. Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact, just noise. In the present context this means that a succession of good news items about a company may lead

Stock Market: Bangladesh Perspective

confidence, reducing his risk threshold.

FIN 453

investors to overreact positively. A period of good returns also boosts the investor's self-

Another phenomenonalso from psychologythat works against an objective assessment is group thinking. As social animals, it is not easy to stick to an opinion that differs markedly from that of a majority of the group. An example with which one may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer to have their opinion validated by those of others in the group. In one paper the authors draw an analogy with gambling. In normal times the market behaves like a game of roulette; the probabilities are known and largely independent of the investment decisions of the different players. In times of market stress, however, the game becomes more like poker. The players now must give heavy weight to the psychology of other investors and how they are likely to react psychologically. The stock market, as with any other business, is quite unforgiving of amateurs. Inexperienced investors rarely get the assistance and support they need. In the period running up to the 1987 crash, less than 1 percent of the analyst's recommendations had been to sell. In the run up to 2000, the media amplified the general euphoria, with reports of rapidly rising share prices and the notion that large sums of money could be quickly earned in the so-called new economy stock market.

3.6 Investment Strategies for Stock Market One of the many things people always want to know about the stock market is, "How do I make money investing?" There are many different approaches; two basic methods are classified by either fundamental analysis or technical analysis. Fundamental analysis refers to analyzing companies by their financial statements found in SEC Filings, business trends, general economic conditions, etc. Technical analysis studies price actions in markets through the use of charts and quantitative techniques to attempt to forecast price trends

Stock Market: Bangladesh Perspective

FIN 453

regardless of the company's financial prospects. One example of a technical strategy is the Trend following method, used by John W. Henry and Ed Seykota, which uses price patterns, utilizes strict money management and is also rooted in risk control and diversification. Additionally, many choose to invest via the index method. In this method, one holds a weighted or un-weighted portfolio consisting of the entire stock market or some segment of the stock market. The principal aim of this strategy is to maximize diversification, minimize taxes from too frequent trading, and ride the general trend of the stock market.

3.7 Crashes in Stock Market A stock market crash is often defined as a sharp dip in share prices of equities listed on the stock exchanges. In parallel with various economic factors, a reason for stock market crashes is also due to panic and investing public's loss of confidence. Often, stock market crashes end speculative economic bubbles. There have been famous stock market crashes that have ended in the loss of billions of dollars and wealth destruction on a massive scale. An increasing number of people are involved in the stock market, especially since the social security and retirement plans are being increasingly privatized and linked to stocks and bonds and other elements of the market. There have been a number of famous stock market crashes like the Wall Street Crash of 1929, the stock market crash of 19734, the Black Monday of 1987, the Dot-com bubble of 2000, and the Stock Market Crash of 2008. One of the most famous stock market crashes started October 24, 1929 on Black Thursday. The Dow Jones Industrial lost 50 % during this stock market crash. It was the beginning of the Great Depression. Another famous crash took place on October 19, 1987 Black Monday. The crash began in Hong Kong and quickly spread around the world. By the end of October, stock markets in Hong Kong had fallen 45.5 %%, Australia 41.8 %%, Spain 31 %%, the United Kingdom 26.4 %%, the United States 22.68 %%, and Canada

Stock Market: Bangladesh Perspective

FIN 453

22.5 %%. Black Monday itself was the largest one-day percentage decline in stock market history the Dow Jones fell by 22.6 %% in a day. The names Black Monday and Black Tuesday are also used for October 2829, 1929, which followed Terrible Thursdaythe starting day of the stock market crash in 1929. The crash in 1987 raised some puzzles-main news and events did not predict the catastrophe and visible reasons for the collapse were not identified. This event raised questions about many important assumptions of modern economics, namely, the theory of rational human conduct, the theory of market equilibrium and the hypothesis of market efficiency. For some time after the crash, trading in stock exchanges worldwide was halted, since the exchange computers did not perform well owing to enormous quantity of trades being received at one time. This halt in trading allowed the Federal Reserve system and central banks of other countries to take measures to control the spreading of worldwide financial crisis. In the United States the SEC introduced several new measures of control into the stock market in an attempt to prevent a re-occurrence of the events of Black Monday. Computer systems were upgraded in the stock exchanges to handle larger trading volumes in a more accurate and controlled manner. The SEC modified the margin requirements in an attempt to lower the volatility of common stocks, stock options and the futures market. The New York Stock Exchange and the Chicago Mercantile Exchange introduced the concept of a circuit breaker. The circuit breaker halts trading if the Dow declines a prescribed number of points for a prescribed amount of time.

3.8 Instruments of Stock Market Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are exchange-traded funds (ETFs), stock index and stock options, equity swaps, single-stock futures, and stock index futures. These last two may be traded on futures exchanges (which are distinct from stock exchanges

Stock Market: Bangladesh Perspective

FIN 453

their history traces back to commodities futures exchanges), or traded over-the-counter. As all of these products are only derived from stocks, they are sometimes considered to be traded in a (hypothetical) derivatives market, rather than the (hypothetical) stock market. Leveraged strategies Stock that a trader does not actually own may be traded using short selling; margin buying may be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sales. Short selling In short selling, the trader borrows stock then sells it on the market, hoping for the price to fall. The trader eventually buys back the stock, making money if the price fell in the meantime and losing money if it rose. Exiting a short position by buying back the stock is called "covering a short position." This strategy may also be used by unscrupulous traders in illiquid or thinly traded markets to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most stock markets. Margin buying In margin buying, the trader borrows money at interest to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value. In the United States, the margin requirements have been 50 % for many years. A margin call is made if the total value of the investor's account cannot support the loss of the trade. Regulation of margin requirements (by the Federal Reserve) was implemented after the Crash of 1929. Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased.

Stock Market: Bangladesh Perspective

FIN 453

Other rules may include the prohibition of free-riding: putting in an order to buy stocks without paying initially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-days are up) and using part of the proceeds to make the original payment (assuming that the value of the stocks has not declined in the interim).

New issuance Global issuance of equity and equity-related instruments totaled $505 billion in 2004, a 29.8 %% increase over the $389 billion raised in 2003. Initial public offerings (IPOs) by US issuers increased 221 %% with 233 offerings that raised $45 billion, and IPOs in Europe, Middle East and Africa (EMEA) increased by 333 %%, from $ 9 billion to $39 billion.

Stock Market: Bangladesh Perspective

4.0 Stock Market in Bangladesh 4.1 Economy of Bangladesh

FIN 453

The economy of Bangladesh is a rapidly developing market-based economy. Its per capita income in 2010 was est. US$1,700 (adjusted by purchasing power parity). According to the International Monetary Fund, Bangladesh ranked as the 47th largest economy in the world in 2010 in PPP terms and 57th largest in nominal terms, among the Next Eleven or N-11 of Goldman Sachs and D-8 economies, with a gross domestic product of US$269.3 billion in PPP terms and US$104.9 billion in nominal terms. The economy has grown at the rate of 67% p.a. over the past few years. More than half of the GDP belongs to the service sector; a major number of nearly half of Bangladeshis are employed in the agriculture sector, with RMG, textiles, leather, jute, fish, vegetables, leather and leather goods, ceramics, fruits as other important produce.

Economy of Bangladesh
Rank Currency Fiscal year Trade organisations GDP growth GDP per capita GDP by sector Inflation (CPI) Population below poverty line Gini index Labor force 47 Bangladesh Taka (BDT) 1 July - 30 June WTO, WCO, IOR-ARC, SAFTA, D8 Statistics 6% (2010 est.) $1,700 (2010 est. PPP) Agriculture: (18.6%), Industry: (28.6%), Services: (52.8%) (2009 est.) 5.4% (2009 est.) 30% (2011 est.) 33.2 (2005)

73.87 million country comparison to the world: 8

Remittances estimated at $10.9 billion in 2009-10 (2009 est.)

Labor force by occupation Unemployment

Agriculture (45%), industry (30%), services (25%) (2008 est.) 5.1% (2010 est.)

Stock Market: Bangladesh Perspective

Main industries

FIN 453

cotton textiles, jute, garments, tea processing, leather, fish, ocean going ship building, paper and newsprint, cement, chemical fertilizer, light engineering, sugar, cane 107th External $22.93 billion (2010-2011) garments, textiles, jute and jute goods, ships, leather, produce, frozen fish and seafood, pharmaceuticals, ceramics, cement

Ease of Doing Business Rank Exports Export goods Main export partners

US 31.8%, EU 12.9%, Germany 10.9%, UK 7.9%, France 5.2%, Netherlands 5.2%, Kuwait 4.9%, Japan 4.5%
Italy 4.42% (2010) $32 billion (2010-2011) machinery and equipment, chemicals, iron and steel, raw cotton, food, crude oil and petroleum products, China 11.4%, Singapore 9.1%, India 8.5%, Hong Kong 7.1%, Japan 6.5%, U.S 5.1% (2008 est.) $15.23 billion (31 December 2008 est.)

Imports Import goods Main import partners Gross external debt Public debt Revenues Expenses Economic aid Credit rating

Public finances $1.2 billion (June 2008 est.) $19.1 billion (2008-2009 est.) $25.8 billion (2008-2009 est.) $.957 billion (2010 est.) BB- (Domestic) BB- (Foreign) BB- (T&C Assessment) (Standard & Poor's)[2] Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

4.2 Stock Markets in Bangladesh The stock market of Bangladesh is divided in two major markets- i. DSE (Dhaka Stock Exchange), ii. CSE (Chittagong Stock Exchange). A brief discussion about these markets is presented below.

Stock Market: Bangladesh Perspective

4.2.1 DSE

FIN 453

The necessity of establishing a stock exchange in the then East Pakistan was first decided by the government when, early in 1952.It was learnt 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 Bengal, Commerce, Labor And Industries Department at which various aspects of the issue were discussed in detail. Then the central governments proposal regarding the Karachi Stock Exchange opening a branch at Dhaka did not find favor with the meeting who felt that East Pakistan should have an independent stock exchange. It was suggested that Dhaka Narayanganj Chamber Of Commerce & Industry should approach its members for purchase of membership cards t RS.2000 each for the proposed stock exchange. The location of the exchange it was thought should be Dhaka, Narayanganj or Chittagong. An organizing committee was appointed consisting of leading commercial and industrial personalities of the province with Mr. Mehdi Ispahani 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 Gentleman To Become Promoters Of The Exchange With Mr. M 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 Companies Act.1913. The Other 7 Promoters Of The Exchange Were Mr. J M Addision-Scott, Mr. Mhodammed Hanif, Mr. A C Jain, Mr. A K Khan, Mr M Shabbir Ahmed And Mr. Sakhawat Hossin.

Stock Market: Bangladesh Perspective

FIN 453

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 Orr 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 Association 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 Limited 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 22.02.1964 the authorised 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 stoods at Tk.460000 dividend into 230 shares of Tk. 2000 each. However 35 shares out of 230 shares were issued at TK. 80,00,000 only per share of TK. 2000 with a premium of TK. 79,98,000. Although incorporated in 1954, the formal trading was started in 1956 at Narayanganj after obtaining the certificates of commencement of business. But in 1958 it was shifted to Dhaka and started functioning at the Narayangonj chamber building in Motijheel C/A. On 1.10.1957 the stock exchange purchase a land measuring 8.75 Kattah at 9F Motijheel C/A from the Government and shifted the stock Exchange to its own location in 1959. The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its activities are regulated by its Articles of Association rules & regulations and bye-laws along with the Securities and Exchange Ordinance - 1969, Companies Act - 1994 & Securities & Exchange Commission Act - 1993.

Stock Market: Bangladesh Perspective

4.2.1.1 Major Functions Performed by DSE

FIN 453

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.

4.2.1.2 Index Calculation Algorithm by DSE:

(according to IOSCO Index Methodology):

Yesterday's Closing Index X Current M.Cap Current Index = -------------------------------------------------------------Opening M.Cap

Yesterday's Closing Index X Closing M.Cap Closing Index = -------------------------------------------------------------Opening M.Cap Current M.Cap = ( LTP X Total no. of indexed shares ) Closing M.Cap = ( CP X Total no. of indexed shares )

Stock Market: Bangladesh Perspective

There are three indices in the DSE as follows : Sl.No Index Name 1 2 3 DSI (all shares) DGEN (A, B, G & N) DS20 Base Index 350 (as on 01-11-1993) 817.63704 (as on 24-11-2001) 1000 (as on 01-01-2001) SEC directive Remarks

FIN 453

regarding

index was on 17-11-2001

Abbreviations and Acronyms M.Cap - Market Capitalization DSE LTP CP - Dhaka Stock Exchange - Last Traded Price - Closing Price IOSCO - International Organization of Securities Exchange Commissions (IOSCO)

4.2.1.3 Branches of DSE: DSE Head Office: Dhaka Stock Exchange Ltd. Stock Exchange Building 9/F Motijheel C/A Dhaka-1000 Phone: +88-02-9564601, 7175703-11 Fax: +88-02-9564727

Stock Market: Bangladesh Perspective

DSE Branch Offices: DSE Chittagong Office Address: Shafi Bhaban 6, Sheikh Mujib Road Agrabad Commercial Area Chittagong-4100 Phone: Fax: +88-031-2514100 +88-031-2514100

FIN 453

DSE Sylhet Office

Address:

RN Tower Chowhatta Sylhet

Phone: Fax:

+88-0821-2830975 +88-0821-2830975

DSE Khulna Office

Address: City Trade Center (2nd Floor) 75, K.D.A Avenue, Khulna - 9100 Phone: Fax: +88-041-811600 +88-041-811600

DSE Rajshahi Office

Address: Rajshahi Chamber of Commerce & Industry Chamber Bhaban (1st Floor) Station Road, Rajshahi -6100

Stock Market: Bangladesh Perspective

4.2.1.4 Clearing & Settlement Process of DSE:

FIN 453

The Clearing and Settlement module provides the management of trade from the point of entry into the Settlement Pool trade database until it has been delivered, settled and removed from the Settlement Pool. It consists of three major business processes. Clearing: participant trade reporting, affirmation, billing and assigning settlement instructions. Settlement: the process of overseeing that delivery of all instruments to the buyer and payment of all moneys to the seller has occurred before removing the trade from the settlement pool. Regulation 4 of the Settlement of Stock Exchange Transactions Regulation 1998 has been given effect time to time. A new directive was made by SEC dated on 18th March 2003 "Adjusted due position mechanism for settlement of scrip only as provided by regulation 4(1) of settlement of Stock Exchange Transaction Regulations, 1998 shall remain suspended from 19th March 2003 until further order" Here is a complete picture of the settlement system for all of 427 Instruments in Five (5) groups in the Four (4) markets. A Group: Number of Instruments are 338 (150 + 8D + 22M + 158TB), Here D for Debentures, M for Mutual funds & TB for Treasury Bonds (Trading in Public, Block & Oddlot Market with trade for trade settlement facility for scrip only through DSE Clearing House on T+1, T+3 basis). "A" and "DA" are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading Software.

Stock Market: Bangladesh Perspective

FIN 453

The above cycle is valid for A, B, G & N category instruments traded in Public, Block & Odd-lot market. B Group: Number of Instruments are 44(Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). "B" and "DB" are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software. G Group: Number of Instrument is 0 (Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). "G" and "DG" are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software. N Group: Number of Instrument is 11(Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). "N" and "DN" are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

Stock Market: Bangladesh Perspective

FIN 453

Z Group: Number of Instruments are 34(Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+9 basis). "Z" and "DZ" are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

This cycle is valid only for Z group instruments traded in Public, Block & Odd-lot market. Instruments Of All Groups Traded In Spot Market:

The above cycle is valid for A, B, G, N & Z category instruments traded in spot market.

Stock Market: Bangladesh Perspective

Instruments Of Foreign Trades (DVP) Of All Groups:

FIN 453

The above cycle is valid for A, B, G, N & Z category instruments of Foreign trade. * If any instrument declared as Compulsory Spot then Trades of Block and Odd-lot market of that Instrument will be settled like Spot Market. * Howla Charge, Laga Charge & Tax are always payable to DSE at Pay-In date for both Buyer and Seller traded in Public, Block & Odd-lot Market. * Howla Charge, Laga Charge & Tax are always payable to DSE at T+1 day for both Buyer and Seller traded in Spot Market. * Outside-Of-Netted settlement for "A" Group instrument has been withdrawn from 10th Dec 2006. * DVP Trades are Off-Market Settlement (Broker to Broker).

Stock Market: Bangladesh Perspective

SETTLEMENT FOR DIFFERENT CATEGORIES INSTRUMENTS 01) for A group Instruments: Market name Public Trade for Trade System Trade for Trade *

FIN 453

Settlement & Settlement Period T+1 & T+3

Odd + Block Spot

Trade for Trade Trade for Trade

T+1 & T+3 T+0 & T+1

02) For B group Instruments: Market name Public Odd + Block Trade for Trade System Trade for Trade * Trade for Trade Settlement & Settlement Period T+1 & T+3 T+1 & T+3 T+0 & T+1

Spot (Before Book-closer) Trade for Trade

03) For G group Instruments: Market name Public Odd + Block Spot (Before Book-closer) Trade for Trade System Trade for Trade * Trade for Trade Trade for Trade Settlement & Settlement Period T+1 & T+3 T+1 & T+3 T+0 & T+1

04) For N group Instruments:

Stock Market: Bangladesh Perspective

Market name Public Odd + Block Spot (Before Book-closer) Trade for Trade System Trade for Trade * Trade for Trade Trade for Trade

FIN 453

Settlement & Settlement Period T+1 & T+3 T+1 & T+3 T+0 & T+1

* As netting system for shares has withdrawn, for A, B, G & N group instrument, member will have to deposit the full shares at the DSE on T+1 after selling the shares, In case of purchasing such shares, the buyer will have to deposit the Balanced (Netted) money traded in Public, Block & Odd-lot market at the DSE on T+1. 05) For Z group Instruments: Market name Public Odd + Block Spot (Before Book-closer) Trade for Trade System Trade for Trade * Trade for Trade Trade for Trade Settlement & Settlement Period T+1 & T+9 T+1 & T+9 T+0 & T+1

** Under the Trade for trade settlement system, member will have to deposit the full money at the DSE on T+1 after purchasing the shares, In case of selling such shares, the seller will have to deposit the full shares at the DSE on T+9. DEMATE SHARE: All selling shares have to transfer (Pay in) to the clearing account of selling Brokers from concerned BO account within settlement period. Regarding the cash payment the procedure will remain unchanged as mentioned above.

Stock Market: Bangladesh Perspective

Price Monitoring

FIN 453

The functioning of the Price Monitoring is broadly divided into following activities -

On line Surveillance One of the most important tools of the Surveillance is the On-line Real Time Surveillance system with main objectives of detecting potential market abuses at a nascent stage to reduce the ability of the market participants to unduly influence the price and volumes of the scrips traded at the Exchange, improve the risk management system and strengthen the self regulatory mechanism at the Exchange. The system provides facility to access trades and orders of members. Off-Line Surveillance The Off-Line Surveillance system comprises of the various reports based on different parameters and scrutiny thereof

High/ Low Difference in prices % change in prices over a week/ fortnight/ month Top N scrips by Turnover over a week/ fortnight/ month Top N scrips by Volume over a week/ fortnight/ month Trading in infrequently traded scrips Scrips hitting New High / Low etc.

The Surveillance actions or investigations are initiated in the scrips identified from the above-stated reports.

Stock Market: Bangladesh Perspective

Investigations

FIN 453

Conducting in-depth investigations based on preliminary enquiries/analysis made into trading of the scrip. In case of irregularities observed, necessary actions are initiated or investigation case forwarded to SEC, if necessary through the CEO.

Surveillance Actions

Warning to Members The department may issue verbal/ written warning to member/s when market irregularities in the scrip are suspected.

Imposition of penalty/ suspension The department, through the CEO, imposes penalty or suspend the member/s who are involved in market irregularities, based on the input/ evidence available from investigation report.

Rumor verification

Liaising with Compliance Officers of companies to obtain comments of the company on various price sensitive corporate news items appearing in selected News Papers.

Comments received from the companies are disseminated to the market by way of online news bulletin.

Investigations based on rumor verifications are carried out, if required, to detect cases of suspected insider trading.

Stock Market: Bangladesh Perspective

Position Monitoring

FIN 453

The Surveillance Department closely monitors outstanding exposure of members on a daily basis. For this purpose, it observes various off-line and on-line market monitoring reports. The reports are scrutinized to ascertain whether there is excessive purchase or sale position build up compared to the normal business of the member, whether there are concentrated purchases or sales, whether the purchases have been made by inactive or financially weak members and even the quality of scrips is considered to assess the quality of exposure. The following key areas are examined to assess the market risk involved -

Online monitoring of Brokers Position Surveillance closely monitors brokers gross turnover exposure for ensuring margin calls in time.

B/S Statement of Trading Members Scrutinizing the statement on daily basis. It is for keeping a watch on the exposure of the members & ascertains the quality of exposures. A detailed report on the net outstanding positions of top purchasers and top sellers in individual scrips, is prepared, if considered necessary.

Stock Market: Bangladesh Perspective

Concentrated B/S

FIN 453

It is considered a risky issue. In case, such a situation is noticed, fundamentals of the scrips, their daily turnover, and their nature of transactions are ascertained. Thereafter, based on the market risk perception appropriate surveillance actions are taken.

B/S of scrips having thin trading It is closely scrutinized as comparatively high market risk is involved in trading in such scrips. Details of trades in such scrips, if necessary, are called from members to assess the market risk involved & decide on the appropriate surveillance action.

Verification of Institutional Trade The institutional trades executed by the trading members are verified to ascertain the genuineness of trades.

Verification of Foreign Trade The foreign trades executed by the trading members are verified to ascertain the genuineness of trades.

Verification of Cross Reporting Trade The report crossing trades executed by the trading members are verified to ascertain the genuineness of trades.

Stock Market: Bangladesh Perspective

FIN 453

Verification of Dealers own trades Trades executed by the trading members (Dealers) are verified to ascertain the genuineness of trades.

Verification of Sponsor's Trade The Sponsors trades executed by the trading members are verified to ascertain the genuineness of trades.

Snap Investigation To carry out, wherever considered necessary, preliminary investigation of certain dealings to verify irregularities. Further actions, viz., referring the case for detailed investigation, referring the case to the Sec, depending on the findings of preliminary investigation.

Market Intelligence The rumors floating in the market are verified with the data available with DSE,Newspapers, Television news channels & Reuters to ascertain the national & global factors affecting the market sentiments. This enables the Exchange to avert market problems before it causes a serious damage.

Stock Market: Bangladesh Perspective

Review Block Trades To determine

FIN 453

Whether the block was executed at a price, even if at a discount or premium which was in line with other trading of the stock.

Whether there was any news on the company which caused the price increase or decrease subsequent to the block transaction.

Review List of Settlement Failures To identify

broker/s with frequent failures A particular stock with a pattern

Verify Company Accounts To scrutinize company announcements, company reports, auditors qualifications & other notes of special interests in the published accounts of such company.

Review Media Information To scrutinize press articles or other media on the daily basis, the news relevant to the share prices of companies.

Stock Market: Bangladesh Perspective

Monitoring on Newly Listed Stock

FIN 453

To review all activities of a newly listed stock for the first 1 / 2 weeks to identify any abnormal deal.

Develop Good Liaison To develop & maintain good liaison with staff members of SEC & listed companies & member firms as well.

4.2.2 CSE: The Chittagong Stock Exchange (CSE) began its journey in 10th October of 1995 from Chittagong City through the cry-out trading system with the promise to create a state-ofthe art bourse in the country. Founder members of the proposed Chittagong Stock Exchange approached the Bangladesh Government in January 1995 and obtained the permission of the Securities and Exchange Commission on February 12, 1995 for establishing the country's second stock exchange. The Exchange comprised of twelve Board members, presided by Mr. Amir Khosru Mahmud Chowdhury (MP) and run by an independent secretariat from the very first day of its inception. CSE was formally opened by then Hon'ble Prime Minister of Bangladesh on November 4, 1995.

Stock Market: Bangladesh Perspective

4.2.2.1 Mission of CSE:

FIN 453

The Chittagong Stock Exchange believes that a dynamic, automated, transparent stock exchange is needed in Bangladesh. It works towards an effective, efficient and transparent market of international standard to serve and invest in Bangladesh in order to facilitate the competent entrepreneurs to raise capital and accelerate industrial growth for overall benefit of the economy and keep pace with the global advancements.

4.2.2.2 Objectives of CSE:

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

4.2.2.3 Milestones of CSE: 12th February 1995 1st April 1995 10th October 1995 1st January 1996 2nd June 1998 Bangladesh Government approved CSE Incorporated as a limited company Floor Trading started Became corresponding member of World Federation of Exchanges (Former FIVB) First bourse to automate the nationwide trading system

Stock Market: Bangladesh Perspective

1999 16th January 2000 26th January 2004 30th May 2004 4th July 2004 Established CSE Investor Protection Fund Convened SAFE Sponsored Central Depository Bangladesh Ltd. (CDBL) Internet Trading Service opened Over- the-Counter market opened

FIN 453

4.2.2.4 Legal Basis of CSE:

As legal entity CSE is a not-for-profit public limited company. All of its 129 members are corporate bodies. It has a separate secretariat independent of policymaking Board. The Board comprises of brokers and non-brokers directors with equal proportion to ensure the transparency.

The Board constituted Committees to delegate such functions and authority as it may deem fit. There is an independent secretariat headed by a full time Chief Executive Officer. CSE activities are regulated by its own regulations and bye laws along with the rules, orders and notification of the SEC.

4.2.2.5 Regulatory Structure Overview of CSE:

Stock Market: Bangladesh Perspective

4.2.2.6 Organization Structure of CSE:

FIN 453

4.2.2.7 Trading System of CSE: The Chittagong Stock Exchange was the first stock exchange in the country to introduce automated trading system on June 1999. The trading system at CSE known as CHITTRA connected major cities of Bangladesh enabling all members to trade nation wide simultaneously with ease and efficiency. CHITTRA provides a screen based, quote-driven trading facility. Investors are allowed to quote an expected price in their buy/sell orders. CHITTRA automatically matches the best prices.

Order Matching Mechanism In terms of the matching process, there are two methods 1. Orders are sorted and matched with opposite orders of the best price. Waiting orders are automatically in the following sequence keeping the system fair and transparent:

Best Price Within Price, by time priority.

Stock Market: Bangladesh Perspective

FIN 453

The best buy order will match with the best sell order. The best buy order for a seller is the one with highest price and the best sell order for a buyer is the one with lowest price. An order may match partially with another order resulting in multiple trades. 2. Orders are queued for matching at a specified time at a single price. Subsequent to matching, trade confirmations are sent to the respective workstations, which can be printed on-line. The system displays scrip and market-related information required to support traders. TRADING ORDERS CSE trading system provides immense flexibility to the investors in terms of kinds of orders that can be placed to trade. The system allows the user to modify or cancel an order prior to execution. The most frequently order on the CSE is the "limit order, which is an order to buy or sell at a specific price. Conditions related to time can be easily made into a limit order, which are as follows Good Till Cancelled (GTC): A GTC order is the order that remains in the system for a period not exceeding one calendar week or the member cancels it. Good For Day (GFD): A GFD is the order, which is valid for the day on which it is entered. If the order is not matched during the day, the order gets cancelled automatically at the end of the trading day. Good Till Date (GTD): A GTD order allows the member to specify the number of days not exceeding one calendar week for which the order shall stay in the stay in the system. At the end of this period the order shall be deleted from the system. In addition to limit order, the Exchange has introduced other following types of orders for the investors

Stock Market: Bangladesh Perspective

security at the best price or prices prevailing in the market at that point of time. Volume related conditional market orders are following categories:

FIN 453

1. Market order: Market Order is an order to buy or sell a certain quantity of particular

Full Fill or Kill (FOK): A FOK order is the order that will match for a trade at the Market Price only if the total quantity is available. Partial Fill Rest Kill (PFRK): A PFRK order is the order that will match for a trade at the Market Price for the quantity available in the market. The balance quantity, if any, will be deleted from the system. Partial Fill Rest Convert (PFRC): A PFRC order is the order that will match for a trade at the market price for the quantity available in the market. The balance quantity, if any, will be converted to a Limit Order at the last traded price. Minimum Fill: An order in which the minimum quantity must be filled. 2. Drip Feed Order: A Drip Feed Order is an order in which the member has the option to specify a replenish quantity along with the total order quantity. Only the replenish quantity is revealed to the market. The quantity gets replenished only when the previous quantity has got traded and every time the quantity gets replenished, the visible quantity gets a new time stamp. 3. Stop Loss Order: A Stop Loss Order allows the member to place an order, which gets activated only when the market price of the relevant security reaches or crosses trigger price. A stop loss order can be modified or deleted until it is not converted to a limit order. 4. Match at Closing Price Order: A Match at Closing Price Order allows the Member to specify order to be executed at Closing Price.

Stock Market: Bangladesh Perspective

FIN 453

5. Spot Order: Members shall be allowed to carry out spot order on CSE system arising out of closure of book or closure of the renunciation period of listed Companies. A spot order is traded against another spot order only. 6. Odd Lot Order: Any share quantity, which is not a market lot or multiple of market lots shall be called Odd Lot. While matching the system would match orders only if the quantity (odd) of the order is fully satisfied by one of the opposite order. 7. Bulk lot order: Bulk lot orders are multiple of market lot orders, which contain multiple number of certificates. Each of the Bulk lot order shall match with equal quantity and best price. The minimum amount for a bid of bulk lot for a certain security shall be Tk 0.5 ( point five) million at market price unless otherwise fixed by the Board time to time with the approval of the SEC. 8. Big Lot Order: Big lots are multiple of market lots inscribed in one single certificate. Each of the big lot order shall match with equal quantity and equal or better price. 9. Auction Order: Auction Order shall be an order entered by CSE. The Exchange will specify a rate with price brand for each security when putting the auction order. The auction orders entered by CSE cannot be modified or deleted once the auction session has started.

4.2.2.8 Opening & Closing Price Calculation of CSE: Computation of opening price of scrips: The opening price of a security shall be the price at which maximum number of securities is matched in opening session.

Stock Market: Bangladesh Perspective

Computation of closing price of scrips:

FIN 453

The closing prices of scrips are computed on the basis of weighted average price of all trades in the last 30 minutes of the continuous trading session. However, if there is no trade during the last 30 minutes, the weighted average price of maximum 50 (fifty) number of trades preceding the above 30(thirty) minutes shall be taken for determination of closing price. In case there is no trade in the security during the continuous trading session the opening price of the security shall be treated as the closing price. Price Limit Price Limit means a price control mechanism used to minimize the excessive volatility in the market. Since unusual and abnormal price fluctuation of the securities may severely affect investors interest CSE , as an additional measure of safety ,imposes price limit on the securities trading of A,B,G& N category companies as per the following guidelines. A Committee named Share Price Movement Regulating Committee comprised of CSE Secretariat is responsible to regulate the price limit in the market.

4.2.2.9 Guidelines of CSE: The following standard upward and downward price limits are applicable for A, B G & N category companies for each market days:

Previous days per share market Limits price 01. Upto Tk. 200 02. Tk.201 to Tk.500 20% (Twenty Percent ) but not exceeding Tk.35 17.5% (Seventeen Point Five Percent ) but not exceeding Tk.75

Stock Market: Bangladesh Perspective

03. Tk.501 to Tk. 1000 04. Tk.1001 to Tk. 2000

FIN 453

15% (Fifteen Percent ) but not exceeding Tk.125 12.5% (Twelve Point Five Percent ) but not exceeding Tk.200

05. Tk.2001 to Tk.5000 06. Tk.5001 and above

10% (Ten Percent ) but not exceeding Tk.375 7.5% (Seven Point Five Percent ) but not exceeding Tk.600

However the above price limit will not be applicable in the following cases: 1. There is no price limit for Z category companies. Free trade of Z category is allowed for each market day. However, for Z category shares Circuit Filter @10% is applicable and the circuit filter is calculated on the basis of last traded price of the shares of this category during trading hours 2. A newly listed securities is allowed for free trade for first 5(five) consecutive market days. 3. Free trade is also allowed on the subsequent trading day of receiving price sensitive information like rights issue, bonus issue and dividend from the listed company. After the day, the price limit will be applicable as usually. 4. Free trade is allowed on the first trading day subsequent to the record date from 12.00 noon to the rest of the trading hours of the day due to closure of transaction resulting from record date/book closure date.

Stock Market: Bangladesh Perspective

4.2.2.10 Margin Requirements with CSE:

FIN 453

The CSE put in place a comprehensive risk management system, which is constantly monitored to pre-empt any trading failures. It collect margins from members to address the problems related to the volatile trading activities as well as to settlement failure. CSE imposes margin requirements on the members additional trade exposure. Additional trade exposure means the amount of the aggregate (gross) trade exposure exceeding the free limit for each member. Aggregate (gross) trade exposure is computed on the total buys and total sales position of a member at any point of time during a trading day. The free limit on the amount of the gross trade exposure to trade in CSE is taka one crore per trading day. The member shall pay the margins in cash, bank guarantee or FDRs etc. within one hour of exceeding the free limit on the amount of the gross trade exposure. As per Chittagong Stock Exchange (Members Margin) Regulations,2000 the rate of depositing the members margin with the clearing house on the additional trade exposure are as follows:-

ADDITIONAL TRADE EXPOSURE

MEMBERS MARGIN RATE

(a) Above taka one crore but not exceeding taka two crore @ 20% (b) Above taka two crore but not exceeding taka three crore @30% (c) Above taka three crore but not exceeding five crore (d) Above taka five crore @50% @100%

Exposure limit violation The trading right of the members who exceeds the free limit without depositing margin to CSE within the prescribed time shall remain suspended.

Stock Market: Bangladesh Perspective

Adjustment or refund of members margin :-

FIN 453

The Exchange can realizes the value of the margin instruments and adjusts the amount so realized if member fails to settle his trade with the clearing house on the settlement day. The member shall be liable to pay the shortfall, if any, including the costs, interest, charges and expenses involved in the realization process, within three days of the written notice of demand issued to him by the Exchange.

4.2.2.11 Transaction on Client by Margin: A member may provide broker service to its client on cash account and /or margin account basis. Client who pays in full for the cost of the securities purchased uses cash accounts. Margin is buying securities on credit while using those same or other securities as collateral for the loan. A client is authorized to borrow part of an investments total purchase cost from their brokerage firm using margin accounts. Brokers have policies and procedures to protect themselves from market risk, as well as credit risk. As per Margin Rules, 1999 the member in no way extends credit facilities to its client until and unless the client maintains margin account with the broker through a written agreement. The client needs to carefully review the margin agreement provided by broker. The client shall deposit margin not later than seven days from the first date of securities transaction in the form of cash, securities issued by the Government or its agencies, marginable securities etc. The amount of the initial margin would result in the equity being not less than 150% of the debit balance in the account. Additional margin is required to be deposited if the account falls below 150% of the debit balance. The failure to do so may cause the broker to force the sale ofor liquidatethe securities in the clients account in order to bring the accounts equity back up to the required level.

Stock Market: Bangladesh Perspective

of transactions in the account and the interest charges to the customer. Risks Involved With Trading on Margin

FIN 453

The firm must also provide the customer with periodic disclosures informing the customer

As a client anyone may generally use margin to expand the purchasing power. However it also run the risk there are a number of risks that all investors need to consider in deciding to trade securities on margin. These risks include the following:

Lose more funds than deposited in the margin account: A decline in the value of securities that are purchased on margin may require to provide additional funds to the broker that has made the loan to avoid the forced sale of those securities or other securities in the account.

The broker can sale of securities in the account: The broker can sell the securities in the account to cover the margin deficiency. Investor will also be responsible for any short fall in the account after such a sale.

The broker can sell investors securities without contacting him: Some investors mistakenly believe that a broker must contact them for a margin call to be valid. As a matter of good customer relations, most broker will attempt to notify their client but they are not required to do so.

Investor is not entitled to an extension of time to deposit the margin: An extension of time to meet initial or additional margin requirements may not be available to investor.

INTERNET TRADING SERVICES CSE is not only the pioneer of establishment of nationwide trading mechanism. It also extended its network to the abroad by introducing Internet Trading System on 30th May 2004. Investors may have access to CSEs trading network not only from the premises of the brokers but also from personal computers in investors home through the Internet.

Stock Market: Bangladesh Perspective

FIN 453

Internet trading is available on CSE. The CSE network allows its user to use internet as an order routing system for communicating clients orders to the CHITTRA through brokers. Broker can provide this service to their client after obtaining permission from respective stock exchanges. CSE has stipulated the minimum conditions to be fulfilled by brokers to start Internet based trading services.

4.3 Recent Fall Out in Stock Markets of Bangladesh

Reuters Investors add bamboo poles to a fire as they block roads around the Dhaka Stock Exchange in Dhaka January 10, 2011. Bangladesh police fired tear gas and water cannon to break up violent protests by investors on Monday after stock trading was halted when prices went into free fall.

Stock Market: Bangladesh Perspective

FIN 453

Reuters Investors vandalize a car as they block roads around the Dhaka Stock Exchange in Dhaka January 10, 2011.

Stock Market: Bangladesh Perspective

FIN 453

Reuters Investors chant slogans accusing dishonest brokers and traders of manipulating stock prices as they block roads around the Dhaka Stock Exchange in Dhaka January 10, 2011.

Stock Market: Bangladesh Perspective

5.0 Discussion

FIN 453

Trading on the Dhaka Stock Exchange index was halted after it fell by 660 points or 9.25%, in less than an hour in 9th January 2011. It was the biggest one-day fall in its 55-year history. It is estimated that over three million people - many of them small-scale individual investors - have lost money because of the plunging share prices. The benchmark index had climbed by 80% in 2010 but has lost more than 27% since early December. Investors and police also clashed last month. Monday's protest followed losses of about 6.7% in Sunday trading. Trading was also halted on the country's other main index, the Chittagong Stock Exchange. There was also violence in the port city of Chittagong - which has its own exchange.The rising value of the stocks in recent years has attracted millions of investors in Bangladesh. Shares have become a popular investment for ordinary people, often providing higher returns than bank deposits and savings. The BBC's Mark Dummett says that Bangladesh might be one of Asia's poorest countries, but its two stock markets have soared in recent years on the rising value of its mobile telephone companies and other firms.

Stock market graph by DSC

Stock Market: Bangladesh Perspective

FIN 453

After having gained by about 80 percent during the year 2010, Dhaka Stock Exchange has shown an unprecedented nose-dive on Sunday. The Stock Market lost 660 points (9.25 %) in just one hour. As a result the trading suffered a loss of about 6.7 percent. Chittagong Stock Market also met a similar fate. An abrupt crash of the market sparked violent protests from the Bangladeshi investors. Investment in the stocks is a popular business among the educated middle class of Bangladesh who were left frustrated with the sudden loss to their capital. They were finding ways and means to exit from the market in order to minimize the losses. The analysts have opined that the immediate reason for this crash was the policy of the regulators of the market who laid down a limit for investment by the banks and other financial institutions in the stocks. This was done in order to avoid the market being overvalued. As the banks and other big investor institutions withdrew the capital from the market, the panic ensued. The analysts have opined that the immediate reason for this crash was the policy of the regulators of the market who laid down a limit for investment by the banks and other financial institutions in the stocks. This was done in order to avoid the market being overvalued. As the banks and other big investor institutions withdrew the capital from the market, the panic ensued. Price manipulation and lack of knowledge are most major problems also. The government of Bangladesh may be under pressure to intervene in order to protect the hard earned money of the small investors from being lost due to this unusual crash of the stock market. Stock price was also slightly influenced by the some key people of government. There is also some false news from some company behind this problem. However by this time of January 2010, Investors, who have not received any positive assurance from the government, demanded the market remain shut until the prime minister takes up the issue and comes up with a solution to restore confidence in the market and the regulators suspended six trading houses on the main Dhaka Stock Exchange.

Stock Market: Bangladesh Perspective

6.0 Recommendation & Conclusion 6.1 Recommendation
Regulators should inquiry about given news from the company Governmental body should not give any sensitive statement about stock-market Regulators should develop rules and regulation regularly to tackle problems Activities should transparent as much as possible

FIN 453

SEC, Bangladesh Bank, Central Bank and Regulators of Stock-market and other related authorities should be under strong co-ordination Government, trading houses and related agencies should conduct learning program for investors Investors should study about all types of factors Investors should aware of rumor Investors should invest creating portfolio

Stock Market: Bangladesh Perspective

References:

FIN 453

http://www.bdstock.com/ http://www.dsebd.org/ http://www.bworldonline.com/content.php?section=StockMarket&title=Stoc ks-likely-to-rebound-as-worries-ease&id=38447 http://en.wikipedia.org/wiki/Stock_Market http://en.wikipedia.org/wiki/Chittagong_Stock_Exchange www.csebd.com/ http://www.bangladeshtrades.com/stock-exchange-market.html http://www.spotlightofpeace.com/finance/bangladesh-stock-market-facesbiggest-crash-in-55-years/ http://www.thefinancialexpressbd.com/more.php?news_id=124682&date=2011-02-02 http://www.thetotalcollapse.com/stock-market-crash-in-bangladesh/ http://english.peopledaily.com.cn/90001/90777/90851/7270000.html http://www.newstoday.com.bd/index.php?option=details&news_id=18433&d ate=2011-01-25