The document provides an overview of the capital market in Bangladesh, including: 1. It defines the capital market and describes its key functions of allowing companies and governments to raise long-term funds. 2. It outlines the structure of the capital market in Bangladesh, which includes two stock exchanges (Dhaka Stock Exchange and Chittagong Stock Exchange) and a securities regulator. 3. It discusses some challenges facing the Bangladesh capital market, including a lack of supply of fundamentally sound shares causing overheating situations and overpricing.

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CChh[[pptt__rr 11
CONTEXT
1.0 Introduction
Capital Market mainly refers to the Stock and Share market of the country. When bank-
ing system cannot totally meet up the need for funds to the market economy, capital
market stands up to supplement it. Companies and the government can raise funds for
long-term investments via the capital market. The capital market includes the stock
market, the bond market, and the primary market. Securities trading on organized cap-
ital markets are monitored by the government; new issues are approved by authorities
of financial supervision and monitored by participating banks. Thus, organized capital
markets are able to guarantee sound investment opportunities. This paper reveals the
various aspects of the Capital Market in Bangladesh.
1.1 Objectives
Capital market, being an essential element of today’s economy, demands an intensive
and special attention. The objective of this study is to look into every aspect of Bangla-
desh capital market and identify its various pros and cons along with some recommen-
dations to overcome the existing problems.
The specific objectives of this study are:
To give an overall idea about the capital market-its structures, functions, impor-
tance, etc.
To identify the current situations of our capital market of Bangladesh.
To compare the relative conditions of Bangladesh capital market to other coun-
tries of the world.
To sort out the problems associated with our capital market.
To suggest some practicable solutions to these problems.
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1.2 Methodology
Secondary data and information were used in preparing this seminar paper, and these
were collected through teamwork by adopting the following processes:
■ Visiting in person, the following organizations and respective key personnel:
Dhaka Stock Exchange (DSE)
Dhaka Chamber of Commerce (DCC)
Bangladesh Bank (BB)
Monetary Policy Department (MPD), BB
■ Consulting books from different libraries of:
Bangladesh Institute of Development Studies (BIDS)
Dhaka Chamber of Commerce (DCC)
Bangladesh Bank (BB)
Other Books
1.3 Literature review
Keeping the objectives in mind of the present study, we had reviewed the existing lite-
ratures. The Capital Market Development in Bangladesh: problems and prospects (Mah-
mood Osman Imam, October 5, 2000), Capital Market: An Overview (Md. Hasan Imam,
2005), An Overview of Bangladesh Capital Market (AZM Nazimuddin, 2007), Emerging
Stock market and the Economy: The Case of Bangladesh (Ahmed, M. Farid, 2000), Equity
Market Performance in Bangladesh: An Evaluation Savings and Development (Ahmed.
M.Farid, 1998), The Stock market and the Economy: The Indian Experience (Mookerjee.
R., R., 1981), Foreign Portfolio Investment: Return. Growth, Determinants and Monitoring
- A Critical Analysis (Nafisa H., 1998), Financial deepening in Economic Development
(Shaw. E., 1973), Fostering Investor Confidence in the Asian and Pacific Capital Markets
(Tarumizu, K., 1993). Dhaka Stock Exchange Monthly Review, (September, 2011), Finan-
cial Markets and Institutions (Jeff Madura, 2008) are some of the studies that helped us.
However, although these studies offered various insights into the dynamics of the cur-
rent capital market of Bangladesh, their extent of point of discussion are different and
reviewed from different aspects. In this paper we have tried to compile and explain all
the relevant information to make the paper successful.
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1.4 Limitations of the study
While conducting the study, we were confronted with the following limitations:
There was a little scope for research on this crucial subject as all the data was
secondary and no way to collect primary data was available.
Lack of a wider coverage due to time constraint. We did not have much time to
visit all the relevant places and meet respective personnel.
Only secondary data was used, but there is no alternative of primary data to en-
sure the accuracy and effectiveness of the study.
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CChh[[pptt__rr 22
CAPITAL MARKET IN BANGLADESH
2.1 Definition
Capital market can be termed as the engine of raising capital, which accelerates indu-
strialization and the process of privatization. In other words, capital market means the
share and stock markets of the country. It is a market for long term fund. With the
emergence of the need for infrastructural development projects, for setting up of new
industries for entrepreneurial attempts-now there are more frequent needs of funds.
Participants in the capital markets are many. They include the commercial banks, sav-
ing and loan associations, credit unions, mutual saving banks, finance houses, finance
companies, merchant bankers, discount houses, venture capital companies, leasing
companies, investment banks & companies, investment clubs, pension funds, stock ex-
changes, security companies, underwriters, portfolio-managers, and insurance compa-
nies.
2.2 Functions
The functioning of an efficient capital market may ensure smooth floatation of funds
from the savers to the investors. When banking system cannot meet up the total need
for funds to the market economy, capital market stands up to supplement. To put it in a
single sentence, we can therefore say that the increased need for funds in the business
sector has created an immense need for an effective and efficient capital market. It faci-
litates an efficient transfer of resources from savers to investors and becomes conduits
for channeling investment funds from investors to borrowers. The capital market is
required to meet at least two basic requirements: (a) it should support industrialization
through savings mobilization, investment fund allocation and maturity transformation
and (b) it must be safe and efficient in discharging the aforesaid function. It has two
segments, namely, securities segments and non-securities segments.
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2.3 Classification of companies
The SEC classified firms in terms of A, B, G, N and Z categories that had not only guided
retail investors to know weak shares but also helped reducing netting and gambling
done by a few hidden consortia.
■ “A” Category Companies: Companies which are regular in holding the Annual
General Meetings (AGM) and have declared dividend at the rate of 10 percent or
more in a calendar year. (Mutual fund, debentures and bonds are being traded in
this category).
■ “B” Category Companies: Companies which are regular in holding the AGM but
have failed to declare dividend at least at the rate of 10 percent in a calendar
year.
■ “G’ Category Companies: Greenfield companies.
■ “N’ Category Companies: All newly listed companies except Greenfield companies
will be placed in this category and their settlement system would be like
B-Category companies.
■ “Z’ Category Companies: Companies which have failed to hold the AGM or failed
to declare any dividend or which are not in operation continuously for more
than six months or whose accumulated loss after adjustment of revenue reserve,
if any is negative and exceeded its paid up capital.
2.4 Importance of Capital Market in the economy
The capital market is the market for long-term loans and equity capital. Developing
countries in fact, view capital market as the engine for future growth through mobiliz-
ing of surplus fund to the deficit group. An efficient capital market may perform as an
alternative to many other financing sources as being the least cost capital source. Espe-
cially in a country like ours, where savings is minimal, and capital market can no won-
der be a lucrative source of finance.
The securities market provides a linkage between the savings and the preferred in-
vestment across the business entities and other economic units, specially the general
households that in aggregate form the surplus savings units. It offers alternative in-
vestment windows to the surplus savings units by mobilizing their savings and channe-
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lizes them through securities into optimal destinations. The stock market enables all
individuals, irrespective of their means, to share the increased wealth provided by
competitive enterprises. Moreover, the stock market also provides a market system for
purchase and sale of listed securities and thereby ensures liquidity (transferability of
securities), which is the basis for the joint stock enterprise system. (The existence of the
stock market makes it possible to satisfy simultaneously the needs of the firms for cap-
ital and of investors for liquidity.) Especially at times when the banking sector of the
country is facing the challenge of bringing down the advance-deposit ratio to sustaina-
ble level, the economy of the country is unfolding newer horizon of opportunities. Due
to over-exposure level of the financial system the securities market could play a very
positive role, had there been no market debacle. Due to the last market crash and follow
through events, it will be difficult to utilize the primary market to raise significant vo-
lume of funds. Thus the greatest economic importance of securities market at this point
can be understood from the opportunities being lost. Bangladesh having its target to
become a middle income country must have significant level of rise in investment,
which at the present state of banking system cannot be met. The securities market
could play the key role in meeting these huge investment demands if the secondary
market would remain stable.
The capital market also helps increase savings and investment, which are essential for
economic development. An equity market, by allowing diversification across a variety
of assets, helps reduce the risk the investors must bear, thus reducing the cost of capi-
tal, which in turn spurs investment and economic growth. However, volatility and mar-
ket efficiency are two important features which will ultimately determine the effec-
tiveness of the stock market in economic development. If a stock market is inefficient
due to insufficient informational supply, investors face difficulty in choosing the optim-
al investment as information on corporate performance is slow or less available. The
resulting uncertainty may induce investors either to withdraw from the market until
this uncertainty is resolved or discourage them to invest funds for long term. Moreover,
if investors are not rewarded for taking on higher risk by investing in the stock market,
or if excess volatility weakens investor’s confidence, they will not invest their savings in
the stock market, and hence deter economic growth. The emerging stock markets offer
an opportunity to examine the evolution of stock return distributions and stochastic
processes in response to economic and political changes in these emerging economies.
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7. 2.5 Structure of the Capital Market
Bangladesh capital market is one of the smallest in Asia but within the south Asian r
gion, it is the third largest one. It has two full
namely Dhaka Stock Exchange
change oper-
ated by CSE. It
also consists of
a dedicated
regulator, the
Securities and
Exchange
Commission
(SEC), since, it implements rules and regulations, mon
and develop the capital.
It consists of Central Depository Bangladesh Limited (CDBL), the only Central Dep
tory in Bangladesh that provides facili
rialized securities in CSE market and DSE.
2.6 Bangladesh Stock Market
Amid all the formidable obstacles
momentum. Even in the backdrop of Global Financial Crisis 2008 when the stock ma
kets in almost all the developed and developing countries crashed and Gover
those countries spent thousands of dollars t
mension in Bangladesh capital market has been becoming gradually strong and secur
ties market registered significant growth at the initial stage and later market fell a little
bit. The reason is might be that the amou
market is more or less only two per
shares has been causing overheating situation and circumstance like overpricing has
been a common phenomenon here in recent
Tk. of 250 crore two years ago to
to record 8,918 from 2,400 two years back. But demand and supply should match at a
certain point to the tune of bringing time
Figure 1: Structure of Capital Market of Bangladesh
Dhaka Stock
Exchange (DSE)
Structure of the Capital Market in Bangladesh
Bangladesh capital market is one of the smallest in Asia but within the south Asian r
gion, it is the third largest one. It has two full-fledged automated stock exchanges
Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE) and an
(SEC), since, it implements rules and regulations, monitors their implications to o
It consists of Central Depository Bangladesh Limited (CDBL), the only Central Dep
tory in Bangladesh that provides facilities for the settlement of transactions of d
rialized securities in CSE market and DSE.
Bangladesh Stock Market
obstacles, our country’s securities market has been gaining
momentum. Even in the backdrop of Global Financial Crisis 2008 when the stock ma
kets in almost all the developed and developing countries crashed and Gover
those countries spent thousands of dollars to rescue the markets. Both depth and d
mension in Bangladesh capital market has been becoming gradually strong and secur
ties market registered significant growth at the initial stage and later market fell a little
that the amount of foreign portfolio in Bangladesh securities
et is more or less only two percent. But lack of supply of fundamentally sound
shares has been causing overheating situation and circumstance like overpricing has
been a common phenomenon here in recent times. Transaction has risen from a daily
of 250 crore two years ago to Tk. 2,500 crore now and DSE General Index has risen
to record 8,918 from 2,400 two years back. But demand and supply should match at a
certain point to the tune of bringing time-bound balance in the securities market.
Figure 1: Structure of Capital Market of Bangladesh
Capital Market
of Bangladesh
Dhaka Stock
Exchange (DSE)
Chittagong
Stock Exchange
(CSE)
Stock and
Securities
Exchange (SEC)
Bangladesh capital market is one of the smallest in Asia but within the south Asian re-
fledged automated stock exchanges
(CSE) and an OTC ex-
tors their implications to operate
It consists of Central Depository Bangladesh Limited (CDBL), the only Central Deposi-
ties for the settlement of transactions of demate-
country’s securities market has been gaining
momentum. Even in the backdrop of Global Financial Crisis 2008 when the stock mar-
kets in almost all the developed and developing countries crashed and Governments of
o rescue the markets. Both depth and di-
mension in Bangladesh capital market has been becoming gradually strong and securi-
ties market registered significant growth at the initial stage and later market fell a little
lio in Bangladesh securities
cent. But lack of supply of fundamentally sound
shares has been causing overheating situation and circumstance like overpricing has
times. Transaction has risen from a daily
now and DSE General Index has risen
to record 8,918 from 2,400 two years back. But demand and supply should match at a
und balance in the securities market.
Others
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8. 2.7 DSE and CSE: core
10th October of 1995 from Chittagong City through the cry
promise to create a state-of-
On April 28, 1954 the DSE was first incorporated as the East Pakistan Stock E
Association Limited. However, formal trading began in 1956 with 196 secur
on the DSE with a total paid
renamed as Dhaka Stock Exchange (DSE) Limited. After 1971, the tra
the Stock Exchange remained suppressed
economic policy pursued by the then government. The trading
1976 with only 9 companies listed having a paid up capital of Taka 137.52 million
the stock exchange. As of 30th June, 1999 there were 230 Securities listed on the
with a market capitalization of Taka 50,748 million.
The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its a
tivities are regulated by its Articles of Association and its own rules, regulations, and
by-laws along with the Securities and Exchange Ordinance, 1969;
1994; and the Securities and Exchange
Trading is done through automated on
government holidays. There are four marke
trading of market lot share is
Spot transactions are done here through
within 24 hours. (3) Block Market: A place wher
through pick and fill basis. (4) Odd Lot Market: Odd lot scripts are traded
pick and fill basis. All transactions in public market of a day, after ne
and cleared through the DSE Clearin
ly, calculated from date of trading. Members shall be allowed to carry out transaction of
Figure 2: Dhaka Stock Exchange
core capital markets of the country
Dhaka Share Market consists of the
Dhaka Stock Exchange or DSE, the
main share market of Bangladesh.
Dhaka Share Market is still at its i
stage and has to walk a long way for
coming into the radar of the Global F
nancial Market. The Chitt
Exchange (CSE) began its journey in
ber of 1995 from Chittagong City through the cry-out trading sy
-the art bourse in the country.
On April 28, 1954 the DSE was first incorporated as the East Pakistan Stock E
Limited. However, formal trading began in 1956 with 196 secur
with a total paid up capital of about Taka 4 billion. On June 23, 1962 it was
Exchange (DSE) Limited. After 1971, the trading activities of
the Stock Exchange remained suppressed until 1976 due to the liberation war and the
policy pursued by the then government. The trading activities resumed in
1976 with only 9 companies listed having a paid up capital of Taka 137.52 million
the stock exchange. As of 30th June, 1999 there were 230 Securities listed on the
ization of Taka 50,748 million.
The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its a
regulated by its Articles of Association and its own rules, regulations, and
Securities and Exchange Ordinance, 1969; the
Securities and Exchange Commission Act, 1993 (DSE, 1999).
Trading is done through automated on-line system every day except Friday and ot
holidays. There are four markets in the system: (1) Public Market: Only
trading of market lot share is done here through automatic matching. (2) Spot Market:
Spot transactions are done here through automatic matching which must be settled
within 24 hours. (3) Block Market: A place where bulk quantities of shares are traded
through pick and fill basis. (4) Odd Lot Market: Odd lot scripts are traded
pick and fill basis. All transactions in public market of a day, after netting, are settled
cleared through the DSE Clearing House due on 3rd and 5th working day respectiv
of trading. Members shall be allowed to carry out transaction of
Figure 2: Dhaka Stock Exchange Dhaka Share Market consists of the
Dhaka Stock Exchange or DSE, the
ket of Bangladesh.
Share Market is still at its infant
stage and has to walk a long way for
coming into the radar of the Global Fi-
nancial Market. The Chittagong Stock
change (CSE) began its journey in
out trading system with the
On April 28, 1954 the DSE was first incorporated as the East Pakistan Stock Exchange
Limited. However, formal trading began in 1956 with 196 securities listed
up capital of about Taka 4 billion. On June 23, 1962 it was
ing activities of
ration war and the
activities resumed in
1976 with only 9 companies listed having a paid up capital of Taka 137.52 million on
the stock exchange. As of 30th June, 1999 there were 230 Securities listed on the DSE
The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its ac-
regulated by its Articles of Association and its own rules, regulations, and
the Companies Act,
(DSE, 1999).
line system every day except Friday and other
ts in the system: (1) Public Market: Only
done here through automatic matching. (2) Spot Market:
automatic matching which must be settled
quantities of shares are traded
through pick and fill basis. (4) Odd Lot Market: Odd lot scripts are traded here based on
ting, are settled
working day respective-
of trading. Members shall be allowed to carry out transaction of
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9. - Page | 9 -
foreign buyers and/or seller involving a custodian bank to be settled directly between
the member through the custodian bank within the fifth day subsequent to the trading
day, in respect of the transactions carried out on each trading day with intimation to
the clearing house.
The total number of tradable securities increased by 1.97 % but the issued capital of all
listed securities declined by 5% during this period. However, both total turnover of se-
curities and total traded amount of securities has increased enormously compared to
that of the previous year. The total Market Capitalization of all listed Securities in the
DSE amounted to US$ 1046.36 million in 1999 compared to US$ 1283.79 million in
1998 representing a decline in market capitalization by 22%. The Market Capitalization
declined during the period of 1998-99 due to: i) listing of lesser number of new Issues,
ii) absence of rights and bonus issues, and iii) impact of decrease in all share price index
(SEC, 1999). The all share price index of the DSE declined from 676.47 to 546.79 during
this period. Special incentives are provided to encourage nonresident Bangladeshis to
invest in the capital market. Moreover, they can buy newly issued shares/debentures of
Bangladeshi companies and can maintain foreign currency deposits (styled as NFCD
account) in special accounts for up to five years. A quota of 10% reserved for nonresi-
dent Bangladeshis in primary shares (IPO) has also been initiated.
2.8 Main Board as on August 2011
Table 1: Total capital exchange of DSE in August 2011:
Main Board as on August 2011
Total Number of Listed Securities 493
Total Number of Companies 231
Total Number of Mutual Funds 36
Total Number of Debentures 8
Total Number of Treasury Bonds 215
Total Number of Corporate Bonds 3
Total number of Shares/Certificates: (No. in millions)
Total Number of Shares & Mutual Fund Certificates of
All Listed Securities*
19,877
Total Number of Shares of All Listed Companies 17,046
Total Number of Certificates of All Listed Mutual Funds 2,817
(No. in '000)
Total Number of All Listed Debentures 409
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Total Number of All Listed Gov. T-Bonds 5,365
Total Number of All Listed Corporate Bonds 7,069
Total Issued Capital of : (Figure Tk. in millions) (Figure US$ in mns)
All Listed Securities 843,058 11,305.47
All Companies Shares 272,199 3,650
All Mutual Funds 26,269 352
All Debentures 140 2
All Listed Govt. T-Bonds 537,381 7,206
All Listed Corporate Bonds 7,069 95
Total Market Capitalization of: (Figure Tk. in millions) (Figure US$ in mns)
All Listed Securities 2,906,135 38,971
All Listed Companies Shares 2,326,597 31,200
All Listed Mutual Funds 34,915 468
All Debentures 576 8
All Listed Govt. T-Bonds 537,381 7,206
All Listed Corporate Bonds 6,666 89
Conversion Rate: BDT against USD 74.57
* Total No. of Shares/Share Capital/Market Capital includes Bonus/Right of shares.
2.9 Sectoral Performance
Table 2: Sectoral performance of DSE in August 2011:
DSE Sectoral Performance - August 2011
Sector
Market Capitalization
in millions
% of
total
Mkt Cap
Turnover Tk. in millions
% of
total
TurnoverMay April May April
Financial Sector
Banks 716,595.95 721,832.69 30.17 18,157.46 74,944.68 20.48
Financial Institutions 274,619.30 288,529.80 11.56 5,532.49 29,312.32 6.24
Insurance 136,417.38 150,538.81 5.74 6,493.71 25,206.93 7.33
Mutual Funds 34,915.01 41,101.33 1.47 5,038.45 11,778.13 5.68
Total 1,162,547.64 1,202,002.63 48.94 35,222.10 141,242.07 39.73
Manufacturing
Foods 51,810.32 53,035.70 2.18 2,419.52 7,075.12 2.73
Pharmaceuticals 175,334.69 199,033.89 7.38 7,838.09 19,365.83 8.84
Textile 71,598.61 96,488.97 3.01 9,516.58 31,038.42 10.74
Engineering 120,787.26 128,407.03 5.08 6,491.74 24,764.06 7.32
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11. Ceramics 36,494.93
Tannery 14,663.75
Paper & Printing 917.70
Jute 784.49
Cement 85,851.62
Total 558,243.37
Service & Miscellaneous
Fuel & Power 292,329.13
Service & Real Estate 19,134.66
IT 4,522.42
Telecommunication 242,648.91
Travel and Leisure 7,218.08
Miscellaneous 82,085.73
Total 647,938.94
Bond
Corporate Bond 6,666.40
Total 6,666.40
Grand Total 2,375,396.36
Table 3: Sectoral performance of DSE in
0 100
29/09/2011
28/09/2011
27/09/2011
26/09/2011
25/09/2011
22/09/2011
21/09/2011
20/09/2011
19/09/2011
18/09/2011
15/09/2011
14/09/2011
13/09/2011
12/09/2011
11/09/2011
08/09/2011
07/09/2011
06/09/2011
* Values are in million taka
36,494.93 38,781.48 1.54 1,458.12 6,271.56
14,663.75 15,257.08 0.62 261.56 1,136.08
917.70 1,043.10 0.04 9.21 27.51
784.49 793.55 0.03 14.12 59.95
85,851.62 80,704.11 3.61 6,084.83 12,889.56
558,243.37 613,544.91 23.50 34,093.76 102,628.09
292,329.13 310,776.16 12.31 8,731.00 24,056.30
19,134.66 21,916.06 0.81 741.06 2,489.72
4,522.42 4,912.58 0.19 505.78 1,750.18
242,648.91 256,016.88 10.22 2,514.92 7,273.96
7,218.08 11,334.08 0.30 2,527.47 7,698.74
82,085.73 77,306.25 3.46 4,236.80 10,974.66
647,938.94 682,262.02 27.28 19,257.04 54,243.55
6,666.40 6,653.96 0.28 75.74 59.29
6,666.40 6,653.96 0.28 75.74 59.29
2,375,396.36 2,504,463.52 100 88,648.65 298,172.99
: Sectoral performance of DSE in September, 2011:
200 300 400 500 600 700
* Values are in million taka
6,271.56 1.64
1,136.08 0.30
27.51 0.01
59.95 0.02
12,889.56 6.86
102,628.09 38.46
24,056.30 9.85
2,489.72 0.84
1,750.18 0.57
7,273.96 2.84
7,698.74 2.85
10,974.66 4.78
54,243.55 21.72
59.29 0.09
59.29 0.09
298,172.99 100
ValueandquantityofTurnoverofDSEinSeptember,2011
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CChh[[pptt__rr 33
STATUS OF CAPITAL MARKET
3.1 Brief History
Bangladesh capital market has achieved some major milestone events in the recent
past. The capital market operations in this part of the country started in mid fifties with
the establishment of East Pakistan Stock Exchange Association in 1954, which started
trading in 1956. Initially it was a mutual organization (cooperative body) which was
corporatized in recent activity of the Dhaka Stock Exchange (DSE) in term of turnover
in the name of Dacca Stock Exchange Ltd. During those early periods until 1971, all
trades in the exchange were conducted using trading data collected over telephone
from Karachi Stock Exchange. After independence of Bangladesh, the operations of the
stock exchange remained suspended until August 1976. At that time market trading
started with only 14 listed companies having market value of only taka 90 million. The
trade volume was very thin and could not attract investors. Over time some reform in-
itiatives were taken to strengthen the market. First time Tk. 1 crore daily trades were
recorded in April 1992. Government adopted the Securities and Exchange Commission
Act 1993 and established the SEC as the regulatory authority for the market and the
Securities and Exchange Commission (SEC), established in 1993 under this Act, as the
central regulatory agency oversees the activities of the entire capital market including
issue of capital, monitoring the issue of stocks and operation of the stock markets in-
cluding regulating of portfolio market.
3.1 Present context
3.1.1 Current economy of Bangladesh
Bangladesh today is the 48th Largest Economy with US $225 billion GDP on the basis of
purchasing power parity. In nominal terms, the per capita income is US $750 with a
GDP size of nearly US $90 Million, Bangladesh is the 70th largest exporter and the 4th
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13. - Page | 13 -
largest RMG exporter in the world, Bangladesh is also the 21st fastest growing economy.
Impressive growth of 5% and above in the last two decades have indeed taken the
economy to a new growth trajectory contributed by steady agricultural production, in-
creased export earn-
ings, healthy remit-
tance and vibrant
domestic demands.
The steady growth of
GDP during recent
global recessions has
demonstrated the re-
silience of our econ-
omy, adding that the
economy has strong
fundamentals.
Bangladesh is passing
through unique times just as many of the countries in the region passed through in the
recent past. Several International banks and risk analysts have given strong recom-
mendation to Bangladesh's steady growth recently. They recognized that Bangladesh
has:
■ The world's two top credit rating agencies, Standard and Poors (S&P) and Moo-
dy's Investor Service, for the first time, assigned sovereign credit ratings to Ban-
gladesh. S&P assigned BB- and Moody's Investors Service assigned Ba3 to Ban-
gladesh and termed the countries macroeconomic outlook stable, putting Ban-
gladesh at par with Philippines, Vietnam and Turkey. In the South Asian context,
Bangladesh is positioned higher than Pakistan and Sri Lanka.
■ Several global financial institutions have also identified Bangladesh as one of the
potential economies of the world, heading US investment bank Goldman Sachs
has included Bangladesh as one of the Next 11 (N1l) countries, after the BK1C
nations of Brazil, China, India and Russia as one of the rising economies of the
world. Similarly JP Morgan, another global leader in investment banking has in-
cluded Bangladesh in its 'JP Morgan frontier Five'. And in a recent update of their
2006 report on "The World in 2050-Price Waterhouse Coopers" extended their
Regional Markets-September, 2011
Country Index P/E Yield
Interest
Rate
(%)
Bangladesh
DSE-20 Index 13.28 3.74
12.4DSE General Index 15.51 3.14
All Share Price Index 15.58 3.11
India
BSE 30 18.36 1.51
7.25
BSE 100 17.76 1.44
Pakistan Karachi 100 8 13.5
Sri Lanka CSE All Share Index 17.58 1.55 7
Thailand SET 11 3.2 3.5
Malaysia KLSE Composite 16 3.2 3
Taiwan Taiwan Weighted 13 4.5 1.88
Hong Kong Hang Seng 14 2.7 0.5
China Composite 11 2.8 6.56
Singapore Straits Times 12 3.5 0.02
Source: The Wall Street Journal (September 23-25, 2011)
Trading Economics (Global Economic Research, as on August-2011)
Weighted Average Interest Rate As of June, 2011)
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Table 4: Regional capital market comparison

14. - Page | 14 -
analysis to include 13 other emerging economies including Bangladesh in their
new ' PWC 30 list' as one of the long term potential growth economics by 2050.
■ JP Morgan in its "Ho Chi Minn Trial to Mexico" research report states that it is
the demographics that justify the inclusion of Bangladesh in the "JP Morgan
Frontier Five". Their report identifies that:
1. The country ranks fourth in growth in economically active population.
2. Five year economic growth is strong at 6.1% per annum.
3. Progress has been made over the last few years to reduce poverty, in-
creasing literacy levels and moderating population growth to a more
sustainable level.
4. There is an assertive judiciary,
5. An active civil society,
6. A relatively free media which has increased public accountability.
Over the past two decades, privates sector has been contributing hand in hand with the
state-owned industries. The policy makers are taking initiatives for the private sector to
grow even further while dynamic entrepreneurs joined the race with their inimitable
ideas. There is also an inflow of qualified and matured professionals in the service in-
dustry including the financial sector.
3.1.2 Capital Market development in Bangladesh
Bangladesh stock markets have grown significantly during the last decade. Still, the size
of the market is relatively small compared to other Asian Markets. Size and liquidity of
the companies provide some distinguishing features of developing markets. The market
capitalization ratio, defined as the value of listed stocks divided by GDP, is used as a
measure of stock market size. It has got economic significance because market size is
positively correlated with the ability to mobilize capital and diversify risk. Total market
capitalization of DSE was US $ 1.049 billion in 1994 compared to US $ 127.515 billion in
India, US $ 12.263 billion in Pakistan, US $ 191.778 billion in South Korea and US $
199.276 in Malaysia. This market is also small relative to the size of the economy. Mar-
ket capitalization in Bangladesh was only 4.07 per cent of GDP in 1994 against 25.77
per cent in Pakistan, 24.03 per cent in Sri Lanka, 104.14 per cent in Thailand and
294.56 per cent in Malaysia. This ratio for Bangladesh is 0.075 in June 1997 and 0.05 in
June 2000.
3333

15. Almost 33 lakh investors are now involved in the capital market at the moment; more
than 70% of which are general investors. The total market capitalization of all shares
and debentures of the listed securities stood at USD 49.4 billion by the end of 2010, in-
dicating an 84% growth from the year before. The total turnover has increased from
USD 0.13 billion to USD 0.25 billion at the end of 2010 which indicates a 91% growth.
However, the capital market has been exposed to greater risk since PE ratio rose from
19.9% to 29.71% from January, 2010 to November, 2010.
Dematerialization may be successful in stimulating the further growth of Bangladesh
capital market, but to ensure the success of such an initiative, it will be necessary to
ensure that the regulatory framework and authority are sufficiently strong, in order to
strike a balance between the interests of both the members of stock exchanges and the
public.
On a long-term basis, it may be important for a successful bond market to be built in
Bangladesh. This can assist in creating more instruments for investors and, at the same
time, creating some depth in the capital market. Bond markets can also be utilized by
the government in raising necessary funds, and can serve as an efficient method of fi-
nancing in large projects.
3.1.3 Market Capitalization
Market statistics shows that the total market capitalization at the country’s prime
Bourse-Dhaka
Stock Exchange
Limited stood at
Tk. 2700.74 bil-
lion on 30 June,
2010 against Tk.
1,241.34 billion
on 30 June,
2009.
In comparison
with the market
capitalization of 2009-10 with the corresponding period (2008-09) we see that total
market capitalization rose by 117.57 percent and by the amount of Tk. 1459.40 billion.
Figure 3: Market Capitalization in 2009-2010
3333

16. Again the market capitalization to GDP rose to 39.12 per
20.19 per-cent on 30 June, 2009. But after a huge transa
tion has risen to a record high in recent time to
2010 and subsequently market
significant record.
3.1.4 Graphical Presentation
From the graphical presentation it is seen that market
curities at the Dha-
ka Stock Exchange
Limited increased
very significantly to
Tk. 2700.74 billion
on 30 June, 2010,
which was Tk.
1,241.34 billion on
30 June, 2009
showing a 117.57 percent rise over a one year period only. The most sign
about the rising trend of market capitali
creased to a highest ever Tk.
per-cent to GDP.
3.1.5 Analysis of the emerging markets
Despite having idiosyncrasies of each emerging market, it is possible to offer a broad
description of several phases common to all equity markets. These emerging ma
are found in different phases of development associated with the stages of ec
development process and political stability of a particular country.
equity prices tend to rise. With the implementing process growth
attaining some degree of economic and political stability, the market started to
confidence of domestic investors and become more widely a
alternative to bank deposits and often to short
of Belarus, Kazakhstan, Ukraine of the former
The second phase relates to the deregulation of capital markets for easy access by the
international investors and for cheaper capital funding by the domestic investors since
the equity markets have gained some degree of credibility at this phase. As
tion to GDP rose to 39.12 percent on 30 June, 2010 against
cent on 30 June, 2009. But after a huge transaction volume market c
tion has risen to a record high in recent time to Tk. 3,680.71 billion on 05 December,
y market capitalization to GDP also rose to 53.30 per
Graphical Presentation
presentation it is seen that market capitalization of all the listed s
cent rise over a one year period only. The most sign
about the rising trend of market capitalization is that market capitalization
Tk. 3680.71 billion on 05 December, 2010 which is 53.30
Analysis of the emerging markets
Despite having idiosyncrasies of each emerging market, it is possible to offer a broad
description of several phases common to all equity markets. These emerging ma
are found in different phases of development associated with the stages of ec
velopment process and political stability of a particular country. At the
equity prices tend to rise. With the implementing process growth-oriented policies and
attaining some degree of economic and political stability, the market started to
confidence of domestic investors and become more widely accepted as an investment
alternative to bank deposits and often to short-term government bonds. Equity markets
of Belarus, Kazakhstan, Ukraine of the former USSR may be considered in this p
relates to the deregulation of capital markets for easy access by the
international investors and for cheaper capital funding by the domestic investors since
the equity markets have gained some degree of credibility at this phase. As
Figure 4: Market Performance from 2006-05 to 2009
cent on 30 June, 2010 against
lume market capitaliza-
3,680.71 billion on 05 December,
to GDP also rose to 53.30 percent marking
of all the listed se-
cent rise over a one year period only. The most significant point
capitalization has in-
3680.71 billion on 05 December, 2010 which is 53.30
Despite having idiosyncrasies of each emerging market, it is possible to offer a broad
description of several phases common to all equity markets. These emerging markets
are found in different phases of development associated with the stages of economic
At the initial phase,
oriented policies and
attaining some degree of economic and political stability, the market started to gain the
cepted as an investment
ernment bonds. Equity markets
may be considered in this phase.
relates to the deregulation of capital markets for easy access by the
international investors and for cheaper capital funding by the domestic investors since
the equity markets have gained some degree of credibility at this phase. As market li-
05 to 2009-10
3333

17. - Page | 17 -
quidity increases and risk-adjusted returns rise, international investors begin to reap
the diversification benefits if investing in these markets. The markets of Brazil, India,
Pakistan, the Philippines, Bangladesh and the like have entered this phase.
The third phase is concerned with expansion. The markets offer prospect of higher re-
turn value less volatility and the investors easily absorb new issues of stocks and cor-
porate bonds. These lead to increased trading activity, more effective intermediation,
while the growing need for a risk transfer mechanism spurs the development of equity
and currency-risk hedging instruments such as derivatives and index products. Argen-
tina, Indonesia, Malaysia. Thailand and Turkey may be considered in this stage.
Finally, the market depicts the phase of maturity. As equity risk premium falls to inter-
nationally competitive levels relative to government treasury bill rates or equivalent
short-term money market rates, the equity market begins to achieve the stable growth
that marks a nature of developed state. Such condition can be found in Hong Kong, Ko-
rea, Singapore and the like.
Studies have mentioned three reasons for the lack of confidence on the part of individ-
ual investors in securities of emerging markets. First, there is a dearth of appropriate
financial and other relevant information about the domestic security market in general
and listed securities in particular. Second, there is the inadequacy of the accounting and
auditing of financial reports. Third, there is the inability of the regulatory authorities to
effectively monitor and supervise the market and thereby protect investors against
market manipulation and other market abuses. In order to overcome such inefficien-
cies, credit markets need to be supplemented by a well-functioning equity market.
3.2 Debacles in Bangladesh Capital Market
The capital market of Bangladesh had two major debacles which occurred in 1996 and
2010, creating some bad impacts upon the country’s total capital market.
3.2.1 Debacle during 1996
During 1996 some local and foreign initiatives succeeded in drawing some internation-
al attention which was followed by an international conference in 1994. The conference
followed by some regional as well international market destabilizing events, some
hedge fund managers started investing in the local capital market. The market was nei-
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18. - Page | 18 -
ther operational nor in terms of legal structure ready to absorb such sudden surge in
demand both at home and abroad. Consequently within a very short tenure (from July
to October of 1996) the market price level soared to a record level (of that time) height
with the index rising from 894 levels lo 3627 level. The market P/E ratio of all the listed
securities reached to the level of 66.5 within a short period of 4 months. The 'cry-out'
auction based trading system of DSE could not handle the huge demand coming from
several thousand investors who crowded the Motijheel thoroughfare. Consequently
street based curb market took over the legal trade executed through stock market sys-
tem. Unsuspecting inexperienced new entrant investors allured by very quick profit
potentials were buying anything without understanding substance, legality and validity
of their investment. Unscrupulous market players (which even include some issuers)
were minting fortunes by selling fake securities to the crowd who were eager to make
quick profit from the market. Thereafter, for obvious reason the market experienced
first major crash in l996 affecting about fifty thousand investors
3.2.2 Debacle during 2010
The market crash of 2010 drew greater degree of attention because much larger seg-
ments of population spreading all around the country are affected this time as the mar-
ket in this period has gained significant growth. The securities market debacle in 2010
need to be viewed from different perspectives. The following section attempts to ex-
amine those issues mostly from demand side factors. This is a plain logical analysis
supported by some facts and figure. The analysis covered the period from 2004 till
2010 because, the impacts of 1996 continued until 2003 period. It can be considered
that, the market started consolidation and development from 2004.
3.2.3 Reasons behind the two major debacles
Analysis shows that, the capital market of the country experiences some abnormal
upheaval during the last few years, which had full bubble effects in 2010 concluding
with the burst. The causes and factors to such behavior are as following:
3.2.3.1 Political economy inducing demand since 2007
The political reality of 2007 was one of the major reasons for creating a sudden rise in
the market. Until 2006, the growth pattern in the market was gradual and moderate.
From January 2007, the market experienced a sharp rise in terms of transaction and
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19. - Page | 19 -
price level. Especially the political situations in late 2006 made the market little shy of
investment. The emergence of military backed caretaker government (CTG) initially
encouraged the investors to come back to capital market. At the time of declared cam-
paign against corruption, budgetary policy support for legalization of undisclosed in-
come through investment in securities market also encouraged new investors to trans-
fer their funds to this market. Besides new civilian investors, influx of armed forces
members as investors also boosted the demands in the market.
3.2.3.2 Macro-economic factors inducing excess savings
Since the last decade, the economy of the country has been growing at a fairly steady
rate with national savings rate remaining around 30% of GDP. Such high savings rates
were attained mostly due to robust growth in inward remittances from expatriate Ban-
gladeshis over the years. While savings rates were good along with rising GDP, the in-
vestment rates were not matching. The real ADP in terms of budgeted amount as well
as implemented amount was not increasing. As a result the public sector investment
declined from a level of more than 6% to slightly over 4% level. Due to different infra-
structural and political reasons, the private sector investments also could not match the
shortfalls in public sector investments. Thus an overall surplus savings has been
created in the economy.
3.2.3.3 Gas and power sector shortage and idle business funds
Due to shortage of power and gas, the government declared moratorium on new con-
nections. Such policy almost stopped establishment or expansion of new industrial
units and even residential buildings. The moratorium was further extended by the
newly elected government until middle of this year. Consequently private sector in-
vestment for manufacturing sector almost stalled for quite some time. The global finan-
cial crisis of 2008-09 also made many export oriented business to keep their produc-
tion facilities partially or totally closed. Therefore, the business people having idle
funds found incentives to move their funds lo capital market. The transfer of such funds
also created excess demand pushing the price level upward.
3.2.3.4 Excess liquidity in financial sector in 2009
The decline in private sectors' new or expansion oriented investment also created sig-
nificant volume of surplus liquidity at the hands of financial institutions. The financial
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20. - Page | 20 -
institutions started investment in the securities market as one of the avenue to utilize
their liquidity. Almost all the major financial institutions got involved in deploying a
portion of their idle funds in the market.
3.3 Reform of the market after the debacles
The stock market crash reveals structural weaknesses of the market. This leads to all
concerned feeling the agenda for market reforms. Rules, laws and guidelines are framed
and implemented to improve infrastructure and foundation on which the stock ex-
changes can operate effectively. Major notable features of capital market reforms im-
plemented so far include:
a) Reorganizing SEC to strengthen infrastructure capabilities and build capacity
b) Updating rules, laws and guidelines to improve regulation framework:
□ Amendment of the SEC Act 1993 to empower SEC a vetting power, financial
penalty power with a view to monitoring and enforcing compliance of
rules. SEC is also allowed to conduct special audit to detect window dress-
ing in the accounts of the listed firms, if it suspects.
□ Information disclosure rule specifying the requirements to comply with the
International Accounting Standard (IAS) and International Standards of
Auditing (ISA) for timely and quality information disclosure in the market.
□ In the new issue rule, the pricing of IPOs has been delegated to the issue
manager.
□ In the merchant bank regulation, three activities, viz., issue management,
underwriting and non-discretionary portfolio management, are restricted
to merchant banks operating in Bangladesh.
c) Separation of the management from the ownership at both DSE and CSE
d) Inclusion of the representatives of the listed companies and the investors on the
governing bodies of both DSE and CSE
e) Automation of trading at both DSE and CSE introducing order-driven system re-
placing out-cry system
f) Amendment of the Trust Act, 1882 enabling pension fund and insurance fund
investing in securities market and thereby create demand for securities.
g) Enactment of the Central Depository Act enabling national securities ltd. com-
pany to establish CDS. The implementation of the on-line CDS will in fact avoid
problems of "fake shares" and "short sale" to a great extent.
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21. - Page | 21 -
However, a few important reform measures are still pending. These include, among
others:
a) Restructuring Investment Corporation of Bangladesh (ICB) by creating three
subsidiary companies carrying out the function of merchant banking, fund man-
agement and securities brokerage house
b) Divesting government holdings in SOEs and MNCs through securities market
c) Issuing government securities with medium term and long-term maturities on a
regular basis through the securities market.
Thus the period of 2003 to ‘06 can be viewed as a period of consolidation & restoration.
3.4 Present scenario of Bangladesh Capital Market
Albeit Bangladesh economy is not more integrated with the global economies, Global
Financial Crisis 2008 has dented every sphere of Bangladesh. Bangladesh economy has
also been limping since being dented by the blow of financial meltdown. On the one
hand, Bangladesh economy has been gaining benefits from the crisis and on the other
hand it has lost. Because of income declining of developed countries’ citizens
low-priced garments of Bangladesh have been very popular registering more growth in
the country’s apparel sector. But financial collapse in many developed countries slowed
down the infrastructural development especially construction works in Middle East
which have pushed many Bangladeshi workers come back. Remittance inflow has risen
but number of workers going abroad has fallen drastically. In the year 2009-10 a record
$11 billon remittance has come to Bangladesh against $9.76 billion in 2008-09 fiscal
year. Country’s foreign currency reserve hit new record of $11.35 billion recently be-
cause of low import expenditure and rising trend of export earnings. But still 44 per-
cent people are under poverty level; the Government and other concerned organiza-
tions should take comprehensive efforts to eradicate poverty. But to achieve desired
level of growth to turn Bangladesh into a middle income country by 2021, growth rate
should be accelerated. To do that more investment in infrastructure especially power
sector, roads and highway, modern and sophisticated port facilities are badly needed.
Cost of doing business should also be reduced along with the removal of red-tapism in
commencing business. Public-Private Partnership has been incorporated in the budget
for 2010-11 but success will depend on time-bound implementation. Instead of eying
towards foreign countries, multi-lateral donors and agencies Government should
choose country ’s capital market to raise fund for development projects especially for
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22. - Page | 22 -
the construction of Padma Bridge, elevated express-way and other big projects which
will also ensure people’s association in profitable Government properties. Associating
general people in lucrative Government venture means to create the way of ensuring
equitable distribution of wealth and this is only possible through strong and vibrant
capital market. Because of sluggish economic activities investment has not gotten mo-
mentum in recent years but for the sake of rapid economic growth more savings and
investment are also necessary. Another important issue is that tax to GDP (Gross Do-
mestic Product) is very poor in Bangladesh, which has been another cause of fiscal defi-
cit in almost every year.
The Government has been regularly depending upon the borrowing both from internal
and external sources. Because of huge Government borrowing from the country ’s for-
mal banking sector private industrial ventures and other commercial set ups have been
on declining trend. Instead of borrowing from banking sources and other foreign lend-
ers Government should depend on raising fund from the country’s capital market.
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23. - Page | 23 -
CChh[[pptt__rr 44
OBSTACLES TO OVERCOME
4.0 Problems
Securities markets in Bangladesh encountered problems both from supply side issues
and demand side issues. The status and development of Bangladesh stock market has to
be examined when to diagnose the problems and perceive their causes. Some problems
of the Capital Market of Bangladesh are mentioned below:
■ The Securities and Exchange Commission (SEC) and capital market participants
are weak. The SEC lacks sufficient capacity to regulate, monitor, supervise, or
enforce regulations effectively and has limited resources to devote to its devel-
opment functions. As a result, the SEC’s authority to oversee any structural
changes at the two stock exchanges is being undermined. The managements of
the two stock exchanges are unable to regulate and supervise their members’
activities effectively: the exchanges are owned and dominated by brokers, so
their businesses take precedence over the governance of their exchanges.
■ Neither the SEC nor the exchanges have effective automated surveillance sys-
tems that can detect, monitor, and prevent market abuses and malpractices. This
has affected market confidence, which has often been cited by investors as the
major constraint in the development of the capital market.
■ The limited number of listed securities has always been a constraint on improv-
ing the liquidity and market capitalization of the stock market. The main impe-
diments include an inefficient pricing mechanism, issuer’s concerns over poor
corporate governance, and high listing costs. For primary market development,
the IPO approval process, pricing methods, and the capacity of merchant banks
need to be improved. Mechanisms that facilitate securities transactions in the
capital market, such as securities borrowing and lending, need to be introduced.
■ Market participants, including brokers, dealers, and merchant bankers, require a
license to trade from the SEC. However there are no professional standards and
minimal qualification requirements (e.g., examinations and professional train-
4444

24. - Page | 24 -
ing) imposed by the SEC or the exchanges on any of the intermediaries. To
strengthen governance and the quality of market intermediaries, an examination
and minimum qualification standards need to be introduced as a prerequisite for
licensing by the SEC. Only qualified and duly licensed personnel should be al-
lowed to deal with the public in transactions involving securities. Currently,
there are no institutions in Bangladesh which offer courses specifically related to
the functions and regulation of financial intermediaries.
■ The majority Government-owned Investment Corporation of Bangladesh (ICB)
remains the single largest integrated capital market operator. ICB and its sub-
sidiaries accounted for 32% of total combined turnover on the DSE and CSE in
FY2004. To address conflicts of interest in its combined operations, three sepa-
rate subsidiaries were created at ICB in 2002. However, all the objectives of un-
bundling ICB’s operations have yet to be achieved. Other problems include the
followings:
Lack of infrastructure and physical facilities
Existence of only dealer-broker-members (no specialist/market maker)
Market dominated largely by unsophisticated investors
Lack of diversity in products' availability in the market
Inefficient capital market—both operational and informational
Lack of proper and adequate disclosures
Certifiers of financial statements and property evaluators of the company
are the same/identical
Management and Owners (Councilors) of DSE are entwined
Lack of enforcement with the compliance of rules and regulations
Corporate governance—sponsor-owners are managing the firm. In al-
most all cases, no professional managements are hired to run the affairs
of the listed company.
Lack of ethical orientation, education about capital & securities markets.
Lack of trust, self-respect amongst interest groups. These are important
preconditions for building up a healthy and investment friendly market
atmosphere.
Lack of potential securities and narrow options for the investors.
Disclosure problem-inadequate disclosure, concealment of facts or some-
times fabricated disclosures appear in the annual reports.
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25. - Page | 25 -
Infusion of fake shares.
Exaggerated projection in prospectuses.
Credit facilities are inadequate and interest rates are exorbitant.
Problem of rebuilding the image of presently depressed market.
4.1 Measures to be taken to resolve the problems
Capital market development is related with the financial deepening, which in turn, de-
pends on effective financial intermediation as well as on the availability of a wide va-
riety of financial instruments. In this context, merchant banks have yet to play due role
in revitalizing the stock market. Measures can be initiated to remove the constraints
that merchant banks are facing in order to make them effective are as follows:
Merchant banks (MBs) should be allowed to deal in secondary securities on
their own account, which are not currently allowed.
Merchant banks should provide price support/stabilization of their under-
written IPOs in the immediate aftermarket. They would be able to offer
market-making activities in primary and secondary market and to extend
loans to their clients for margin buying of securities, if they could access
funds at softer rates.
Capital Market stabilization/Development fund should be established at the
Bangladesh Bank (BB). The fund will counter finance merchant banks
through commercial banks to finance their clients' investment activities.
Otherwise, merchant banks should be able to obtain refinancing facilities
from the BB on certain margin basis. This will make MBs active and inject
fresh fund in the securities market.
MBs as wholesale banking are given more activities in order to be sustaina-
ble and viable ones.
Making the market information dissemination system perfect and pure.
Corrective measures to rumors and fake reports and thus making the trad-
ing of securities smooth and uninterrupted.
Prompt explanations to unusual market actions.
Refrain companies from misleading potential investors through fake re-
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26. - Page | 26 -
porting and forecasting.
Refrain sponsors from buying and selling own company securities without
notifying the exchange through writing.
Making the sources of rumors ineffective in the trading floor by strengthen-
ing the market intelligence force.
Quick transformation to Central Depository System, which is expected to
reduce workload of physical deposit and withdrawal of securities.
Enhancement of ethical standard of all the parties involved in trading.
Restoring of public confidence through application of educative programs
like schooling on securities market and orientation program.
The following other measures can be undertaken for the development of capital market:
The listed companies that pay regular dividend should be given tax incen-
tives and tax rebates as well.
The mode of privatization of industries will be implemented through public
issue of shares. This will deepen the securities market, diffuse ownership
and bring in market disciplines.
The government should off-load its equity holdings in SOEs and MNCs
through stock market. This will improve the supply of securities in the
market.
Bond market needs to be developed. The implementation of government
securities with medium-term and long-term maturities will also broaden
the base of bond market.
Establishment of a separate judicial security tribunal for dealing with cases
related to securities market.
Disclosure of information to the public in the fullest possible dissemination
system can make the people aware about the latest situation.
Prompt clarification or confirmation of rumors and reports that may likely
to have an effect on the trading of securities or would likely to have a bear-
ing on investment decision.
The companies concerned must refrain from disclosure like exaggerated
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27. - Page | 27 -
reports or predictions which exceeds what is necessary to enable the public
to make informed investment decisions.
Insider must not trade on the basis of material information which is not
known to investing public. Insider should refrain from trading on principle,
even after material information has been released to the press or through
other media.
Every director, promoter or person of authority from the sponsoring group
should not involve in buying/selling of its own company's securities unless
fulfilling requirement to report to the exchange in writing about their inten-
tion to buy or sell.
Ethical standard of all interest groups must be enhanced so that everybody
understands the sanctity of this knowledge based securities industry.
Public confidence should be restored and confidence building activities
must be carried out through educative programs. Education has no alterna-
tive and thus education about capital and securities market is one of the
most important aspects that help investors taking investment decision.
Education program, orientation program and inclusion of securities and non
securities issues in the syllabus of the secondary and higher secondary le-
vels can build awareness about the capital market and its operations.
It is evident that all interested groups in the marketplace and the Government as well
has to play their respective roles promptly in order to restore the gravity of the market.
Government should play the role of a facilitator, partner in progress and growth foster-
er in the revolutionary movement that is desired to occur in the market.
4.2 Recent initiatives of DSE for securities market expansion
Signing contract with Dubai-based Info-Tech Company for integrated software
Book Building System has been introduced in Bangladesh Capital Market. Book
Building System, modern and scientific system of price discovery, will be able to
attract the entrepreneurs to get their profitable business ventures listed with
the country’s growing securities market.
MSA Plus is being up-graded time to time in collaboration with India-based
Cambridge Solutions to start internet-based transaction soon. After the comple-
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28. - Page | 28 -
tion of up-gradation of this work and commencement of internet-based trading,
transaction facilities of securities would reach the doorsteps of investors across
the world.
DSE is upgrading its automated trading system time to time to meet up the de-
mand of the capital market. As number of transactions increases, DSE took initi-
atives to tune up its trading Server in December 2009. Present Trading Server
has capacity to handle around 6,00,000 trades/day and to support trader IDs up
to 5,000. At present Trading activities are being operated by around 3200
workstations from more than 1100 locations in 30 districts.
In November 2009, DSE Implemented Web-based Market Data Server (MDS) for
providing necessary Market Data to different electronic and print media, Cell
Phone Companies, Research Institutes, Brokerage houses etc. DSE signed an
agreement with a number of TV channels to provide real time trade data for
broadcasting continuously during trading hours. Besides, online Trade Data is
also available.
Plans are already underway to spread trading activities across the country and
to the doorsteps of investors across the world but demand and supply mismatch
has been halting the process.
With the core intention of executing all the professional works and to build its
existing manpower into truly efficient and highly qualified human resources DSE
has been continuing its tireless efforts to send its staffs to different organizations
and abroad for training.
For smooth and time-bound supervision of all the professional jobs Chief Oper-
ating Officer and GM (Finance and Accounts) have been recruited. Recruitment
at different levels has been being continued in tune with the growing volume of
activities to accomplish all the activities.
To continue the present trend of securities market growth DSE Board of Direc-
tors has been maintaining strong communication with the relevant authorities
including Finance Minister, SEC, Bangladesh Bank, National Board of Revenue,
Bangladesh Institute of Capital Market and other relevant institutions, organiza-
tions, personalities and concerned authorities.
A Complaint Cell/Box has been set to listen to investors, relevant stakeholders
including listed companies and others and necessary steps are taken to come out
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29. - Page | 29 -
the crisis time to time.
For transparent and smooth settlement of securities and to also reduce time DSE
has been trying to establish an Independent Settlement and Clearing Company.
Meetings of different committees are going on regularly and time to time sug-
gestions and instructions of those committees are carried out to enhance the
departmental activities.
All the divisions and departments have become prompt in carrying out day to
day activities and also assigned responsibilities in a far better and quicker way
than those of past events.
DSE Board of Directors visited USA and show-cased Bangladesh capital market
to Non-Resident Bangladeshis to draw their investments in the market.
DSE has been arranging investors’ awareness program in different cities to make
the investors aware of the real market situation. It has also been co-operating
with Bangladesh Institute of Capital Market authority so that through this newly
established institute, time-bound education and practical training on securities
market related issues may be conducted.
Plans are also underway to arrange road-shows and investors’ awareness pro-
gram abroad to spread securities market related issues among the NRBs.
Members of Board of Directors, members of different committees and officers of
DSE have been continuously visiting different related organizations and stock
exchanges and trying to utilize the experience for the better development of
DSE.
DSE has been requesting the relevant and concerned authorities of Government
and other organizations to simplify the investment procedure of NRBs.
DSE has placed proposals and continued conversation and discussion with rele-
vant Government authorities to attract shares of state-owned companies. In the
backdrop of DSE’s proposal recently Honorable Prime Minister has intervened in
the issuance of off-loading shares of Government companies and Government
shares in other companies in the country’s capital market. Here it may be men-
tioned that Rupali Bank has sold nearly 30 lakhs share and Mobil Jamuna is
coming with shares of Tk. 609 crore.
For more consciousness and real information of market DSE has signed agree-
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ment with different print, electronic media and news agency to provide them
with market data which will also enhance market growth.
Because of efforts of DSE face value standardization process has been being imple-
mented by listed companies gradually which helps investors compare the market price
of shares. More dynamism has been put in ICT Division, Operations Division, Finance
Division and Administration Division. All the officers under the leadership of CEO, COO,
CTO, GM (Admin) and Secretary, GM (Finance and Accounts) and DGMs have been
working in a team to carry out their responsibilities smoothly for further development.
Discussions are also underway to attract shares of big business. DSE authorities have
been continuing discussion with the entrepreneurs on regular basis which will further
help increase the depth and dimension of the country’s securities market.
4.3 Actions required for restoring investors' confidence on the market
Present situation of Bangladesh stock markets needs to be strengthened to provide
greater investors' confidence and to improve market liquidity and competitiveness. The
existing trading and settlement systems need to be addressed for reform. To this end,
the issues that deserve immediate attention are as follows:
The membership of stock exchanges to institutions and corporate sector
with adequate capital is required. Improvement of the flow of informa-
tion, introduction of a system of market-maker in addition to the prevail-
ing order-driven system, credible quicker settlement and the develop-
ment of over-the counter markets (OCT) for large green field projects and
non-listed securities are the prerequisites.
To redress the problems of the stock markets in Bangladesh, policy pre-
scription should aim at par to the favorable environment within which
the flaws of the market could be mitigated, activities of hidden consortia
would be ineffective and the likely exposure of investors to various mar-
ket abuses including market manipulation should be reduced.
Due emphasis should be given to implement the existing rules and regu-
lations;
Regulatory framework should be adequate for the prevention of un-
bridled speculation, market-rigging and insider trading so that erosion in
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public confidence can be contained;
Attempts should be taken to make the present order-driven system of
automation foolproof so as to eliminate the opportunity of manipulating
the market
4.4 Recommendations
Capital market in Bangladesh is now going through a hard time currently as there are
some upheavals in the market and there exists an upsetting condition in the stock mar-
kets. But as per the past occasions, it is evident that our current capital market has a
good ground now for future developments. We should take this opportunity to boost up
the market as well as contribute to our economy. In addition, our mindset needs to be
changed regarding earning profit from the capital market overnight. Foreign invest-
ments also need to be increased to ensure a sound capital and along with this, the gov-
ernment should make an authentic list of the companies that has credibility and ac-
countability. If we can develop our capital market, it will definitely enhance our national
economy.
4.5 Conclusion
Developing countries which accounts for 75% of the world's population, have an en-
during need to attract capital and technology to improve their infrastructure and stan-
dard of living. Developing economies, thus, look forward to their capital markets as the
engine for future growth as its existence ensures mobilization of surplus funds to the
ones suffering from deficit. In Bangladesh we have a capital market that is yet to be
further nurtured to get the fruit out of it. Without doing this we cannot undergo heavy
industrialization and other capital based development. We have various problems like
the market has been suffering from inadequacy of good scripts. Out of around three
thousands public companies, only two hundred and twenty have issued securities
keeping a large number away from the securities market. It is further observed that
Government is still holding lion portion of many blue chip company shares. We must
overcome these sort of problem to strengthen our capital market. Various methods and
policies may be adapted regarding this, but the investors’ mindset is one of the most
important thing that must be changed to ensure the development of the market. If we
can strengthen the market properly, it is only then we can have a sound economy in
terms of capital and related developments in our country.
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