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Capital Market Terminologies

Capital Market
A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (the money market). The capital market includes the stock market (equity securities) and the bond market (debt). Capital markets may be classified as primary markets and secondary markets. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.

Money Market
The money market became a component of the financial markets for assets involved in shortterm borrowing, lending, buying and selling with original maturities of one year or less. It provides liquidity funding for the global financial system. The instruments bear differing maturities, currencies, credit risks and structure. Therefore they may be used to distribute the exposure. Distinguish between the money markets and capital markets: The primary difference between the money and capital markets is maturity period of the securities traded in them. The money market handles transactions within the short-term credit instruments while the capital market handles transactions in long-term financial instruments. Typically, a maturity period above one year would be categorized long-term and less than one year would be categorized short-term.

Stock Exchange
The stock exchange provides a sound and stable securities market where shares can be bought and sold. The stock exchange provides listed companies with a channel seek capital fund from the public and at the same time it provides the investors a place to buy and sell shares of the listed companies. The exchange also monitors the market to ensure that it is working efficiently, fairly and transparently.

Investment Banker
An investment banker is a financial specialist involved as an intermediary in the merchandising of securities. They facilitate the flow of savings from those economic units that want to invest to those units that want to raise funds. The three main functions of an investment banker are underwriting, distributing, and advising.
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Share capital (UK English) or capital stock (US English) refers to the portion of a company's equity that has been obtained (or will be obtained) by trading stock to a shareholder. Each share represents a small stake in the total paid up capital of a company.

The Primary share market

Primary share market allows companies to raise capital which can be utilized to grow the business. Typically this is as an initial public offering (IPO) of shares. When the company lists on the stock market they release a certain number of shares at a certain price. Investors who believe in the companys ability to generate profits can then purchase these shares. Companies have the ability to release more shares at a later date.

The Secondary Share Market

Secondary share market is the place where buyers and sellers of shares allow their shares to be exchanged. Based on the economic laws of supply and demand the share prices fluctuate depending on whether there are more investors interested in buying or selling shares in the company. The stock market offers investors the opportunity to make money both over the short and long term depending on which investment strategy they have.

Equity may refer to: a) Equity (finance), the value of an ownership interest in property, including shareholders' equity in a business. b) Stock, the generic term for common equity securities is called stocks. c) Home equity, the difference between the market value and unpaid mortgage balance on a home. d) Private equity, stock in a privately held company. e) In the context of margin trading, the value of securities in a margin account minus what has been borrowed from the brokerage.

Book closure / Record Date

While a company intends to hold any AGM/ EGM; it declares a book legislature closer provider/ Record Date to register the name of shareholders. Only shareholders whose names appear on the register after the book closure/ Record Date are eligible to attend in the AGM/ EGM and also to receive dividends & bonus shares and entitlement to right shares, if any.
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What is IPO?
IPO refers to Initial Public offering. IPO means while a company wants to raise fund from the general public, it goes for public offering after completing necessary regulatory compliances.

What is 'Circuit Filter?

Circuit Filter is the maximum permissible deviation of the price (specified as percentage), of an aggressor order from the last trade price.

What is 'Market Lot?

A Market Lot is the smallest tradable unit for an instrument except those traded in the Odd lot book. All order quantities can only be an integral multiple of the Market lot.

What is 'Odd Lot?

Stock market shares are generally bought and sold in market lots, which are easy to trade. Any number of shares less than the market lot makes an odd lot. Odd lots typically arise from bonus or rights issues.

What does TESA mean?

TESA (The Electronic Security Architecture) is The DSE trading system and is used to trade Ordinary shares of listed companies, Mutual funds, Bonds and Debentures.

What is MSA?
MSA refers to Member Server Application. Brokers can use MSA to monitor and control their trader(s). There can be only one MSA per broker house. All the traders (TWS) have to connect to the trading system through MSA.

Who are ARs?

AR refers to Authorized Representative. ARs are certified trader for trading during the trade execution time. They are appointed by the brokerage house and licensed by Securities and Exchange Commission.

What is TWS (Trader Workstation)?

Traders (AR) can trade on the stock exchange using either TESA supplied workstation software or through their own custom developed broker system. This kind of workstation is called TWS.

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What is CDBL?
The Central Depository Bangladesh Limited (CDBL) is a company set up the banks, stock exchanges and other institutions to operate the central securities depository in Bangladesh

A depository is like a bank for shares instead of money. Instead of holding shares in the form of certificates, investors have accounts in the depository and are able to move securities and settle stock exchange transactions by an electronic update of their accounts.

Depository Participant
A Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act.

Rights Issue
A rights issue is an issue of additional shares by a company to raise capital under a seasoned equity offering. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time. A rights issue is in contrast to an initial public offering, where shares are issued to the general public through market exchanges. Closedend companies cannot retain earnings, because they distribute essentially all of their realized income and capital gains each year.

Mutual Fund
A Mutual Fund is a trust Fund established with the intention of investing a pool of savings in various types of securities for the benefit of investors. Initially a mutual fund collects the funds from small investors and then they are invested into the securities of different types, thus diversifying the portfolio. Due to diversification of investment and professional management, investing through mutual fund carries lesser risk then investing individually. Open-Ended Mutual Fund Open-ended mutual funds are those Funds where subscription and redemption of units are allowed on a continuous basis. These schemes do not have a fixed maturity period. Investors can buy or repurchase the units at any time at NAV /NAV based prices declared by the fund manager on daily or weekly basis.
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Closed-End Mutual Fund Closed-end mutual funds are those Funds where the shares are initially offered to the public and are then traded in the secondary market.

Asset Management Company AMC refers to that kind of company which undertakes the task of floating and managing the
schemes delegated by the trustee. The company is usually considered professionally sound and experts who are known for smart stock picks. AMC charges a fee for the services it renders to the fund. The company acts as the investment manager of the fund under broad supervision and direction of the trustees.

Key Players for launching a Mutual Fund

Asset Manager: The function of the asset manager includes:

Activities relating to regulatory protection and reporting, Preparation and distribution of prospectus, annual and periodic report of the Mutual Fund and other papers for the investors, Accounting activities and preparation of tax return and Insurance and other services. Custodian: Custodians are financial institutions that keep the securities of the mutual fund in safe custody. It also retains the following documentation for the clients: Statement of receipt and distribution of Securities & money; Detailed statement of registration of securities and Ledger of Accounts for each Client. Sponsor: The sponsor of the fund provides the primary capital for launching the fund. The constitution of the mutual fund is set on a trust deed and it is executed by the sponsor in favor of the trustee of the fund (usually named in the trust deed). Sponsors of the fund can invest at least 10% or more. The number of sponsors in any fund can be more than one.

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Trustee: The trustee is considered to be the guardian of the fund and ensures compliance of SEC and other rules and oversees the implementation of the trust deed. The Trustee also safeguards the properties of the fund for all its stake holders.

Merchant Bank
A merchant bank is a financial institution which is primarily engage in offering financial services and provides advice to corporations and to wealthy individuals. The term can be used describe the private equity activities of banking. Investment Banking is an American synonym of merchant banking. Investment Banks provide advice on mergers and acquisitions and selling them in relatively small lots to investors. In the context of Bangladesh, it includes all financial institutions that combine the functions of both development banking and investment banking.

Underwriting It is an arrangement whereby the underwriter undertakes to subscribe the unsubscribed portion of shares / debentures offered by any public limited company. This encourages the prospective issuers to offer shares/debentures to the public for subscription and they can raise funds from the public. Issue Management
Issue Management function of merchant Banking helps capital market to increase the supply of securities. Being a Issue Manager these FIs provide assistance to the Private Limited Companies

intended to be converted into Public Limited Companies by way of obtaining necessary permission from the re l e va n t a u t h o r i t i e s , p r e p a r i n g p r o s p e c t u s for public issue of shares and debentures, involving itself in the collection of application money, scrutiny of applications, arranging for lottery relating to allotment, if required, allotment of shares and debentures, refund of application money etc. Portfolio Management Portfolio means a collection of investments owned by an investor, an institution or a mutual fund and portfolio manager means the entity responsible for investing a mutual funds assets, mapping out investment strategy and managing day to day securities trading. Portfolio Management is the process of building, managing and assessing an inventory of company products and projects. One of the most important functions of merchant banking is to provide Portfolio Management service to the customer.

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Demutualization is the process of converting exchanges from non-profit member-owned organizations to for profit, investor-owned corporations. More specifically Demutualization in the context of a stock exchange, means separating ownership from the right to use the exchanges trading system. In the mutual ownership model, a broker seekin g to trade on the exchange had first to be approved as an owner. Conversely, only brokers who wished to trade on the exchange would be approved as owners. If a broker resigned from the exchange or let the business, its membership (ownership) would cease. Demutualization separates these roles so that one no longer need be a shareholder (owner) to be granted trading privileges and one can be a shareholder without being a broker.

Composite Index:
A composite, or composite index, is an aggregation of components to produce a broad statistical measure. A stock index, for example, is a composite index as it combines individual stock prices to produce one number that represents the market as a whole. The technique used to calculate the composite number varies; a composite may add values together and apply a multiplier, it may add values together while applying different weights to different components, or it may simply average all the values together. Composites are not limited to stock markets. There are composite indexes for bonds, corporate debt and currency exchange rates. Many economic indicators such as the Consumer Price Index are composite indices. There are even composite indices of composite indices, such as the widely reported Index of Leading Economic Indicators. Benchmarking of professional money managers is often done against a composite. Mutual-fund managers, for example, may have their performance measured relative to the S&P 500 Index.

What you should know to buy or sell

Investors follow many calculations of corporate performance when deciding if a stock is undervalued or overvalued. These range from the simple price-earnings ratio, or P/E, to far more technical ways of attempting to discern whether a stock is trending up or down. Here are some of the most common. RSI (Relative Strength Index): A technical momentum indicator that compares the size of recent gains to recent losses, in an attempt to determine overbought and oversold conditions of an asset. Stocks with more or strong gains have a higher RSI than stocks that had more or stronger losses. SMA (Simple Moving Average): A simple, or arithmetic, moving average is the average stock price over a certain period of time. It adds up the closing price of the security for a given period and then divides the total by the number of intervals. Short term averages
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respond quickly to changes in the price of the stock, so appear less steady, and while long-term averages are slow to react. EMA (Exponential Moving Average): A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. The exponential moving average also known as exponentially weighted moving average. Bollinger Band: A band that provides a relative definition of high and low, it was developed by famous technical trader John Bollinger. By definition, prices are high at the upper band and low at the lower band. The band usually plots two standard deviations away from a simple moving average. Because the standard deviation is a measure of volatility, the bands adjust themselves to market conditions. When the markets become volatile, the bands widen (move further away from the average); during less volatile periods, the bands contract. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market. MACD (Moving Average Convergence Divergence): A trend-following momentum indicator that shows the relationship between two moving averages of prices. It is used to spot changes in the strength, direction, momentum, and duration of a trend in a stocks price. Divergence: This happens when a securitys price diverges from the MACD. It signals the end of the current trend.

Option Trading: An option is a contract between two parties giving the buyer the right, but
not the obligation, to buy or sell a security at a predetermined price on or before a predetermined date. To acquire this right the buyer pays a premium to the seller of the contract. There are two types of options available: call options and put options. Call Options: Call options give the buyer the right, but not the obligation, to buy the underlying shares at a predetermined price, on or before a predetermined date. Put options: Put options give the buyer the right but not the obligation to sell the underlying shares at a predetermined price on or before a predetermined date. The buyer of a put is only required to deliver the underlying shares if they exercise the option.

Carry forward: The "carry forward" activities are mixed together with the spot market.
Suppose you buy 1,000 shares of Beximco at Tk. 3,500, your cash outflow (Expense) is Tk. 35 lakh. Instead of paying cash, you can ask your broker to find a borrower to finance your trade. This process of buying stocks with borrowed money is Carry Forward (Badla) trading.
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Example: Suppose A has to buy 100 shares of a company at Tk. 50 each. But he doesn't have enough money now. But the value of shares is very less now, so in order to buy the shares at current prices, A can do a Carry Forward (Badla) transaction. Now there is a Carry Forward (Badla) financier B who has enough money to purchase the shares, so on A's request, B purchases the shares and gives the money to his broker. The broker gives the money to exchange and the shares are transferred to B. But the exchange keeps the shares with itself on behalf of B. Now, say one month later, when A has enough money, he gives this money to B and takes the shares. The money that A gives to B is slightly higher than the total value of the shares. This difference between the two values is the interest as Carry Forward (Badla) finance is treated as a loan from B to A. The rate of interest is decided by the exchange and it changes from time to time.

Short Selling: Short selling is when you sell a stock that you don't actually own. Your stock
broker buys the stock. He or she then lends it to you, sells it, and credits your account with the proceeds. You promise to buy the stock sometime in the future to return the loan. This is called covering the short and whole process is called short selling.

Exchange Traded Funds (ETFs):

ETFs are essentially index funds that are listed on an exchange and track the price performance of the target index closely. The ETF trading value is based on the net asset value (NAV) of the underlying stocks in the target index. E.g., a Nifty ETF will look to replicate CNX Nifty returns. ETFs are popular world over with nearly 60% of trading volumes on the American Stock Exchange (AMEX) captured by all types of ETFs. At the end of June 2011, the global ETF industry comprised 2,825 ETFs from 146 providers on 49 exchanges around the world with total assets of US$1.49 trillion (Source: The ETF advantage Trade like stocks - You can buy and sell an ETF during market hours on a real time basis as well as put advance orders on purchase such as limits or stops. In case of conventional mutual funds, purchase or sale can be done only once a day after the fund NAV is calculated. Low cost of investment - The passive investment style with low turnover helps keep costs low. ETFs are known to have among the lowest expense ratios compared to others schemes. Diversification benefit - In case of Nifty ETF, you own the complete basket of 50 stocks and remain diversified. Simple and transparent - The underlying securities are known and quantities are predefined (In case of conventional mutual fund schemes, one need to wait for the monthly factsheet). No form filling is required if you transact in the secondary market. Investment can be made directly from the fund house or the exchange.
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Supports small ticket investments - ETFs are a great tool for investors wanting to start with a small corpus. The minimum ticket size is 1 unit (in case of IIFL Nifty ETF, 1 unit is approximately 1/10th of Nifty level, i.e Rs500, when Nifty is at 5000). Premium and discount also tends to be higher in the futures segment, than in ETFs. ETFs are taxed like stocks - Investors can take advantage of special rates for short term and long-term capital gains. Target audience Long term investors First time investors Investors looking for a low cost diversified portfolio Traders who do not have enough capital to invest in index futures Institutional investors looking to temporarily park cash during portfolio transition Arbitrageurs to carry out operations with low impact cost Concept of tracking error The extent to which the NAV of the scheme moves in a manner inconsistent with the movements of the underlying Index on any given day or over any given period of time due to any cause or reason whatsoever including but not limited to expenditure incurred by the scheme, dividend payouts if any, all cash not invested at all times as it may keep a portion of funds in cash to meet redemption, purchase price different from the closing price of securities on the day of rebalance of Index, etc. Points to note before investing in ETFs Invest in ETFs with ample secondary market liquidity - Fund houses do depend on market makers and arbitrageurs to maintain liquidity to keep the price in line with the actual NAV. ETFs track the target index Any investor wanting an exposure to a particular target index like Nifty will do well by investing in ETFs. The objective of ETF is to be the index rather than beat the Index. Always invest in key benchmarks ETFs rather than sectoral funds - Investing in sectoral ETFs is prone to higher volatility compared to key benchmark ETFs like Nifty. Cost of trading on the exchange - Investor will have to bear the cost of brokerage and other applicable statutory levies e.g., Securities Transaction Tax, etc, when the units are bought or sold on the stock exchange.

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Valuation Methodologies
Goodbody Stockbrokers apply a range of valuation methodologies in the production of Equity Research, within which the following are the main methods adopted: 1. Share-based multiples include: Forward price/earnings (P/E) ratios, based on adjusted earnings Forward price/cash-earnings ratios Price to net asset value (NAV) per share and Dividend yields 2. Enterprise-based valuation multiples include: Forward earnings before depreciation, interest, tax, depreciation or amortisation (EBITDA) ratios Forward perating cash-flow ratios Enterprise value (EV)/sales ratios and EV/invested capital ratios 3. Cyclical consideration In the case of average earnings multiples, consideration is given to the stage of the relevant industry cycle, as it may not be appropriate to apply average multiples towards the peak or trough of a cycle. In such cases, earnings multiples prevailing at the corresponding stages of previous cycles may be used. 4. Asset based valuations In the case of asset-based valuations, reported tangible net assets generally provide a floor to a company's valuation. However, in many cases, company financial statements can understate the underlying economic value of a company's assets and a ratio such as return on invested capital to weighted average cost of capital (ROIC/WACC) may provide a more appropriate indicator of the book value multiple. 5. Company comparisons The ratings of similar companies (peer groups) may be taken into account as a proxy for the average ratings for particular industry sectors. Such ratings are commonly used in analysts' sumof-the-parts (SOTP) valuations. 6. Cash flow based valuation In discounted cash-flow (DCF) models a company's forecast future free cash-flows are discounted by its weighted WACC. However, due to the inherent uncertainties involved in forecasting long-term cash-flows, analysts tend to adopt a range of both WACC and terminal values within the DCF models, producing a range of alternative valuations. 7. Other valuation techniques

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In some instances, other valuation metrics may be used. For instance, for airlines metrics per passenger and / or available seat kilometre flown may be used for inter-company and valuation purposes. Index Methodology of CSE
What is stock market index and how does it construct?

A stock market index is a number that indicates the relative level of prices or value of securities in a market on a particular day compared with a base-day figure, which is usually 100 or 1000. There are many different ways of constructing an index. One of the most common methods is illustrated by the following simple example.The values of a market portfolio at the close of trading on Day 1 and Day 2 are recorded below:
Trading days DAY 1 (base day) DAY 2 Value of portfolio Tk 20,000 Tk 21,000 Index 1000 1050

We take Day 1 as the base day. The index on that day will be taken as a standard. The value assigned to the base day index is 1000 in this example. On Day 2 the value of the portfolio has changed from Tk 20,000 to Tk 21,000, a 5% increase. Therefore, the value of the index on Day 2 will change to indicate a corresponding 5% increase in market value. The computation follows the procedure below:
2'sportfolio value Day 2's index = ------------------------------------------------* Base Day's (Day 1) index Base Day's (Day 1) portfolio value Tk 21,000 = ---------------- * 1000 Tk 20,000 = 1050

Day 2's index is 1050 as compared to the 1000 of day 1. The above illustration only serves as an introduction to how a particular index is constructed. The daily computation of an index is more involved especially when there are changes in market capitalization of constituent stocks, e.g., rights offers, stock dividend etc. The primary objective of constructing market indices is to measure the performance of the market. The indices provide vital information about the current and historical behavior of the market. Stock market indices differ from one to another basically in their sampling and/or weighting methods.

Sampling Method
There are some market indices that are composed of all stocks listed in a market, e.g., the American Stock Market Index and the Hong Kong Stock Exchange All-Ordinaries Index etc. In general, an index based on a larger percentage of the total number of listed stocks will be more representative than that one based on a smaller percentage. Although an index that consists of all

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listed stocks can be considered as more representative, a number of stocks may have very few transactions, the quoted price of these stocks may not reflect their true market value. An index may still be highly representative even if it consists of only a relatively small percentage of the total number of stocks. Here, the sample selection process plays an important role. Most of well-known stock market indices of the major stock markets in developed countries are still considered as highly representative since their constituent stocks comprise a high percentage of total value of the market. For example, the Hang Seng Index (Hong Kong) is composed of 33 constituent stocks comprising approximately 70% of total value. FOX index (Finland) is composed of 25 most traded shares which is correspond to roughly 80% of the total market value and ATX 50 (Australia) comprises 84% of the capitalization and 97% of the turnover of all Australian stocks.

Weighting Method
There are, in general, three different weighting methods, namely, value-weighted, equally-weighted (or un-weighted), and price-weighted. Value-weighted method may be considered as a most appropriate method than others for both the bourses of the country (DSE & CSE) since the existing indices of the bourses have been calculating under value-weighted method. For a value-weighted index, the weight of each constituent stock is proportional to its market share in terms of capitalization. We can assume that the amount of money invested in each of the constituent stocks is proportional to its percentage of the total value of all constituent stocks. Examples include all major stock market indices of Hong Kong, London and many others.

Computation of Value Weighted Indices and Adjustments for Changes in Market Capitalization
The computation of a value-weighted index is useful to think in terms of evaluating the performance of a portfolio of securities. Some adjustments need to be made due to changes in market capitalization of the portfolio's constituent stocks. The adjustment procedures are discussed in detail below. To make our computation simple, we need to keep the number of constituent stocks small. Let us assume that the index is composed of only three stocks: A, B and C.

Day 1 (base day): Market Data of Constituent Stocks on Day 1

Stock A B C

Shares Outstanding 20 5 10

Closing Price 10 8 5

Market Value 200 40 50

Aggregate Market Value (AMV) = 290 The market value of each stock at closing is given by the product of the number of shares outstanding and the closing price. For stock A, for instance, it is 20 shares times Tk.10 which yields Tk.200. The aggregate market value (AMV) of all constituent stocks is the sum of the market value of each stock. The AMV of day 1 is Tk.290. Day 1 will be taken as the base day on which the index is set at 1000

Day 2: Market Data of Constituent Stocks on Day 2

Stock A Shares Outstanding 20 Closing Price 10 Market Value 200

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5 10

9 5.5

45 55

Aggregate Market Value (AMV) = 300 As there is no change in capitalization, no adjustment is needed on Day 2. The AMV is equal to Tk.300. The computation of the index on Day 2 follows the procedure below: Day 2's AMV Day 2's index = --------------------*Day 1's index Day 1's AMV 300 = ------- * 1000 290 = 1034.4828 It should be clear that the change in the index value shows the relative change in the aggregate market value of the constituent stocks. There is a 3.45% increase in AMV (also in index) on Day 2 relative to Day 1 (the base day).

Adjustment to Changes in Capitalization

Adjustments need to be made from time to time as a result of changes in capitalization of the constituent stocks. They are discussed in detail below:

Day 3 (Ex-Bonus)
Company Aissues 50% bonus shares. Its shares are to be traded ex-bonus at the ratio of "1 for 2", i.e., one share will be given as bonus for every 2 shares held. This issue of shares is going to change the total number of shares outstanding on Day 3. The adjustment is shown below: 20(1+2) New Total No. of Shares Outstanding of Company A = -----------2 = 30 Market Data of Constituent Stocks on Day 3 Stock A B C Shares Outstanding 30 5 10 Closing Price 7 8 6 Market Value 210 40 60

Aggregate Market Value (AMV) = 310 Therefore,

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Day 3's AMV Day 3's index = ---------------------- * Day 2's index Day 2's AMV 310 = ----------- * 1034.4828 300 = 1068.9656 Note that the closing price of Company A on day 3 is Tk. 7/- determined by demand and supply factors in the market against the theoretically adjusted price (to the extent of disclosure) of Tk. 6.67 made on day 2 after closing market / on day 3 before starting market. If the company issuing bonus share also recommends / declares cash dividend, then the cash dividend (to the extent of disclosure) should also be adjusted in the aforesaid theoretical price.

Day 4 (Ex-Rights)
Stock C has declared 40% rights share at the ratio of "2 for 5" at Tk.1.50 each including a premium of Tk. 0.5 each. The offer expires on Day 4 (i.e. ex-rights). As mentioned earlier, it is useful to treat the constituent stocks as a portfolio held by an investor. In the computation of the index on Day 4, the investor is assumed to exercise the rights. Therefore, the new number of shares outstanding for stock Cis given below: 10(2+5) New Number of Shares Outstanding for Stock C = ---------5 = 14 Market Data of Constituent Stocks on Day 4 Stock A B C Shares Outstanding 30 5 14 Closing Price 6.5 9.2 4.5 Market Value 195 46 63

Aggregate Market Value (AMV) = 314 Since all rights are exercised, capitalization adjustment needs to be made on day 3 after closing market / on day 4 before starting market. The number of shares outstanding increases by 4. This will cause an increase in capitalization by Tk.6 (= 4*1.50). The adjusted AMV on Day 3 after closing market / on day 4 before starting market in the index computation on Day 4 will be: 310 + 6 = 316 Therefore, Day 4's AMV Day 4's index =--------------------------------- * Day 3's index Adjusted Day 3's AMV 304 = ---------- * 1068.9656 316 = 1028.3720

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1028.3720 - 1068.9656 Percentage change = ------------------------------- * 100% 1068.9656 = -3.80% The index dropped from 1068.9656 to 1028.3720. This can be interpreted as a 3.80% decrease in AMV.

Day 5 (Replacement)
Stock B is replaced by stock D, which has a closing price at Tk.11.5 on Day 4 and its number of shares outstanding is 20. Market Data of Constituent Stocks on Day 5 Stock A D C Shares Outstanding 30 20 14 Closing Price 7 11 5 Market Value 210 220 70

Aggregate Market Value (AMV) = 500 The adjustment on Day 4's AMV in computing Day 5's Index follows a procedure as if the stock replacement had taken place on Day 4. The adjusted AMV on Day 4 is given as: Stock A D C Shares Outstanding 30 20 14 Closing Price 6.5 11.5 4.5 Market Value 195 230 63

Aggregate Market Value (AMV) = 488 Therefore, Day 5's AMV Day 5's index = --------------------------------- * Day 4's index Adjusted Day 4's AMV 500 = ------ * 1028.3720 488 = 1053.6598

Day 6 (Addition)
Stock Eis added to the index as a constituent stock on Day 6. Stock E has a closing price of Tk.4 and the number of shares outstanding is 40 on Day 5. Market Data of Constituent Stocks on Day 6

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Stock A C D E

Shares Outstanding 30 14 20 40

Closing Price 7.2 4.8 12 4.5

Market Value 216 67.2 240 180

Aggregate Market Value (AMV) = 703.2 Since the number of stocks has changed, we need to compute the adjusted AMV for Day 5 in computing Day 6's index. Day 5's adjusted AMV will be equal to the original AMV plus the market value of stock E on Day 5. This is equal to Tk.500 + 160 (4*40) = 660. Day 6's AMV Day 6's index = ---------------------------------- * Day 5's index Adjusted Day 5's AMV 703.2 = ------- * 1053.6598 660 = 1122.6266 Any new issue should not be considered in the computation of index for x days from the date of first trade. x may be a single digit parameter e.g. x = 1, 2, 3...... days. Here, in DSE and CSE, x is equal to 1. Shares issued under Repeat Public Offer (RPO), conversion, amalgamation, acquisition etc. should be treated as new issue (addition) and adjusted to give effect in the index on the following day of crediting/ issuing of those shares as per the guideline of Day 6.

Day 7 (Deletion)
Stock C is deleted from the index's constituent stocks. The new total number of stocks is reduced to 3. Market Data of Constituent Stocks on Day 7 Stock A D E Shares Outstanding 30 20 40 Closing Price 7 12.3 5 Market Value 210 246 200

Aggregate Market Value (AMV) = 656 The adjusted AMV on Day 6 will be a reduction by the amount of market value of stock C on Day 6. Day 6's adjusted AMV will be equal to Tk 703.2 - 67.2 = 636. Day 7's AMV Day 7's index = --------------------------------- * Day 6's index Adjusted Day 6's AMV 656

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= ----- * 1122.6266 636 = 1157.9293

Day 8 (Ex-Dividend)
Cash dividends of Tk .50 per share are declared for stock E and Day 8 is to be ex-dividend. Market Data of Constituent Stocks on Day 7 Stock A D E Shares Outstanding 30 20 40 Closing Price 7.2 12.3 4.6 Market Value 216 246 184

Aggregate Market Value (AMV) = 646

No adjustment is needed, as there is no change in capitalization. 646 Day 8's index = ------- * 1157.9293 656 = 1140.2779 Note that the price of stock E drops. This is a normal phenomenon as a stock goes ex-dividend. Day 8s index records a decrease as well. Note that the closing price of Company E on day 8 is Tk. 4.6 determined by demand and supply factors in the market against the theoretically adjusted price (to the extent of corporate disclosure) of Tk. 4.50 made on day 7 after closing market / on day 8 before starting market.

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