Term Paper on

Basic Terms and Concepts of Investment Banking

&
Problems and Prospects of Capital Markets in Bangladesh
Course: EB-622 (Merchant Banking & Investment Banking)

Submitted to
MD. Tanvir Hamim
Assistant Professor, Department of Banking and Insurance,
University of Dhaka

Submitted by
Syed Maruful Islam
ID # 518 40 061
Batch: 40
 Basic Terms & Concepts of Investment Banking

Investment Banking
Investment banking is a special segment of banking operation that helps individuals or organizations
raise capital and provide financial consultancy services to them. They act as intermediaries between
security issuers and investors and help new firms to go public. They either buy all the available shares
at a price estimated by their experts and resell them to public or sell shares on behalf of the issuer
and take commission on each share.
Investment banks
An investment bank is a financial services company that acts as an intermediary in large and complex
financial transactions. An investment bank is usually involved when a startup company prepares for
its launch of an initial public offering (IPO) and when a corporation merges with a competitor. It also
has a role as a broker or financial adviser for large institutional clients such as pension funds.
Global investment banks include JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, Bank
of America, Credit Suisse, and Deutsche Bank. Many of these names also offer storefront community
banking and have divisions that cater to the investment needs of high-net-worth individuals.
Issue manager
Any financial institution / intermediary which can carry out the activities connected with issue
management is registered with SEBI and follow its regulations and guidelines is capable of venturing
into issue management. Issue management is an important activity for merchant bankers.
underwriter,
Underwriters are responsible for deciding whether or not to accept applications for insurance cover
– this is known as ‘risk’. Determining risk is a complex process and the job relies on sensible
judgement and meticulous attention to detail. The underwriter must ensure that accurate quotes are
produced that are competitive to the customer, yet profitable for the company. Underwriters may
work in many areas but the work generally falls into the categories of life assurance, commercial
insurance, general insurance and reinsurance.
Issue register
The Issue Register captures and keeps track of all formal issues. It is regularly monitored by the
Project Manager throughout the project. Just imagine a spreadsheet where each line is an issue and
there are columns for Issue ID, Issue Type, Date Raised, Raised by, Description, Current Status, and
Close Date. So, we can that the purpose of the Issue Register is to capture and maintain information
on all the formal issues. Informal issues are normally placed in the Daily Log by the Project Manager
as these can easily be taken care of the Project Manager, and they do not need help from others; e.g.,
Meeting room is unavailable, or project printer needs new ink.
Primary market,
The primary market is where securities are created. It's in this market that firms sell (float) new
stocks and bonds to the public for the first time. An initial public offering, or IPO, is an example of a
primary market. These trades provide an opportunity for investors to buy securities from the bank
that did the initial underwriting for a particular stock. An IPO occurs when a private company issues
stock to the public for the first time.

secondary market
The secondary market is where investors buy and sell securities they already own. It is what most
people typically think of as the "stock market," though stocks are also sold on the primary market
when they are first issued. The national exchanges, such as the New York Stock Exchange (NYSE) and
the NASDAQ, are secondary markets.

Broker
A broker is an individual or firm that acts as an intermediary between an investor and a securities
exchange. Because securities exchanges only accept orders from individuals or firms who are
members of that exchange, individual traders and investors need the services of exchange members.
Brokers provide that service and are compensated in various ways, either through commissions, fees
or through being paid by the exchange itself.
Dealer
Dealers are people or firms who buy and sell securities for their own account, whether through a
broker or otherwise. A dealer acts as a principal in trading for its own account, as opposed to a broker
who acts as an agent who executes orders on behalf of its clients. Dealers are important figures in the
market. They make markets in securities, underwrite securities, and provide investment services to
investors. That means dealers are the market makers who provide the bid and ask quotes you see
when you look up the price of a security in the over-the-counter market. They also help create
liquidity in the markets and boost long-term growth.

Green shoe provision

A green shoe option is an over-allotment option. In the context of an initial public offering (IPO), it is
a provision in an underwriting agreement that grants the underwriter the right to sell investors more
shares than initially planned by the issuer if the demand for a security issue proves higher than
expected.
Reverse green shoe provision,
A reverse green shoe option, also known as an overallotment option, is a provision used by
underwriters in the initial public offering (IPO) process. It is intended to provide increased price
stability for the newly-listed security. Reverse green shoe options are similar to regular green shoe
options except that they are structured as put options rather than call options. In both cases,
however, their objective is to promote price stability following the IPO.
Red hearing prospectus
A red herring is a preliminary prospectus filed by a company with the Securities and Exchange
Commission (SEC), usually in connection with the company's initial public offering (IPO). A red
herring prospectus contains most of the information pertaining to the company's operations and
prospects but does not include key details of the security issue, such as its price and the number of
shares offered.
Road show
A roadshow is a series of presentations made in various locations leading up to an initial public
offering (IPO). The roadshow is a sales pitch or promotion made by the underwriting firm and a
company's management team to potential investors before going public. Roadshows generally take
place in major cities and are meant to drum up interest in the upcoming offer. Potential investors are
introduced to the company, its history, and its key personnel.
Indicative price
An indicative quote is a reasonable estimate of a currency's current market price that is provided by
a market maker to an investor upon request. However, this rate is not able to be dealt on, hence the
word indicative. In other words, when a market maker provides an indicative quote to a trader, the
market maker is not obligated to honor the price stated in that quote if the counterparty chooses to
transact in that currency pair.
Cut off price
In a book-building issue, the issuer is required to indicate either the price band or a floor price in the
red herring prospectus. The actual discovered issue price can be any price in the price band or any
price above the floor price This issue price is called “cut off price”
Final price
Even in the era of 24-hour trading, there is a closing price for any stock or other security, and it is the
final price at which it trades during regular market hours on any given day. The closing price is
considered the most accurate valuation of a stock or other security until trading resumes on the next
trading day. Most stocks and other financial instruments are traded after-hours, although in far
smaller volumes. Therefore, the closing price of any security is often different from its after-hours
price.
 Problems and Prospects of Capital Markets in Bangladesh

The Bangladeshi Stock experts, investors and some other Technical Analyst are trying to find the
possible monsters. The TA experts have found some reasons of this share market fall down.
Syndicates are working behind this recent plunge. These syndicates have a huge investment in Stock
Market and they take control of the price of the shares. They are united and buy a share
simultaneously so a want is created in the whole market. So, the prices of share become higher and
general investors suffer with it. Most of investors in share market is either newbie or have no analysis
power. They are just trading on the basis of seeing what other peoples are trading. So, without seeing
a company’s saturation point; the invest money and lose money. And our Government has changed
lots of rules of local stock market and applied lots of limited on Debt and other facilities. And this is
another reason of this recent Bangladeshi share market plunge. like this many other reasons behind
for present alarming condition Bangladesh share market.

The capital market is the engine of growth for an economy, and performs a critical role in acting as
an intermediary between savers and companies seeking additional financing for business expansion.
Vibrant capital is likely to support a robust economy. While lending by commercial banks provides
valuable initial support for corporate growth, a developed stock market is an important pre-requisite
for moving into a more mature growth phase with more sophisticated conglomerates. Today, with a
$318 billion economy and per capita income of roughly $2000, Bangladesh should really focus on
improving governance and developing advanced market products.

Why our stock market is under developed?

Access to high quality and credible corporate information remains a major problem in the market.
While a handful of institutional investors may enjoy certain benefits since, they have an investment
unit manned with qualified officers, nothing exists for retail investors. And, in the absence of
independent research houses, retail investors primarily focus on advice given by their brokers, which
often consists of market rumors. This is not acceptable, and it often leads to enormous losses for
small investors who are vital for a low-income and emerging market like Bangladesh. Filtering of
information among different types of investors may leave scope for manipulation; this assumption
had been proved right in the 1996 market meltdown at the cost of many individuals and households.
The market does not have an adequate number of fundamentally sound scrip.
The Recent Surge in the stock Market
Stock market index jumped by over 100 points today within two hours of the day's trading. With the
surge, the index touched one and a half years' high points today. DSEX, the benchmark index of the
Dhaka Stock Exchange, surged by 102 points, or 1.97 percent, to stand at 5,321.29 at 12:00pm which
is highest since July 7 last year. The turnover during the two hours of the bourse's trading stood at
Tk 841 crore. Participation from the institutional investors has been rising in the market in the last
few days which fueled the stock market to rise, a stock broker wishing not to be named said. Investors
hoped that the world economy along with local economy will rebound soon so their participation has
been rising, he added. Among 360 companies that are being traded, 235 advanced, 56 declined and
69 remained unchanged.
Market capitalization of Dhaka Stock Exchange (DSE) stood at an all-time high at Tk 441,828 crore
yesterday thanks to increased investor participation. The value of listed securities with the country's
premier bourse rose Tk 51,849 crore, or 13 per cent, over the past month, when investors started pouring
their money into the market. Investors started coming back to the stock market in the last few months
since many stocks have become lucrative amid the pandemic driven index fall, said a portfolio manager
of a top asset management company. Many well performing companies' stocks plunged to low levels in
March but they have the potential to grow despite the ongoing crisis, he said. On March 18, the DSEX, the
benchmark index of the DSE, plummeted to 3,603 points, which was the lowest point of the index since
its inception in January 2013, shows the DSE data.

On the other hand, a Covid-19 vaccine is coming so the economy will be revived, said the stock market
analyst.
The listing of well performing companies in the stock market also contributed to the increase in
market capitalization, he added. Robi Axiata got listed with the stock market on Thursday and raised
a fund of Tk 523 crore. Its market capitalization is Tk 11,785 crore. Similarly, Walton Hi-Tech
Industries raised Tk 100 crore and the market value of the company's shares is Tk 31,495 crore,
shows the DSE data. Meanwhile, the DSE approved a resumption in trading shares of Rahima Food
Corporation at the main board of the DSE, which will begin today under A category, the DSE informed
through its website yesterday. The company was delisted in 2018 due to a shutdown of its operations
in 2013. The company later resumed its operations and applied to get re-listed. The reference floor
price will be the floor price of the company that traded at the Chattogram Stock Exchange, which is
Tk 175.4, said the DSE. The DSEX rose 15.73 points, or 0.29 per cent, to 5,344 yesterday. It was the
highest level of the index after July 7, 2019. Turnover, an important indicator of the market, dropped
11.96 per cent to Tk 1,346 crore yesterday. BD Finance topped the gainers' list with a 10 per cent
increase followed by Eastern Cables, BD Lamps, Robi Axiata and Golden Harvest. Beximco was the
most traded stock with Tk 130 crore worth of shares changing hands followed by IFIC Bank, Beximco
Pharmaceuticals, LankaBangla Finance and Square Pharmaceuticals. Of the total 361 traded
companies, 157 advanced, 143 declined and 61 remained unchanged. Mozaffar Hossain Spinning
Mills shed the most, losing 6.79 per cent yesterday, followed by GQ Ball Pen, Pragati Insurance,
Aramit Cement and Bangladesh Industrial Finance Company. The port city bourse also rose
yesterday. The benchmark index of the Chittagong Stock Exchange, the CSCX, rose 29.5 points, or 0.31
per cent, to stand at 9,292. Of the 292 traded stocks, 132 rose, 117 fell and 43 remained unchanged.
Problems in the Stock market
Liquidity Crisis
Liquidity crisis is the main reason for the fall in share prices. The stock market has been fund-hungry
since its collapse in December 2010. Liquidity crisis is the reason for rising call money rate. This
liquidity crisis is also an evident from the recent scramble for luring depositors by some banks by
hiking interest rates on deposit. Most of the money is now invested in government bonds. If
Bangladesh Bank wants to overcome the liquidity crisis it will have to go for an expansionary
monetary policy.

Aggressive Profit Taking in Selective Stock

Most banks that had made hefty profits from the stock market between 2007 and 2010 do not have
enough funds to invest in stocks. The market would have got a real boost had all the banks injected
fresh funds worth Tk. 3.0 billion to Tk. 4.0 billion each. But under the given circumstances, a good
number of banks would find it hard to do that. Moreover, since a major turnaround of the market
could take several years many banks right at the moment cannot afford investment in stocks

Frequent Changes in Policy and Directives

The 'fruitless’ measures taken in the name of market stabilization have ultimately created price
distortion in the market without containing the flagging trend. The SEC also created price distortion
in the market by issuing the directive of individually holding minimum two per cent shares by
sponsor-directors of the listed companies. The securities regulator did not think of the aftermath of
the directive. The SEC thought that a demand will be created in the market following mandatory
purchase of shares by sponsor-directors. The market was regularly affected due to hearing of the
writ petitions, filed challenging the SEC's directive. The market never got back its power of natural
movement due to disturbances, created by different stakeholders or the securities regulator itself.
The condition limiting bank's exposure to the capital market and reduction of margin loan ratio may
have also affected the investors' sentiment.

Lack of Knowledge & Confidence among Small Investor

The intern places highest importance on this issue as a cause of market plight. Most of the investors
of our capital market are small investors. And it has been seen that, many of them have lack of proper
knowledge about the market. They just bought a share to get profit after 3 days when the shares got
matured. But how and why they were supposed to get a profit they didn’t knows well. So, when
market went decline the investors were supposed to wait and not to sell in loss. But they got panicked
and sold off their share in loss even. So, this attitude prolonged the market to go in bearish situation.
Investors' prevailing lack of confidence, risk-aversion and encashment attitude, and reluctance to
make fresh exposure have caused the market to fall. Following poor half-yearly earnings by a number
of financial institutions have shaken their confidence further. Though the liquidity situation remains
favorable, due to valuation concerns the investors are a bit worried to step up their investments.
Rumors, Speculation and Manipulation
A market rumor is an unreliable report that has the potential of affecting the stock market. Bad
rumors can lead to a loss of confidence in our markets. Such loss of confidence can lead to panic
selling which may be further exacerbated by "naked" short selling. As a result, the prices of securities
may artificially and unnecessarily decline well below the price level that would have resulted from
the normal price discovery process. Media, broker houses, the corrupted members of SEC and
various gamblers spreads these rumors for their immoral purpose. There was wrongly made
speculation and manipulation too. Let’s assume, Eastern Housing Co. (EHL) had a price of Tk. 600 in
the last month. After one month it is now Tk.1000 and there was strong speculation that it would go
to Tk.2000 easily. So, the investors who bought at 600-700-taka level didn’t sell EHL. They believed
that speculation. But ultimately that didn’t happen. There was example of manipulation too. A share
had a price of Tk. 40 only. In a year this price rose up to Tk. 2000 which means that individual share
gave maximum 4900% gain in a single year. It has been observed that the share values of some
profitable companies have been increased fictitiously some times in such a way that hampers the
market stability

Weak Corporate Governance

Corporate governance of international standard is still lacking. Multinational corporations and
institutions operating in Bangladesh often adhere to a very high international standard compliance
regime. Parent companies of most of these corporations and institutions have their scraps listed in
developed markets. Unless the local market adheres to, and effectively enforces, a standard corporate
governance system, there will not be a level-playing ground for international business houses via
local operators. There is very poor corporate governance in the Stock Indices that is an important
reason of recent debacle.

Lack of Coordination among Different Financial Markets

Lack of coordination among different financial markets including debt market, equity market and
bond market is considered as a major weakness for sustainable growth of the capital market. Various
decisions (or indecisions) of different market regulatory bodies have often contributed towards
significant fluctuation in the market. Overall, lack of proper coordination between two leading
regulatory bodies of the financial sector, namely the Bangladesh Bank and SEC is considered to have
contributed to the irregular behavior of the capital market.
Major Future Prospects of Capital Market
Within 3 to 6 months 8 large profitable government enterprises are going to be listed under Direct
Listing Method adding value worth another 1 billion Dollar.

• The Telecom Giants in Bangladesh are finalizing their offers for IPO in the market.

• Power and energy sectors demand for capital

al is 5 to 10 billion dollars within short time to meet the immediate needs of 5000 MW power
demand.

• A deep-sea port requiring 1 billion dollars is going to start with a policy decision that it will
also be listed.

• The Pharmaceutical sector and API enjoying WTO benefit is growing sharply.

• Textile sector as backward linkage to thriving export-oriented garments industries is

booming.

• Export oriented food processing industry needs huge capital and technical capacity to meet
the growing standards in global market for marine food, fruits and poultry.

• IT sector with our talented developers, yet to demonstrate the massive potentials of software
industry of the country

Conclusion
The capital market is the engine of growth for an economy, and performs a critical role in acting as
an intermediary between savers and companies seeking additional financing for business expansion.
Vibrant capital is likely to support a robust economy. While lending by commercial banks provides
valuable initial support for corporate growth, a developed stock-market is an important pre-requisite
for moving into a more mature growth phase with more sophisticated conglomerates. Bangladesh's
stock market is poised for rapid development. For this the SEC, DSE, CSE and all market players
should work together with the support of the government. Market confidence is sure to erode if
conflicting signals are received from different authorities. At the same time investors will have to
understand that in any stock market there are ups and downs and they cannot blame others
whenever stock prices slide down. Fortunately, investors are getting matured gradually and
hopefully we may not have to see shouting and slogan in front of the exchanges any longer.
Bangladesh should really focus on improving governance and developing advanced market products,
such as derivatives, swaps etc.