Professional Documents
Culture Documents
Prepared for
Prepared by
Group 4
Tanzim Tahmim Roll 16, MBA 55D
Faisal Amin Tusher Roll 26, MBA 55D
Md. Shahed Faisal Roll 27, MBA 55D
Syed Fuad Hussain Roll 34, MBA 55D
Muhammad Tanvirul Islam Jony Roll 39, MBA 55D
Date of Submission
10 June 2017
10 June 2017
Dear Madam,
It is our earnest pleasure to submit the Term Paper on “The Stock Market of Bangladesh – An
Overview” which has been assigned to us as a requirement of course fulfillment for the
“Financial Markets and Institutions” course.
We would like to thank you for giving us this unique opportunity to further enhance our
knowledge on a particular financial market. We sincerely hope that we will be able to fulfill
your expectations and do justice in capturing the true essence of your teachings in our paper.
This paper has been extremely interesting to work on as it has given us the opportunity to
have a detailed perception on the stock market of Bangladesh. We have done this assignment
with our utmost sincerity and hope that you will appreciate this endeavor.
Sincerely Yours,
i
Executive Summary
Sound stock market is an indispensable part of a financial system. Without sound and
efficient stock market, rapid economic development could be hampered as stock market
provides long term funds to entrepreneurs. Stock market of Bangladesh is still highly
speculative and lacks transparency due to poor regulatory framework. In Bangladesh,
financial sector was historically driven by banks and stock market had fewer rules to play as
people had mixed perception about the risk pattern in stock market that discouraged them
mostly to invest there. But in the mid '90s of last century, stock market started to show
vibrant behavior that made people interested about the capital exchanges.
In this paper, we saw how the stock market of Bangladesh was formed, its brief history. Also,
how it was structured into Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE)
and the regulatory body, Bangladesh Securities and Exchange Commission (BSEC), and the
central depository body, Central Depository Bangladesh Limited (CDBL).
We briefly had a look at the global stock market scenario and few of the world’s renowned
stock markets and compared it with Bangladesh's stock market.
We went through the regulatory condition of Bangladesh's stock market, more details about
the regulatory body, the functions performed by its members and the functions performed by
the commission itself.
We analyzed the stock market performance in the last five years and went into detail about
the stock market crash in 2010-11 by describing the reasons behind it and how the market has
been recovering since then.
We identified the current prospects of the stock market in Bangladesh and also found out the
challenges and problems it is facing. We recommended several practicable measures to
mitigate these problems.
ii
Table of Contents
Executive Summary .......................................................................................................................... ii
1.0 Introduction ................................................................................................................................. 1
1.1 Objectives ................................................................................................................................ 1
1.1.1 Broad Objective ................................................................................................................ 1
1.1.2 Specific Objectives ........................................................................................................... 1
1.2 Methodology ........................................................................................................................... 1
1.2.1 Primary Sources ................................................................................................................ 2
1.2.2 Secondary Sources ............................................................................................................ 2
1.3 Limitation ................................................................................................................................ 2
2.0 Stock Market of Bangladesh ........................................................................................................ 3
2.1 Structure of the Stock Market ................................................................................................... 3
2.2 Dhaka Stock Exchange (DSE) .................................................................................................. 3
2.2.1 Functions of DSE .............................................................................................................. 4
2.2.2 Nature of DSE................................................................................................................... 5
2.3 Chittagong Stock Exchange (CSE) ........................................................................................... 5
3.0 Global Stock Markets .................................................................................................................. 6
4.0 Regulations of Bangladesh Stock Market ..................................................................................... 7
4.1 Regulatory Body ...................................................................................................................... 7
4.2 Regulatory Functions Performed by Members .......................................................................... 7
4.3 Commission’s Main Regulatory Functions ............................................................................... 8
5.0 Stock Market Performance during Last 5 Years ........................................................................... 8
5.1 The 2010-11 Stock Market Crash ............................................................................................. 9
5.2 Reasons Behind the Stock Market Crash ................................................................................ 10
6.0 Prospects of Bangladesh Stock Market ....................................................................................... 12
7.0 Challenges & Problems of Bangladesh Stock Market ................................................................. 13
8.0 Recommendations ..................................................................................................................... 14
9.0 Conclusion ................................................................................................................................ 14
Appendix A ..................................................................................................................................... 16
Appendix B ..................................................................................................................................... 18
References....................................................................................................................................... 20
List of Figures
Figure 5.1: DSE General Index, December 2010 .............................................................................. 10
iii
1.0 Introduction
Stock Market mainly refers to the stock and share market of the country. When banking
system cannot fully meet up the need for funds to the market economy stock market stands up
to supplement it. Companies and the government can raise funds for long-term investments
via the stock market. The stock market includes the stock market, the bond market, and the
primary market. Securities trading on organized stock markets are monitored by the
government; new issues are approved by authorities of financial supervision and monitored
by participating banks. Thus, organized stock markets are able to guarantee sound investment
opportunities. This paper reveals the various aspects of the stock market in Bangladesh.
1.1 Objectives
The objective of the paper can be divided into two parts. These are:
Broad Objective
Specific Objectives
To give an overview of the stock market of Bangladesh - its structure and functions.
To identify the current situation of the stock market of Bangladesh.
To compare the relative conditions of Bangladesh stock market to other countries of
the world.
To sort out the prospects and challenges associated with our stock market.
To suggest some recommendations to these problems.
1.2 Methodology
The study is descriptive in nature. Both primary and secondary data were used in preparing
this paper and these were collected through teamwork from the following sources:
1
1.2.1 Primary Sources
Primary data was collected by visiting in person, the following organizations and respective
key personnel:
1.3 Limitation
While conducting the study, we were confronted with the following limitations:
The primary data collected wasn’t sufficient. So, our major reliance was on the
secondary data.
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.
2
2.0 Stock Market of Bangladesh
The history of stock exchange in Bangladesh is more than 60 years old. It started on April 28,
1954 as East Pakistan Stock Exchange Association Ltd. Other than trading on this market
started in 1956 with a total paid up capital of Taka 4 billion and 196 securities were listed on
that market. Besides, the exchange was renamed as Dhaka Stock Exchange (DSE) Limited on
June 23, 1962. On the other hand, trading on Dhaka Stock Exchange was suspended from
1971 to 1976 because of liberation war and its post-independence weak economy. In 1976,
the trading was started again with 9 listed securities having a total paid up capital of Taka
137.52 million.
However, in its sixty-two-year’s history the stock market of Bangladesh crashed two times,
first in 1996 and then in 2010-2011. At first, the market crashed in December of 1996 and the
index started to decline significantly since then resulting in a cumulative decline of 83.44
percent from 1996 to 1999 with the annual rate of 27.82 percent. Stock index of Bangladesh,
which has dropped 55% since early 2011, continues to fall. One of the main reasons behind
this unstable stock market is the lacuna in the regulatory frameworks and weakness in stock
market governance. In this situation, sustainable improvement of the legal framework of the
stock market is a vital issue for the protection of the investors and the development of its
economy.
3
and its actions are regulated by its Articles of Association rules & regulations and bye-laws
along with the Securities and Exchange Ordinance - 1969, Companies Act - 1994 &
Securities & Exchange Commission Act - 1993.
In the beginning, it was a physical stock exchange and used to buy and sell in the open out-
cry system. After that automated trading system was introduced to secure smooth, timeliness
& effective operation on the market. Moreover, the system was installed on 10th August,
1998 and was advanced time to time. The latest upgrading was done on 21st December, 2008.
On the other hand, the members in Dhaka Stock Exchange are 250 and total 533 listed
securities. The working days of DSE is 5 days in a week without Saturday, Sunday public
holidays & other government holidays. The trading time is from 11:00 am to 15:00 pm (local
time). Investment options for an investor in this market are ordinary share, Debenture, Bond
& Mutual funds.
As mentioned by Fellowes (2013), “Every stock market has its indices to show movements in
the market as a whole”. In the beginning DSE had only one index. However, now there are
three different indices which are DSI (All share), DSEX (A, B, G & N) and DSE 20. DSE
introduces two new indices, which are known as the DSE Broad Index (DSEX) and DSE 30
Index (DS30).
4
2.2.2 Nature of DSE
There are four markets in the system:
Public Market: Only trading of market lot share is done here through automatic
matching.
Spot Market: Spot transactions are done here through automatic matching
which must be settled within 24 hours.
Block Market: A place where bulk quantities of shares are traded through pick
and fill basis.
Odd Lot Market: Odd lot scripts are traded here based on pick and fill basis.
Moreover, there are four different markets in CSE same as DSE which are public, Spot,
Block & Odd Lot market. In addition, trading is done through all these four markets.
The Five categories of company listed in CSE are A, B, N, G and Z but in G category
there is not any company.
Chittagong Stock Exchange has its own indices to calculate movements of its total
market value. CSE maintained only one index that was All Share Price Index until 10th
October, 1995. Now CSE has 3 indices in the stock exchange those are All Share Price
Index (CASPI), CSE Selective Index (CSE30) and CSE Selective Categories' Index
(CSCX).
5
3.0 Global Stock Markets
In the 1600's, the Dutch, British, and French governments all gave charters to companies with
East India in their names. On the cusp of imperialism's high point, it seems like everyone had
a stake in the profits from the East Indies and Asia except the people living there. Sea
voyages that brought back goods from the East were extremely risky – on top of Barbary
pirates, there were the more common risks of bad weather and poor navigation.
In order to lessen the risk of a lost ship ruining their fortunes, ship owners had long been in
the practice of seeking investors who would put up money for the voyage – outfitting the ship
and crew in return for a percentage of the proceeds if the voyage was successful. These early
limited liability companies often lasted for only a single voyage.
When the East India companies formed, they changed the way business was done. These
companies had stocks that would pay dividends on all the proceeds from all the voyages the
companies undertook, rather than going voyage by voyage. These were the first modern joint
stock companies. This allowed the companies to demand more for their shares and build
larger fleets. The size of the companies, combined with royal charters forbidding
competition, meant huge profits for investors.
New York Stock Exchange: $18.8 trillion. The NYSE's value is not only the highest
on earth, but is worth almost three times as much as its nearest competitor, the
NASDAQ. Companies listed include many of the world's largest like Apple,
Facebook, and Google.
NASDAQ: $7.5 trillion. Second, but second by a long way, is the NASDAQ. Short
for National Association of Securities Dealers Automated Quotations, the New York-
based exchange includes eBay, Kraft, and Microsoft on its benchmark Nasdaq 100
index.
Japan Exchange Group: $4.9 trillion. The biggest exchange outside of the USA, the
Japan Exchange Group controls Japan's world famous Nikkei 225, the index often
cited as the stock bellwether for the entirety of Asia. Consumer goods firms like
Nikon, Olympus, and Konica are some of the most famous companies listed by the
JEG.
6
Shanghai Stock Exchange: $3.9 trillion. China's largest stock exchange, based in the
country's financial center, Shanghai, counts brewer Tsingtao, Air China, and Sinopec
as constituents.
London Stock Exchange: $3.6 trillion. Probably the most famous exchange in
Europe, the London Stock Exchange, in the heart of the city, includes the blue-chip
FTSE 100, the smaller, but still significant FTSE 250, and the AIM index of small cap
stocks.
Hong Kong Stock Exchange: $3.1 trillion. Hong Kong has a reputation as one of the
globe's most prominent financial centers, so it is unsurprising that its key stock
exchange is worth more than $3 trillion.
Asian stock markets are adopting more and more with the growing corporatization of the
Asian economies. South and Eastern Asia have progressed a lot with respect to attracting
western companies to get listed in Asian bourses as well as supporting innovative
instruments, and Southeast Asia is coming up with India leading the way. Comparing the
local market scenario with that of the rest of the region, Bangladesh is doing well in some
areas but must develop some areas as well. We have most of the infrastructure in place. Our
market capitalization is relatively smaller and it currently stands at $9.3 billion, which is just
over 13 percent of GDP. Higher liquidity is skewed towards a handful of areas, while a
stagnant situation exists for few less profitable issuers.
7
c) Act as an administrative tribunal for decisions on the stock market.
The market is guided by regulations to keep it efficient, fair and resilient. BSEC makes,
maintains and updates these regulations. Regulations are published in the form of gazettes.
There are a large number of detailed regulations imposed by BSEC. Some key facts of the
regulations are mentioned above in this report but listing all of them is beyond the scope of
this report. The detailed regulation can be found on BSEC’s official website
(http://www.secbd.org/lawsupdated.html).
8
5.1 The 2010-11 Stock Market Crash
SEC and Bangladesh Bank applied a lot of directives to keep the market under control in
2010. But in December both BB & SEC changed many of their previous directives and
applied new more. The reason of canceling these directives was a significant fall of share
prices on 8th December.
The most important directives initiated by BB in December 2010 are withdrawal of illegally
invested industrial loans, increasing SLR & CRR. On 15th December, BB increased CRR and
SLR by 0.5 percent and increased to 19 & 6 percent. Another important directive initiated by
BB was withdrawal of illegally invested industrial loans by December 31, 2010. As a lot of
the reserved money was invested in stock market, banks started selling shares and
withdrawing that money from the market.
By the time investors had begun to panic. To handle the disastrous & assure the panicked
investors BB extended its deadline for submitting and adjusting loans. For the merchant
banks the deadline was January 15, 2011 and for the commercial bank February 15, 2011.
Institutional investors including financial institutions started selling shares from the
beginning of December to show high return on investment at their balance sheet. As the
Institutions & banks started selling their shares from the beginning of December the turnover
of DSE was the highest ever in its history on 5th December.
19th December was a historical day of the financial year 2010-11 in Bangladesh stock
market. On this day DSE witnessed its biggest one day fall in 55 years history until the date
with losing 551.76 points or 6.71 percent. The losing index was even higher than 284.78
points or 3.32 percent of 12th December. Prices started to nosedive in an hour after the
trading started and about 200 points were wiped off. In the middle of the session it recovered
little bit and ended up the session at 7654 point.
9
Figure 5.1: DSE General Index, December 2010
Uniform Face Value of Shares: In 2009 & 2010, 62 listed companies spilt their shares to
make a uniform face value of share at Tk. 10. In theory, splitting shares doesn’t intend to
change revenue or asset and thus should not affect share prices. However, as splitting shares
make it possible for small investors to buy those shares which were previously expensive,
small investors showed a lot of enthusiasm to buy split shares and consequently pushed the
price up. This began to transform market capitalization. The companies which had split their
shares witnessed 655% increased market capitalization. On the contrary, companies which
did not split their shares noticed only 46% rise in market capitalization.
Increase of BO A/C: Most of the BO accounts were opened during June ’09 to January ’11
that indicated that more than half of the investors could be treated as new investors. During
2009, stock exchanges, Institutional investors and SEC make many campaigns within and
outside the country to attract new investor that seems to be successful as the BO
accountholders was doubled in last two years that might be treated as a potential for market
development. But due to scarcity of new securities market price increased substantially. This
demand-supply mismatch along with inadequate investor’s knowledge made the stock prices
in a new height and finally turned into a big depression that is still going on.
Increase of Listed Securities: The fundamental strength of the market essentially comes
from financial strength of the listed companies. The market witnessed that last few years
many fundamental companies with strong financial strength have been listed in the market.
10
From the graph, it is seen that number of security listing are increasing year to year and
highest amount is in the year 2011. But growth of market demand for stock was much then
that of supply that inflated the market in recent years and made the market most volatile one
in the region
Issue of Right and Preference Shares: Right share indicates issuing new shares to the
existing shareholders at a discount price. The issuance of right share increase number of share
which should decrease share price but it did not happen. Mysteriously, it took BSEC five
months to come to a decision regarding right issue proposal. Preference share are the share
which contain fixed percentage of dividend at cost of voting right. Issuer companies provide
an option to convert into general shares to make it more attractive and it is called Convertible
Preference Share. However, in Bangladesh, companies issue preference share for only 1-3
moths which is very unusual. BSEC also didn’t have proper guidelines for Preference Share
issuance
Faulty Listing Methods: In the year 2010, SEC introduced Book building method to attract
new companies to the market. Some companies abused this opportunity to exploit maximum
benefits from listing that inflated the market. SEC allows companies to float securities
through IPO (Fixed Price and Book Building method), Direct Listing and Repeat IPO where
Book building method is used mostly in the year 2010.
Listed Companies with Financial Information: Traditionally DSE used fixed price method
for flotation of new companies. But fixed price method does not attract good companies
always. So, to attract new companies, SEC decided to introduce Book building method that is
a globally acceptable method for IPO. But in Bangladesh, Book Building method is handled
very roughly that caused loss for millions of investors.
Stock Price Manipulation: Stock price manipulation was very common in last few years as
some company’s stock price grew by more than 4000% in one year without any significant
change in company fundamentals. Stock price was inflated with the help of serial trading by
few numbers of big investors that was one of the reasons of recent collapse of stock market in
Bangladesh.
Investment of Bank in the Stock Market: In 2010 & 11 banks and financial institutions
invested huge amount of deposit money in the stock market. As a result share prices sky
rocketed until December 2010. When Bangladesh Bank restricted more than 10 percent
11
investment of deposited money, increased CRR and SLR ratio, created liquidity crisis and
market crashed.
Omnibus Account: Investigation report found Omnibus accounts of ICB and merchant
banks as another major reason behind the stock market debacle. Every branch of merchant
bank operates only one omnibus account. There could be 3-10 thousands BO Accounts under
the omnibus account which are not under the surveillance of SEC. So, information of
individual accounts and its transaction 40 are kept only with merchant banks. As
investigation reports shows that this kind of account made a lot of illegal transactions. It
publishes name of 30 big players including ICB for a lot of suspicious transactions and says
most manipulators traded from the omnibus accounts. It was also reported at least Taka 2.5
billion has been traded from hidden or omnibus accounts.
Block Placement: There was a lot of suspicious block trading of mutual funds. Some
investors got enormous amount of placement time to time.
Direct Listing: With the approval of SEC few companies have been directly listed in the
stock exchange. These companies come to the market with inflated share prices.
12
securitization and other debt instruments and derivatives, which will help foreign investors
hedge their exposure. Some mentionable points on this are:
A deep sea port requiring 1 billion dollar 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.
The Telecom & It Giants in Bangladesh are to be finalizing their offers for IPO in the
market.
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.
Power and energy sectors demand for capital is 5 to 10 billion dollar within short time
to meet the immediate needs of national power demand.
IT sector with our talented developers, yet to demonstrate the massive potentials of
software industry of the country.
13
9. Small number of market listing
10. Price manipulation
11. Lack of professional portfolio management
12. Information asymmetry
13. Valuation disparity
14. Delays in settlement
15. Irregulations in dividends
16. Improper financial statement
17. Little knowledge of retail investors
18. Lack of quality research and development
8.0 Recommendations
Based on our findings, we would like to propose the following recommendations:
9.0 Conclusion
Stock markets are the part of a financial system concerned with raising capital by dealing in
shares, bonds, and other long-term investments. These markets perform a critical role in
acting as an intermediary between savers and firms seeking additional financing for business
expansion. Vibrant stock market 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 all the market players should work together with the support of the government. Market
14
confidence is sure to erode if conflicting signals are received from different authorities.
Investors are getting matured gradually too. Bangladesh should really focus on improving
governance and developing advanced market products, such as derivatives, swaps etc. It is
necessary to reform the legal frameworks to support financial development and to protect the
investors. Strong framework rules should be framed to restore the investors’ confidence.
Flexible legal frameworks must be adopted. The regulators must cope with continuously to
the changed global economy. Resilience, efficiency and fair treatment are the characteristics
of the market that must be ensured by all the players for mutual and national economic
growth.
15
Appendix A
Particulars 2012 2013 2014 2015 2016
16
Closing Market Cap. 2,403,555.62 2,647,790.83 3,259,246.76 3,159,757.75 3,412,441.49
HighestMarket Cap 2,790,617.90 2,731,641.83 3,477,653.78 3,409,970.40 3,412,612.17
Lowest Market Cap 2,039,135.98 2,160,241.18 2,657,288.21 2,934,738.95 2,985,349.70
Turnover
Total Turnover in Tk.
1,001,084.90 952,742.08 1,188,521.54 1,031,398.64 1,191,571.27
mn
% of Change (35.87) (4.83) 24.75 (13.22) 15.53
Total Trading Days 238 238 238 244 241
Daily Average
4,206 4,003 4,994 4,227 4,944
Turnover
Highest Turnover 12,884.27 12,946.16 12,885.54 10,023.39 14,781.84
Lowest Turnover 1,157.03 1,015.72 1,368.93 1,666.14 2,095.49
Volume
Total Turnover in
21,689 22,989 25,996 26,106 34,912
Volume (mn)
% of Change 27.83 5.99 13.08 0.42 33.73
Daily Average
91 97 109 107 145
Turnover in Volume
Highest Turnover in
301.38 240.93 275.12 265.05 498.04
Volume
Lowest Turnover in
27.49 29.05 34.11 40.07 66.62
Volume
17
Appendix B
Company listing by industry, DSE 2017
18
Company listed by industry, CSE 2017:
19
References
1. The 17 most valuable stock exchanges in the world . (2016, September 5). Retrieved
June 9, 2017, from ET Markets:
http://economictimes.indiatimes.com/markets/stocks/news/the-17-most-valuable-
stock-exchanges-in-the-world/articleshow/54013184.cms
2. Company Listing by Industry - DSE. (2017). Retrieved June 9, 2017, from Dhaka
Stock Exchange: http://www.dsebd.org/by_industrylisting1.php
3. Company Listing by Industry - CSE. (2017). Retrieved June 9, 2017, from Chittagong
Stock Exchange: http://www.cse.com.bd/company_by_industry.php
4. Bhuiyan. (2011). Causes of the Stock Market Crash.
5. Bangladesh Securities and Exchange Commission website: http://www.secbd.org
6. Bangladesh Bank website: https://www.bb.org.bd
7. Imam, O. Mahmood, The Capital Market Development in Bangladesh: problemsand
prospects, October 5, 2000
8. Imam, M. Hasan, Capital Market: An Overview, 2005
9. Nazimuddin, AZM, An Overview of Bangladesh Capital Market, 2007
10. The 17 Most Valuable Stock Exchanges in the World, 2016:
http://economictimes.indiatimes.com/markets/stocks/news/the-17-most-valuable-
stock-exchanges-in-the-world/articleshow/54013184.cms
20