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ASA UNIVERSITY BANGLADESH

REPORT ON: Recent Crisis in Stock Market.

Submitted to:
Md. Jahirul Islam
Course Instructor Faculty of Business, ASA University Bangladesh (ASAUB) Course Title: Financial Accounting Course Code: ACT-213

Submitted By
Name Md. Abusufian Md. Tanvir Reza ID 102-12-0071 102-12-0069 Program BBA Date of Submission: 10/07/2011 Batch 10th (B) 10th (B)

REPORT ON

Recent Crisis in Stock market of Bangladesh: Reason and Remedial Measures

Date: 21st April, 2011

Md. Jahirul Islam


Course Instructor Faculty of Business, ASA University Bangladesh (ASAUB) Dear Sir; With due respect, we are submitting our report on recent crisis on stock market in Bangladesh: Reason and Remedial masers. We are encouraged and enthusiastic by collecting the details for the preparation of the report. Taking the direct assistance of different sources, we prepared our report. We believe this report provides a complete and clear picture of the stock market. Which help them to be in the race or help them to reposition in the market. Undoubtedly, we have learned a lot and have gained remarkable experience. We sincerely hope that all our effort will be a success if you go through this paper. We truly appreciate this assignment and should you need any assistance in interpreting, please call us. Yours Sincerely,

Md. Tanvir Reza ID: 102-12-0069 & Md. Abusufian ID: 102-12-0071

Acknowledgement
At first we present my due regards to the Almighty, who have provide me the brilliant opportunity to build and complete this report successfully with good health and sound mind. We would like to express my feelings and great affections along with our heartiest appreciation to all the teachers of BBA program and Md. Jahirul Islam, Course Instructor Faculty of Business, ASA University Bangladesh (ASAUB) for his kind Co-operation. I would also like to thank all the other people who have helped me during the process of making this report, my friend and my family who have supported me mentally to make this report. At last I would like to thank the readers who have expended their valuable time in reading this report.

Executive Summary
Dhaka Stock Exchange (Generally known as DSE) is the main stock exchange of Bangladesh. It is located in Motijheel at the heart of the Dhaka city. It was incorporated in 1954. Dhaka stock exchange is the first stock exchange of the country. As of 18 August 2010, the Dhaka Stock Exchange had over 750 listed companies with a combined market capitalization of $50.28 billion. It first incorporated as East Pakistan Stock Exchange Association Ltd in 28 April 1954 and started formal trading in 1956. It was renamed as East Pakistan Stock Exchange Ltd in 23 June 1962. Again renamed as Dacca Stock Exchange Ltd in 13 May 1964. After the liberation war in 1971 the trading was discontinued for five years. In 1976 trading restarted in Bangladesh. In 16 September 1986 was started. The formula for calculating DSE all share price index was changed according to IFC in 1 November 1993. The automated trading was initiated in 10 August 1998. In 1 January 2001 was started. Central Depository System was initiated in 24 January 2004. As of November 16, 2009, the benchmark index of the Dhaka Stock Exchange (DSE) crossed 4000 points for the first time, setting another new high at 4148 points. In 2010, the index crossed 8500 points and finally crashed in the first quarter of 2011. Millions of investors lost their money and came to the street. Regulators along with speculators made this bubble that finally crashed. Dhaka Stock Exchange (DSE) is a public limited company. It is formed and managed under Company Act 1994, Security and Exchange Commission Act 1993, Security and Exchange Commission Regulation 1994, and Security Exchange (Inside Trading) regulation 1994. The issued capital of this company is Tk. 500,000 which is divided up to 250 shares each pricing Tk. 2000. No individual or firm can buy more than one share. According to stock market rule only members can participate in the floor and can buy shares for himself or his clients. At present it has 230 members. Market capitalization of the Dhaka Stock Exchange reached nearly $9 billion in September 2007 and $27.4 billion on Dec 9, 2009. The management and operation of Dhaka Stock Exchange is entrusted on a 25 members Board of Director. Among them 12 are elected from DSE members, another 12 are selected from different trade bodies and relevant organizations. The CEO is the 25th ex-officio member of the board.

Table of Content No 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Content


Introduction Picture of Share Market in Last Two Years The perception and opinion of stock market related people Recommendation

Page Number

Introduction
Share market in Bangladesh is now caught in a cobweb of crash. And it is happening at a time when the government itself has formed a three-member enquiry committee to find out the real culprits and suggest the needful. Against this backdrop, the Prime Ministers unguarded observation that the share market scam is of the BNPs making. Such sweeping comments will only add fuel to the fire, instead of bringing in stability in the capital market. Her remarks will only vitiate the proceedings of the enquiry as these came from no less a person that the head of the government.

One could listen to many names only wandering around Motijheel who already became highly controversial for their alleged involvement in fueling instability in the stock market. The higher authority of the government should read the writings on the walls to realize the peoples minds. It is urgent that restructuring of SEC has become vital to revamp investors confidence, which is eroding rapidly because of recent volatility on the market. After the 1996 stock market crash, a government appointed committee pinpointed a set of institutions for their wrong-doing in the market, meaning market manipulations and the Securities and Exchange Commission (SEC) installed several sunset clauses in order to prevent the crisis in future. It did not work but it provided a basic argument towards a strong regulatory regime. The question, however, is whether the regulator will actually react to a crisis? Or shall the regulator take a more active role and prevent a crisis?

Experts have demanded immediate increase in the supply of shares including that of the state owned enterprises (SoEs) as well as strengthening monitoring by the regulatory agencies and to instill more confidence among the investors to stabilize the market. They also questioned the monitoring by the Bangladesh Bank in the recent past as most of the commercial banks had invested in the capital market disregarding the limit of 10 percent of liabilities. The IPOs are coming to the market more infrequently and the overall supply of shares is also not increasing. The supply response to demand changes is too little.

Researches have shown that Bangladeshs stock market is still not functioning efficiently and that manipulators are still working behind the scenes to effectively steal cash from less informed investors. It is expected that market regulators will devise ways and means to identify the individuals and organizations once again and protect small investors. Hopefully, the current financial crisis of the world serves a lesson for all regulators who should use their intellect and

not whims, skills and knowledge, and not rumors to deal with market fraud to protect common investors from the greed of these manipulators. Dhaka Stock Exchange suffered the biggest crash Sunday (December 19) in its 55-year history. The DSE General Index nosedived by 551 points or 6.72 per cent to 7,654 points at the close of a four-hour trading session. Market capitalization dropped by 5.5 per cent to 3.26 trillion taka (US$46.19 billion) from Wednesday's 3.44 trillion taka ($48.74 billion) as all securities suffered a combined loss of 188.71 billion taka ($2.67 billion) in value. Aggrieved investors set fire to wood and paper in front of the DSE building and blocked the road from Shapla Chattar to Ittefaq Moor. They chanted slogans against the top bosses of the premier bourse and market regulators, and demanded resignation of the central bank governor. Sunday's fall in share prices was even greater than the market crash in 1996 when the stocks plunged by 6 per cent on a single-day. Market insiders blamed the recent fall on the central bank's measures to control the liquidity flow in the banking system. In an effort to contain inflation, the central bank recently increased the Cash Reserve Ratio (CRR) for banks by 50 basis points to 6 per cent. It was also aimed at stopping credit-flow to non-productive sectors. The central bank also issued another directive asking financial institutions to adjust their stock investment exposure by this month. From January, no institution will be allowed to invest more than 10 per cent of its total liabilities in the stock market, and the exposure will be calculated based on market price, not cost price. The International Monetary Fund's prescription to Bangladesh Bank for addressing the overexposure of commercial banks to the stock market also propelled the unprecedented fall. The SEC's excessive initiatives to cool the market in a short time are also blamed for the crash. The measures and unexpected and unnecessary intervention of a donor agency took a big toll on the market, said Akter Hossain Sannamat, managing director of Prime Finance and Investment. Echoing him, SEC Executive Director Anwarul Kabir Bhuiyan said, Institutional investors generally sell off their investments in this period to restructure their portfolios before the end of the year. Taken aback by the crash, the stock market regulator sat twice and took initiatives to help the market rebound.

The Securities and Exchange Commission suspended the computation based on net asset value (NAV) in providing share credit by lenders. According to the NAV-based calculation, a merchant banker or a stockbroker gives loan on the basis of the value of a stock by adding the market value to NAV and dividing the sum by two. The SEC increased the share credit ratio to 1:1.5 from 1:1. It means an investor will get a loan of 1.5 taka against shares worth 1 taka. The commission also withdrew a directive on members margin, which was to take effect from January 2 next year. The SEC on November 25 asked the members or stockbrokers to double their deposits against any additional trade exposure to the capital market in a bid to control the liquidity flow.

Picture of Share Market in Last Two Years


Ups and down is the part of the Share Market. It is applicable in all capital market in the world. There are some significant change occur in capital market at the end of the last century. Paper share is changed into D-mart that makes easier the recording process. At a glance last two year capital market: At 2009 before the elected government come the average point of index was 2706, that slightly decries in April and again increase in June, average index stand 2796 point. It is important that at November the index point is 3340. At December the point is 4415. At 2009 January to October ups and down and October to December are totally different. Its a abnormal matter. This steep rise is continued at February 2010 to September 2010 without any fall. At September to November again steep rise at 6897 to 8308 point. At December 5 the point rises at the high level 8918 point. At stock market ups and down are natural but steep rise and steep fall is not natural. The more the steep rise, the more possibility to steep fall. Steep fall never happened if steep rise is not occur. Steep rise from September to December 2010 is responsible for steep fall in January 2011.

DSE: Monthly Average Index 2009

DSE: Monthly Average Index 2010

DSE: Daily Index January 2011

DSE: Daily Index February 2011 It is clearly show that January 2 to 5 trigger sales is responsible for 6 to 10 steep fall.

The perception and opinion of stock market related people


Public listed company Association: In 4 year 30 lakes BO account is opened. 238 Broker house open 590 branch in 32 District. Broad money, foreign remittance, Black money inter in the stock market cause over supply of money. But very few share come into the market. (a) 100 taka share changed into 10 taka share is cause over demand in the market. SEC is responsible for this dissection. (b) Book building is a batter method. But AEC take their decision without any meeting with stake holder. (c) SEC frequently changes their decision and takes role in the market. Bangladesh Bank can run slowly. (d) There suggestion is create capital market, Regulation review, Company can Buy-Back their share, company can declare their future profit, appointed a financial analyst, Arrange organizational meeting between Bangladesh Bank and AEC. Capital market Reporters forum: (a) The reason of steep rise they point out that, 13 lakes investor inter in the market, huge flow lucidity, few new share, 100 taka share changed into 10 taka share. They said the reason of steep fall is wrong dissection of Bangladesh Bank, change of price, large investor get back their investment and trigger seals of Broker House. (b) As their opinion, at the date of 10 January 2010 the total transaction was 16 core taka. After establishment of caretaker government with help of Army at 14th January the transaction was 96 core taka. Army people invest in the market thats why market make stronger. (c) Finance Minister said 26 government institutions offload their share in January 2010 but it not happened. Conversion of 10 taka share has a bad effect. (d) Using book building method two listed company Ocean Container and Khulna Power Company ltd share was sales in very high rate. This sales was make by a Minister Family Group.

(e) In 2010 a large group inter in the share market with huge amount of money. They make babul. Those manipulators are Nazrul Islam Mozumder(Chairman AXEM Bank),Some member of A. K. Khan family, D. H.B.M Iqubal, Kutobuddin Ahmad and A.K. Azad Chowdury. (f) Forma identify some people for their unethical work they are Rakibue Rahman, Noor Ali, Mosadak Ali Falu, Lotas Kamal, Salman F. Rahman. They make asset by warrant issue, Preference share issue and placement. (g) Though there is no rule mention for preference share some Company collect 1163 core taka from market. Though they are unable to pay their profit some company collect money by issuing share. The committee pinpointed around 60 players responsible for manipulating the market for their own gain. Interestingly, these 60 players represent businessmen and politicians from Awami League and BNP as well as civil and military officials and those in the regulatory authority.

Recommendation
In last two year in share markets ups and down, steep rise steep fall proved that, (a) Direct listing in Primary issue, re-justifying of company asset, set the high price of share miss use of book budding method, some people/organization are related with this kind of work, they are Issuer, Issue Manager, Auditor, Diller-Broker etc. (b) Some people/organization are related with secular trading in secondary market and Block trading. (c) Unethical and unmatched behavior is present in right share, preference share, IPO repeat IPO, Stock share issue against of unrealized profit. The main hero of unethical work make ethical is SEC Member Mr. Munsur Ali. Nothing happened without permission of Chairman, so Chairman Zia-ul-Haq and member Mr. Munsur Ali both are responsible for this. This two head person are helped by two other Director Mr. Anawr-ul-Kabir Buiha and Mr. Tariquzzaman. So Chairman Zia-ul-Haq, Member Mr. Munsur Ali, Director Mr. Anawr-ul-Kabir Buiha and Mr. Tariquzzaman need to remove them from their post. And need to investigate on them.  (A) Situation: To destroy the share market the role of SEC is disappointing. They make unethical relation player, they run by their advice and make unethical work legal, show very weak role in market that effect on whole organizational work. At this situation nobody hear the legal order.  Advice: The mode of present employer is at a very lower level reestablish of organization is impossible by them. So responsible people should remove their post and honest, experienced, successful in past and wall known person should required in the post. After argent requirement, In future a high level search committee selects some people and government select the Chairman and Member from them.

Investment of Bank in capital market:  Situation: Capital market and money market are always separate from each other in the world. Capital market is for personal capital invests. Depositor did not give right to the bank to invest in capital market. If he want he can invest by himself. But the bank has no right to invest the customer money without their permission in capital market. For this reason Pakistan and Indian Banking law said investment amount of bank is setup by bank equity. Not with deposit. But Bangladesh bank Company law 26(2) allows 10% deposit in capital market. Thats why a huge amount of lone inter in capital market, it increase liquidity and share price. It also create shortage of money in money market.  Investigation committee think that if this role not change in future Money & Capital both market face a great problem.  Advice: By following the country India and Pakistan establishing Basel role bank company law 26(2) should urgently need to change. In 2009 & 2010 those bank invest in capital market by braking the role and help to steep raise, Bangladesh bank should take action. Unethical entrance of bank in capital market should monitor by Bangladesh bank.  By make change of paper share into D-mart and stock exchange run by electronic system the purity is established. But the previous steps are unclear even now. Though there is no suggestion of Stock Exchange listing committee the IPO request is receive.  D-centralize the share market. So nobody can frequently collect the information about share market and dispose the secret news.

Conclusion
Share market is a very important part of a country. Our share market is important part of our country. The recent crash occur in our share market is not be tolerate. Thousands of people are now suffering from it. If government take action by the help of infestation report in future it never happened. Some culprit people must punish for their work. That in future no one try to do this type of work.

Reference Government investigation report. http://stocktraderschat.com/search/search.php?q=Bangladesh+Share+Market+Cras h+Report+Of2011&submit=Buscar http://www.dhakanews.info/dhaka-bonds-tighten-higher/