Role of Stock Exchange in the Economic Development: A study on Dhaka Stock Exchange 1.0 Historical Background The Necessity Of Establishing A Stock Exchange In The Then East Pakistan Was First Decided By The Government When, Early In 1952.It Was Learnt That The Calcutta Stock Exchange Had Prohibited The Transactions In Pakistani Shares And Securities. The Provincial Industrial Advisory Council Soon Thereafter Set Up An Organizing Committee For The Formation Of A Stock Exchange In East Pakistan. A Decisive Step Was Taken The Second Meeting Of The Organizing Committee Held On The 13th March 1953. In The Cabinet Room, Eden Building, Under The Chairmanship Of Mr. A. Khaleeli, Secretary Government Of East Bengal, Commerce, Labor And Industries Department At Which Various Aspects Of The Issue Were Discussed In Detail. The Then Central Governments Proposal Regarding The Karachi Stock Exchange Opening A Branch At Dhaka. , Did Not Find Favour With The Meeting Who Felt That East Pakistan Should Have An Independent Stock Exchange. It Was Suggested That Dhaka Narayanganj Chamber of Commerce & Industry Should Approach Its Members For Parchase Of Membership Cards At RS.2000 Each For The Proposed Stock Exchange. The Location Of The Exchange It Was Thought Should Be Either Dhaka Narayanganj Or Chittagong. An Organizing Committee Was Appointed Consisting Of Leading Commercial And Industrial Personalities Of The Province With Mr. Mehdi Ispahani As The Convener In Order To Organize The Exchange. The Chamber Informed Its Members And Members Of Its Affiliated Associations Of The Proceedings Of The Above Meeting, Requesting Them To Intimate Whether They Were Interested In Joining The Proposed Stock Exchange. This Was Followed By A Meeting, At The Chamber Of About 100 Persons Interested In The Formation Of The Exchange On 07.07.1953. The Meeting Invited 8 Gentleman To Become Promoters Of The Exchange With Mr. M Mehdi Ispahani As The Convener And Authorized Them To Draw Up The Memorandum And Article Of Association Of The Exchange And Proceed To Obtain Register Under The Companies Act.1913. The Other 7 Promoters Of The Exchange Were Mr. J M Addision-Scott, Mr. Mhodammed Hanif, Mr. A C Jain, Mr. A K Khan, Mr. M Shabbir Ahmed And Mr. Sakhawat Hossain. It Was Also Decided That Membership Fee Was To Be Rs.2000 And Subscription Rate At 15 Per Month. The Exchange Was To Consist Of Not More Than 150 Members. A Meeting Of The Promoters Was Held At The Chamber On 03.09.1953 When It Was Decided To Appoint Orr Dignam & Co., Solicitors To Draw Up The Memorandum And Articles Of Association Of The Stock Exchange Based On The Rules Of Stock Exchange Existing In Other Countries And Taking Into Account Local Conditions. The 8 Promoters Incorporated The Formation As The East Pakistan Stock Exchange Association Ltd. On 28.04.1954. As Public Company.On 23.06.1962 The Name Aws Revised To East Pakistan Stock Exchange Ltd. Again On 14.05.1964 The Name Of East Pakistan Stock Exchange Limited Was Changed To “ Dhaka Stock Exchange Ltd.”
At The Time Of Incorporation The Authorized Capital Of The Exchange Was Rs. 300000 Divided Into 150 Shares. Of Rs. 2000 each and by an extra ordinary general meeting adopted at the extra ordinary general meeting held on 22.02.1964 the authorized capital of the exchange was increased to Tk. 500000 divided into 250 shares of Tk. 2000 each. The paid up capital of the exchange now stood at Tk.390000 dividend into 195 shares of Tk. 2000 each. Although incorporated in 1954, the formal trading was started in 1956 at Narayanganj after obtaining the certificates of commencement of business. But in 1958 it was shifted to Dhaka and started functioning at the Narayangonj chamber building in Motijheel C/A. On 1.10.1957 the stock exchange purchase a land measuring 8.75 Kattah at 9F Motijheel C/A from the Government and shifted the stock Exchange to its own location in 1959. 2.0 Introduction: 2.1 Stock Exchange? Any person who maintains or provides a market pace or facilities for bringing together buyers and sellers of securities or for otherwise performing with respect to securities the function commonly performed by a Stock Exchange, as that term is generally understood, and includes such market place and facilities.1 2.2 Commission (SEC). The Securities and Exchange Commission (SEC) was established on June 8, 1993 under the Securities and Exchange Commission Act, 1993 (Act XV of 1993) as a capital market regulator with a view to ensuring proper issuance of securities, protection of the interest of investors in securities, development of the capital and securities markets, and regulation of the capital and securities markets in Bangladesh.2 2.3 Dhaka Stock Exchange (DSE)? The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its activities 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. Stock Exchange organized market for trading of stocks and bonds. In early 1952, five years after the independence of Pakistan, the Calcutta Stock Exchange prohibited transactions in Pakistani stocks. This necessitated the formation of a stock exchange in East Pakistan and the East Pakistan Stock Exchange Association Ltd. was incorporated on 28 April 1954. It changed its name to East Pakistan Stock Exchange Ltd on 23 June 1962, and finally to Dhaka Stock Exchange (DSE) on 14 May 1964. Although incorporated in 1954, formal trading started in 1956 in Narayanganj. In 1958, the stock exchange was shifted to Narayanganj Chamber Building. DSE purchased its own land, and moved to its own premises at 9/F Motijheel C/A in 1959. Prior to independence in 1971, the 1 2
The Securities and Exchange Ordinance, 1969 Section-2 (m) SECURITIES AND EXCHANGE COMMISSION Quarterly Review, July- September 2006
number of listed companies in DSE was 196 with a total paid up capital of Tk 4 billion. The daily average transaction during that period was about 20,000 shares. After the Independence, the government of Bangladesh took charge of the abandoned industrial units and pursued a policy, under which large industrial units were nationalized. The trading activities of DSE remained suspended till 1975 and following change in the economic policy of the government, DSE resumed its activities in 1976 with only 9 listed companies, having a total paid up capital of Tk 137.52 million. The actual growth of the stock exchange in Bangladesh (the DSE) started since 1983, when the market capitalization was Tk 812 million. The year 1987 experienced a relatively steep rise in the market with 92 listed companies. With the liberalization of policies in the 1990's the stock market gradually started to prosper. On 30 June 2001, the number of securities listed in the DSE was 244, the number of listed companies 224, number of listed debentures 10, number of shares of all listed companies 666,553 and that of all mutual funds 72,250 and the market capitalization Tk 72,168 million ($1226 million). 2.4 Member of Stock Exchange Any individual of sound mind and over 21 years of age can apply to become a member of the stock exchange by purchasing a share of DSE and after obtaining dealer/broker license from the securities and exchange commission (SEC). Since the incorporation of DSE, a typical cry out system, where each security is generally called only once for a trading day was followed. This cry out system was abolished and a fully automated computerised system was installed on 10 August 1998. The trading is now in continuous session from 10:30 am to 2:30 pm. The session is divided in 5 parts: pre-opening session, opening session, continuous or regular trading session, closing session, and postclosing session. All transactions of brokers are settled and cleared through the 3rd and 5th working day respectively, calculated from the date of contract (hawla) and the procedure followed is presented in chart I. Chart I
The clearinghouse operates manually. Working hours of the clearinghouse are from 9:00am to 5:00pm. The Stock exchange remains open from Saturday to Thursday and remains closed on Friday.
The management of DSE is vested on a 24-member council having a chairman, one senior vice chairman and one vice chairman. Among the 24 council members, 12 are elected and nominated by DSE members. The other members are representatives from the Bangladesh Bank, finance ministry, law ministry and ministry of industries, presidents of the CA institute, FBCCI, MCCI, DCCI, Supreme Court Bar Association and bankers/insurance corporations associations and the chairman of the Department of Finance and Banking/Economics of the University of Dhaka. The operational management of the DSE is headed by a CEO, who works as an independent entity under the general policy framework set by the council. The Securities and Exchange Commission approved formation of a second stock exchange at Chittagong in 1995. The Chittagong Stock Exchange (CSE), located at Agrabad, Chittagong has a policy making body of 18 members, 6 of whom are nominated by the SEC and 12 are elected by the general body. The board elects its own president and 3 vice presidents. Trading operations in CSE has been fully automated since June 1998. The number of listed company in CSE is 150 and their total paid up capital is $515.00 million. Like in all other countries, the securities market in Bangladesh is linked with other financial institutions, many of which are directly linked for trading purposes at both the stock exchanges. These institutions include the scheduled banks, Investment Corporation Bangladesh (ICB), merchant banks and investment institutions. Foreign banks also invest in IPO's. The securities market in Bangladesh is guided by the Security Act 1920, the Securities Ordinance 1969, and the Securities and Exchange Commission Act 1993. The DSE and CSE have their own internal rules, and regulations such as the DSE Automated Trading Regulations 1999, Dhaka Stock Exchange Investors Protection Fund Regulation 1999, the Margin Rules 1999, and Settlement of Stock Exchange Transaction Rules 1998.3 2.5 The Activities of Dhaka Stock Exchange The major activities are: Providing the screen based automated trading of listed Securities. Settlement of trading. (As per Settlement of Transaction Regulations) Gifting of share / granting approval to the transaction/transfer of share outside the trading system of the exchange Market Administration & Control. Market Surveillance. Publication of Monthly Review. Monitoring the activities of listed companies. Investors grievance Cell (Disposal of complaint bye laws 1997) Investors Protection Fund (As per investor protection fund Regulations 1999) Announcement of Price sensitive or other information about listed companies through online.
2.6 Role of Dhaka Stock Exchange Economic Development 3
Writter Ishtiaque Ahmed Khan , Banglapedia.
To achieve the desired objective for growth and prosperity the world economy always changed to integrate itself in the parts of the world. Both developed and underdeveloped countries are supposed to move the wheel of socioeconomic development by making resources to facilitate the economic growth through appropriate allocation of the same. In Bangladesh the idle money is not properly canalizes due to some non-availability of investment arena with a safe return of both principal and interest thereof. Most of the potential entrepreneurs often gather in the capital markets to meet the capital requirements. The surplus units of the society are not supposed to invest their money. So, they are often ready to supply their money to purchase securities from the capital markets. As a result stock exchange plays a crucial role to mobilize capital for the development of a capital market. Dhaka Stock Exchange, the frontline organization for the securities market development of Bangladesh, was incorporated on 28th April, 1954 as the East Pakistan Stock Exchange Association Limited (EPSEAL) which started formal trading in 1965 at Narayangonj. Subsequently, in 1962 it was renamed as Dhaka Stock Exchange Ltd. after the shiftiness of Dhaka in 1958. Dhaka Stock Exchange Ltd. (DSE) suspended its trading and all administrative activities in 1971. After independence of the country its trading was resumed in 1976 with the change government policies with nine listed companies. Gradually the securities market in Bangladesh has been developing and another securities market in Chittagong, the commercial city of Bangladesh, started operation in 1995. Now both the markets are automatically operated. After opening of the market to the foreign investors in 1992 the trading has been increasing day by day.4 Foreign investors are encouraged because it was found that without substantial foreign investment, domestic private investment would be inadequate to achieve economic development. The role of DSE in promoting securities of Bangladesh, firstly it is essential to evaluate the objectives of DSE. Being a self-regulated non-profit organization Dhaka Stock Exchange was established to perform the following objects: 1. To bring together buyers and sellers to bargain for fixing the security-price providing them with a safer market place. 2. To reflect the current market price of securities. 3. To protect the interest of investors. 4. To analyze and review the fiscal measures that affect the investors. 5. To reflect impartial and detailed disclosures about listed companies through publishing journals and brochures. 3.1 Role of securities markets in economic development: The increasing stringency of terms on both domestic and international loans, the urgency of mobilizing domestic resources by means other than debt finance has been Thus, this paper now focuses on the findings of the greatly identified .The principal alternative to debt 5 finance, of course is equity market. Capital market refers to the market for long and medium term funds for the business enterprises. It can be divided into securities and non-securities market. Securities market in turn may be divided into the markets for primary issues and 4
5
Islam, M.M., 1996. Stock market in Bangladesh, trends and potential. The Daily Independent, Dhaka.
Khurshid, A., 1992. Capital market and privatization- A new horizon of expending equity in the development of Bangladesh. Bank Parikrama, pp: 25-33.
markets for secondary trading of the issued securities. In the 6 secondary market, the existing securities change from the investor to another. There is no additional flow of funds for investment purposes in a secondary market; it only provides liquidity and marketability to the existing securities. A secondary market is very essential for a new issue market to develop. The secondary market can play 7 most crucial functions in the pace of economic development by the promotion of savings and investment and efficient allocation of finds among the users. The securities market offers both investors and issues a broad spectrum of investment alternatives, which can help increase the level of both savings and investment. An efficient capital market can play the crucial role in mobilizing domestic savings for the purpose of investment.8 3.2 Regulation of Securities Market The Companies Act. 1953 and the Capital Issues Act. 1954 are the two legislation's governing the stock market in Bangladesh.9 Subsequent upon government has promulgated the Securities and Exchange Ordinance in 1969 that requires to take permission from the Controller of Capital Issues (CCI) in order to issue capital and make public offer of securities. This Ordinance also required the stock exchanges to take registration from the CCI. In order to accelerate economic development as well as to protect the interests of investors the Securities and Exchange (SEC) was established on 8th June 1993 under the Securities and Exchange Commission Act. In performing the regulatory functions this Commission is guided by the following laws: Company Act. 1994, Securities and Exchange Ordinance 1969 as amended in 1993, Securities and Exchange Rules 1987, Securities and Exchange Commission Act. 1993, Securities and Exchange Commission (Stock-dealer), Stock-broker and sub-broker) Regulations, 1994 as amended in 1995, Securities and Exchange Commission (Appeal) Regulations, 1995 Securities and exchange Commission (prohibition of Insider Trading) Regulations, 1995, Securities and Exchange Commission (Merchant, Banker and Portfolio Manager Regulation 1996, Security & Exchange commission (Mutual Fund) Regulation 1997, Right Issue Rules, 1998 and other guidelines as applicable. Thus, this paper now focuses on the findings of the study in the following section: 3.3 Material And Method The present study is basically based on secondary data. Annual Reports and Monthly Reviews of Dhaka Stock Exchange Ltd., Annual Reports of Securities and Exchange Commission, Investment Corporation of Bangladesh are the main sources of secondary data. In addition, capital market reports, Resumes of the Activities of Financial Institutions of Bangladesh, Annual Reports and other necessary papers of the listed companies of DSE and
6
7
Hoque, M.S., 1992. Development of capital market in Bangladesh. Bank Parikrama, pp: 10-13.
Choudhuri, A.H.M., I. Nurul, S. Sujit. R. and T.A. Choudhury, 1992. Status of capital market in Bangladesh, An Overview. Bank Parikrama, pp: 1-9. 8 Rahman, M.M., 1992. Development of capital market and capital growth, role of investment finance institutions. Bank Parikrama, pp: 20-24 9 Islam, M.M., 1996. Stock market in Bangladesh, trends and potential. The Daily Independent, Dhaka.
other related organizations are also viewed and analyzed for the sake of making a fruitful analysis. The study covers the period from 1990 to 2000. 3.4 Objectives of the study: The study attempts to evaluate and examine the performance of Dhaka Stock Exchange in terms of securities analysis and market capitalization. Its specific objectives are: 1. To evaluate the growth of companies as well as securities listed with DSE during the period from 1990 to 2000; 2. To examine and evaluate the issued capital and market capitalization of the securities during the period under study. 3. To identify the problems of DSE; and 4. To make suggestions to improve the activities of DSE. 3.5 Result The importance of secondary market in Bangladesh is gradually increasing as the rate savings and investment in the country has been increasing. Besides, the activities of DSE has been increased due to the participation of foreign investors in the securities markets. Analysis of listed securities: Shortly speaking, a security may be defined as an instrument that represents evidence of a property right. But in a broader sense, a security represents a claim on an asset or any future cash flows the asset may generate. So a security itself is usually. A document that identify the investor's rights or claims. Typically securities means stock or bonds of a company where a bond indicates that the investor is to receive certain interest and principal payments at a specific time and stock certificate indicates that the investor owns a certain number of shares and therefore has a claim to certain percentage of the cash dividends and other distributions like bonus shares, rights shares etc. made to the firm's shareholders. So securities may be of any Government Securities as defined in the Securities Act, 1920, or other instruments creating a charge or lien on the assets of the company. Security analysis involves the process of estimating the future cash flows, which will accrue to the owners of a particular security. Before doing this estimation, a great deal of preparatory work relating to the gathering of a variety of data must be done. The listed securities of DSE comprised of shares, mutual funds and debentures. Although the size of this securities market is very small with limited facilities, its activities improved since 1985 and gained momentum from early 1991. As on 30th June 1990 there were 134 listed securities with Dhaka Stock exchange. In 2000, the number of listed securities of DSE reached to 239 including 10 mutual funds and 10 debentures. Table-1: showing growth of listed Securities of DSE during the period from 1990 to 2000 Securities .....................................................% of
Tradable Securities .......................................
Year
Increase
No. Of No. Of No. Of Total Cos. MF Deb.
No. in % Of million increase
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
127 130 140 142 144 173 183 194 204 210 219
6 6 6 6 6 6 7 9 9 9 10
1 2 3 5 6 9 11 11 11 11 10
134 138 149 153 156 168 201 214 224 230 239
2.99 7.97 2.68 1.96 20.51 6.91 6.47 4.67 2.68 3.91
161.1 167.2 172.3 195.1 214.4 325.5 375.3 471.1 523.2 533.5 685.7
3.79 3.05 13.23 2.89 51.82 15.3 25.53 11.06 1.97 28.53
Source: i) Annual Reports of DSE during the study period ii) Annual Reports of SEC during the study period Table 2: Showing the growth of market capitalization of DSE during the period from19902000 Paid up Capital Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Taka in million 5561.1 5586.6 6020.3 8201.7 9268.0 18317.3 21754.0 26907.0 30211.5 28684.0 30517.0
Market Capitalization % Of Taka in increase million 11485.9 0.46 10397.3 7.76 12299.1 36.23 18098.7 13.00 32715.7 97.64 49998.1 18.76 67728.0 23.69 10782.7 12.28 62264.3 (5.06) 50748.4 6.39 54004.0
% Of Index increase 349.1 (9.48) 296.2 18.29 396.5 47.16 418.8 80.76 659.8 52.83 776.9 35.47 959.1 59.21 1111.6 (42.25) 676.5 (18.50) 546.8 6.42 561.0
Turnove r in Million Taka 2.7 2.3 3.8 4.3 11.6 25.9 44.8 119.3 98.3 1331.3 658.0
Amount Trader in Million taka 187.8 141.3 261.1 403.6 2442.9 4660.8 8199.0 35414.0 12616.0 51893.8 25695.7
Source: i) Annual Reports of DSE for the period under study ii) Annual Reports of SEC for the period under study Table 1 focuses the trend of securities of DSE from 1990 to 2000 where the number of listed securities increase gradually showing a positive trend. In 1995 there was a tremendous growth of securities which is recorded as 20.51% growth than the previous financial year. There had been a growth all round in the securities market during the study period. The improvement of securities of DSE during the period can be attributed to trade liberalization and industrial policy of the government and increasing number of saves that prefer to hold their assets in the form of shares etc. On 30th June 2000 the total number of tradable securities in DSE was 685.69 million as compared to 161.1 million and 533.51 million in 1990 and in 1999, respectively. The vast increase in tradable securities in DSE was occurred in 1995, which increased 51.82 % from the previous year. Table 1shows that the number of tradable securities keeps the increasing trend during the period under study. Various reasons for such development of DSE are
attributed to the better management functioning in secondary market activities, a huge number of investors, proper supervision and control of SEC, government policies towards financial and trade liberalization. 3.6 Analysis of capitalization: The capital of securities market may be either issued capital of all listed securities of market capital of all securities of listed companies. Issued capital or paid up capital means the face value of all securities listed with a stock exchange but it does not include premium whereas market capital or market capitalization which does not imply adjusted market capitalization means market values of all securities listed with a stock exchange. The market scenario of DSE through the operational statistics during the period from 1990 to 2000 is given in Table From the foregoing table it is found that as on 30 th June 2000 the total paid up capital of DSE reached to Tk. 30,684 million as against Tk. 5,561.1 million in 1990. There is an increasing trend in the volume of paid up capital of DSE with a negative trend only in 1999. In 1998 DSE experienced the highest amount of paid up capital amounting to Tk. 30,211.5 million. The paid up capital was about twice in 1995 having Tk. 18,317.3 million whereas the same was Tk. 9,268 million only in 1994. Market capitalization of all securities of listed companies of DSE during the period from 1990 to 2000 are also shown. In Table 2. As on 30th June 2000 the total market capitalization of all listed securities in DSE amounts to Tk. 54,004.0 million as compared to Tk. 50,748.43 million and Tk. 11,485.9 million in 1999 and in 1990 respectively. Although there is no regular trend in the changes of market capitalization, vast amount of market capital is shown in 1997 amounting to Tk. 1,07,827 million as compared to Tk.67, 728 million in 1996, the second highest during the period under study. In 1991, 1998 and 1999 there were decreases in the market capital than the previous years. The reasons for declining in market capitalization in 1999 are attributed to listing of lesser number of new issues, absence of right an bonus issues, impact of decrease in all share price index. All share price index of DSE declines from 1111.6 in June 1997 to 675.5 in June 1998 and 546.8 in June 1999 respectively. However, all share price index shows an increasing trend during the period from 1991 to 1997. Total number of securities traded in DSE as on 30 th June during 1990 to 2000 are depicted in Table-2. DSE experienced a regular positive trend in the number of securities traded in DSE during the period under study. Total turnover of securities as on 30th June in 2000 was experienced as Tk. 658.08 million as compared to Tk. 1331.3 million on 30th June in 1999 with a positive change of 1254.3%. As a 30th June 2000, total amount traded in DSE was Tk. 27,695.7 million as compared to Tk.51893.8 million as on 30th June 1999. Moreover, the amount in DSE in increasing at an increasing rate except a decline in 1998 and 2000 where the volume of transactions was only Tk. 12,616 million and Tk. 27,695.7 million as compared to Tk. 35,414 million and Tk. 51,893.8 million in 1997 and 1999, respectively. This state of affairs indicate that the volume of transactions is increasing day by day with a vast amount in 1999 due to the implementation of automation system in trading and clearing of transactions. 3.7 Problems Involved in DSE
The unexpected rise and fall in share prices mostly followed from the general confidence of the investors about political stability, euphoria of investment in shares, prospect of quick capital gains, a vacuum in respect of institutional presence in the share market, monopolistic dominance of member brokers, inefficiency of the SEC to cape with the developments, existence to kerb market, absence of proper application of circuit breaker etc. Delivery Versus Payment mechanism was used as one of the main vehicles of manipulation. Kerb market gave birth fake and forged share certificates. Although there are10 increasing trends in all the indicators, DSE is not free from problems. The problems of DSE may be summarized as under. Price manipulation: It has been observed that the share values of some profitable companies has been increased fictitiously some times that hampers the smooth operation of DSE. Delays in settlement: Financing procedures and delivery of securities sometimes take an unusual long time for which the money is blocked for nothing. Irregulations in dividends: Some companies do not hold Annul General Meeting (AGM) and eventually declare dividends that confused the shareholders about the financial positions of the company. Selection of membership: Some members being the directors of listed companies of DSE look for their own interest using the internal information of share market. Improper financial statement: Many companies of DSE do not focus real position of the company as preparing financial statements. As a result the Shareholders as well as investors do not have any idea about position of that company. The concept of centralization of the securities market has not been implemented that arises technical problems and political infighting.11 As the DSE is small market, the spread/cost ratio is relatively higher which is a more important factor for capitalization.12 The intrinsic value13 for the securities traded in DSE are sometimes estimated without considering the current market prices of the securities. The absence of comprehensive legal and supervisory framework.
10
Alam, M.N. and S.B. Jahan, 1996. Impact of stock market-debacle in 1996 on national economy of bangladesh. Bank Parikrama,pp: 11-40. 11
Crock, S., 1981. Experiment in competitive stock trading is likely to be postponed by the SEC, Wall Street J. p: 2. 12
Loeb, T.F., 1983. Trading of cost, The critical link between investment information and result. Finan. Anal. J.pp. 13
Khurshid, A., 1992. Capital market and privatization- A new horizon of expending equity in the development of Bangladesh. Bank Parikrama, pp: 25-33.
Lack of skilled manpower in the DSE as well as financial and non-financial institutions involved in the securities market. The lack of proper policy framework that provides incentives and protection to investors. The dominance of bigger public sector and borrowing of public sector as well as government from the institutional sources rater than the market. 4. DSE can perform to fulfill the role/obligation Dhaka stock Exchange (DSE) is performing to fulfill the role and obligation. Dhaka Stock Exchange is important role-play in economic development of Bangladesh. The robust share market at present reflects investors' confidence in the market. "Investors are encouraged to invest as they are getting good returns and a safe place to invest." However he says DSE is always keeping an eye on the market situation. "We have already strengthened our monitoring and surveillance so that investors remain careful about the price movement. Already, various reforms are going on to develop the market. Moreover we are conducting awareness programmes in Dhaka and all other major cities to help investors take proper decisions on transaction of shares." To turn Dhaka Stock Exchange into an attractive place for investors after the 1996 crash has been a great challenge. "DSE has been working for the development of the capital market of Bangladesh for a long time. It has already implemented a lot of reform programmes. It has formed Investors' Protection Fund to protect the interest of small investors. Besides, it is implementing various educational programmes for small investors & market players." Dhaka Stock Exchange prime and foremost responsibility is to ensure transparency of the market. "We have been working on the reforms on a continuous basis. In this respect, the major reform that we have made is the separation of Management from the Policymaking Body." He expresses his satisfaction at the fact that DSE now runs its own management without any interference from policymakers. Electronic settlement of share transactions by the stock exchanges following the setting up of Central Depository Bangladesh Limited (CDBL) is a major step forward. Paper scripts have been replaced with electronic shares through dematerialization. DSE is now working to create a financial clearing company with leading banks of the country to make the electronic payment and settlement system more efficient. It is also focusing on the efficiency of its own staff and on improving the working environment. It has already had a 14-storey building built on its own land of 1.33 acres. What is more, with HP non-stop Mainframe System in place in line with most of the developed exchanges, WAN setup now covers Dhaka City. Further vision of SEC includes enhancing the bond market through bringing in government and municipal bonds in addition to corporate bonds, introducing Internet based trading with provisions for investment from anywhere in the world and creating derivatives, future market and commodity market. As regards quality shares in the market, DSE has been emphasizing the listing of stocks with good fundamentals. "We strongly believe that the good shares would help us to bring back the confidence of the investors in the market and to make the market more dynamic, active and transparent." In this regard he points out the need for cooperation from all concerned. "Everybody should work together to bring quality shares of multinational companies, oil, gas and telecom companies into the stock market.
We suggest that the government offer incentives to the local and nonresident investors to participate in our capital market. I truly believe that our market has substantial incentives for investors to participate." At the same time he urges caution. "We know that if a company stops transactions of its shares in the capital market, investors have to bear great losses." Entrepreneurs can easily get away as there are no proper laws and therefore he hopes SEC will take further steps to ensure investors are protected. DSE is importance of the merchant banks in making the capital market strong. "We want to see merchant banks' activities being diversified. In this regard we have already taken some steps-we are holding meetings with them and taking some steps to help them. Before, there was no clause in the law regarding providing loans. Recently this has come under the legal framework as a result of the steps taken by SEC. Now, they [the banks] can give loans on a 1:1 basis. We believe for the development of the merchant banks the banks themselves have to come forward. " 4.1 Attractive Foreign Investor Foreign investors are not happy with the infrastructure support the country is providing, although currently proposals of investment to the tune of $ 150 million from foreign investors are on the table. Moreover, Bangladesh needs to be presented as one of the most attractive destinations for investors. "Our entrepreneurs can interact with foreign investors, to set up joint ventures in the country,� foreign investment in Bangladesh is important, as it will reduce dependency on foreign aid for the country's economic development. We believes the recent two-day international investors conference arranged jointly by DSE and City group was very effective as it attracted a large number of foreign investors. Such gatherings help to disseminate information on Bangladesh's overall economic potentials, untapped capital market and reforms, current legal and governance frameworks, and public and private foreign investment opportunities with special focus on some sectors of interest such as power, telecom, textile, pharmaceuticals and financial services. "In other countries Stock Market is considered to be the prime source of financing enterprises entering the market. They [enterprises] can benefit significantly after their listed securities have shown good results. Refinancing of new or existing project will not be a problem for any company and market will be willing to finance them even at premium value whenever they need. The only thing the entrepreneurs need is a fair disclosure of the status of their projects." DSE is upbeat about the prospects of the share market in Bangladesh. "We are hopeful that a fund which was primarily invested in India and Pakistan securities markets by the Middle-East, Japan and US based investors will now be diverted into Bangladesh securities Market. It is just the new beginning of a strong Bangladesh Stock Market. With the inclusion of more companies. The market capitalization of DSE will cross $ 15 billion mark and daily average turnover will increase to $ 100 million mark by 2009.14 (5) Better Performance/ Developing trading System DSE upgraded its trading system on August 21, 2005. Online trading activities have extended nationwide through WAN (Wide Area Network) as well as LAN (Local Area Network) across WAN connectivity. "Thus, we believe the securities market will expand throughout the country," Dhaka Stock Exchange. From now on, investors will be able to trade from their 14
Salahuddin Ahmed Khan, Chief Executive Officer of DSE (Dhaka Stock Exchange)
respective areas. DSE officials say this upgraded trading system is expected to cater for the growing demands of securities market including enhanced trading capacity of 50,000 howlas per day, which is scaleable up to 100,000 howlas. Previously the daily trading capacity was 15000 only. Hewlett and Packard (HP) of USA, Scandent Solutions of Chennai (India) and Syscom Information Systems Ltd. of Bangladesh completed the up-gradation project at a cost of Taka 60 million. DSE has already started its online stock business in Chittagong through LankaBangla Securities, a member of both DSE and Chiottagong Stock Exchanges. Moreover, DSE members have opened their branch offices in different areas of Dhaka City including Gulshan, DOHS, Mohakhali, Dhanmondi and Purana Paltan to help the investors. DSE has been arranging training programmes, seminars, workshop, press meeting, investor awareness programmes and taking disciplinary steps for the market participants as well as for the investors of the market on a regular basis in order to create more confidence among the investors. "Moreover, our Surveillance & Monitoring depts. have been strengthened to ensure proper vigilance of the market, The DSE General Index (DGEN) registered a 14.91 percent decline in 2005-it closed to 1677.35. However, there was significant growth in volume and value of shares. A total of 883.30 million shares and debentures valued Taka 64,835.28 million were traded during the year 2005. Financial sector dominated the DSE turnover accounting for almost 60% of the total DSE turnover in 2005. In terms of value, Banks, Pharmaceuticals and Chemicals, Textile and Cement sectors dominated the DSE turnover accounting for almost 52%. Volume-wise Investment companies took the lead while Pharmaceuticals, Food and Textile followed. The market capitalization increased to $ 3812 million, which was 3.62% rise from the previous year. The present market is roughly 5% of the GDP.15 5.1 Market Performance: The total issued capital of all listed securities with the Dhaka Stock Exchange Ltd. was Tk.90, 957 million as on end of the July-September 2006 Quarter. The said figure was Tk.85, 723 million at the end of the previous Quarter that indicates an increase of 6.11%. Similarly, in the Chittagong Stock Exchange the figure was Tk. 63,768 million as on end of the said quarter and Tk. 62,531 million at the end of the previous quarter resulting in an increase of 1.99%. The market capitalization of all listed securities of Dhaka Stock Exchange Ltd. was Tk. 2,81,021 million as on 30 September 2006 which was TK.2,25,300 million as on 30 June 2006. Similarly, the market capitalization of all listed securities in Chittagong Stock Exchange was TK2, 57,449 million as on the end of the said quarter, which was Tk.1, 96,341 million at the end of the previous quarter.
5.2 Comments of visited DSE 15
Seminar on "Stock market should be the catalyst for the economy of the country. All parties-govt., entrepreneurs and financial institutions-must come forward to make it the market place for financing the economic development process." Salahuddin Ahmed Khan Chief Executive Officer, Dhaka Stock Exchange.
ADB Country Director Visited DSE: Ms. Hua Du, the Country Director of Asian Development Bank (ADB) in Bangladesh visited DSE on August 28, 2006. She met with the Directors of the DSE and said ADB would closely work with DSE in implementing the ongoing assistance program for the development of country’s capital market. The DSE President thanked the ADB Country Director and also Mr. Rezaul Karim Khan, Head of Economic Unit of the ADB for visiting the DSE. US Ambassador Visited DSE: US Ambassador, Her Excellency Ms Patricia A Butenis visited the Dhaka Stock Exchange on September 19, 2006. DSE President welcomed the US Ambassador and said that with the visit of Her Excellency, better understanding between the two countries will be further strengthened. The US Ambassador was pleased to know that considerable progress had been taken place in Bangladesh capital market in recent years. DFID Country Representative Visited DSE: Mr. David Wood Country Representative of Department for International Development (DFID) visited DSE on September 6, 2006. DSE President Mr Md. Abdullah Bokhari, Senior Vice President and other high officials of DSE welcomed the Country Representative. Mr. Wood exchanged views with the DSE Board along with high officials of DSE, and appreciated recent activities for the development of country’s capital market.16 6. SUGGESTIONS The authorities take unusually long time to decide to allow the stuck-up shares to be free from the application of circuit breaker temporarily in the DSE floor. As a result, all share price index of DSE did not reflect the actual position. The role of DSE in a sine-qua-non for the development of securities market of Bangladesh. To improve the market activities DSE is to take some measures as under. To introduce automated monitoring system that may control price manipulation, malpractices and inside trading. To introduce full computerized system for settlement of transactions. To force the listed companies to publish their annual reports with actual and proper information that can ensure the interests of investors. Person being the director of listed company should not be allowed to be a member of DSE. To force the listed companies to declare and pay regular dividends through conducting Annual General Meeting. To control and abolish kerb market from the premises of DSE. To take remedial action against the issues of fake certificates. The Composite Quotation System (CQS) should be introduced and implemented that available the exchange specialists' bid-ask quotes to the subscribers. 16
SECURITIES AND EXCHANGE COMMISSION Quarterly Review, July- September 2006
To establish Central Depository System (CDS) to curb the scope of manipulation by the brokers. To make arrangement to set-up merchant banks, investment banks and flotation of more mutual funds particularly in the private sectors. Banks, insurance companies and other financial institutions should be encouraged deal in share business directly. The brokers should not be allowed to deal in the Scripps on their own accounts; there should be complete transparency in their transactions with the clients so that one is favored as against the other. There should be a system to penalize defaults to fulfill contacts regulating share dealings Charted Accounts' Firms should be allowed to certify the accounts. The management of DSE should be vested with professionals and should not in any way be linked with the ownership of stock exchange and other firms. Fundamentals to deal in share transactions. The management of DSE should be vested with professionals and should not in any way be linked with the ownership of stock exchange and other firms. To publicize and educate the investors about fundamentals to deal in share transactions. To punish the member brokers for breaching of contract. The above suggestions are recommended as major to improve the overall performance of DSE to play an important role in the securities market development in Bangladesh. 7. CONCLUSIONS The present study reveals that the activities of DSE improved since 1994. Despite the overall growth, a vast improvement has been registered in 1997 where the all share price index of DSE was maximum during the period under study. The study shows that although DSE experienced an increasing trend in the case of number of securities traded in the exchange, total capitalization shows a decreasing trend over the period under study particularly since 1996 (market crush.) Market disaster in 1996 shattered public confidence tremendously. The reason for such state of affairs a deserve a separate study. The study has also identified a number of problems being encouraged by the market. Securities and Exchange Commission, as a watchdog of the market, should play prominent role in reactivating markets, which is essential for accelerating the pace of our industrialization. Dhaka Stock Exchange has long been playing a pivotal role in shaping country’s capital market and generating much needed finance to spur industrialization in Bangladesh. Its performance is a key indicator to national economic strength. Only a vibrant and wellregulated capital market can bring sustainable economic development in the country through making the real sector capable of meeting the challenges of the competitive global economic realities. References: Rouf, M.A and Nabi, M.D. Golzare "Stock Market in Bangladesh Challenges Ahead" "Thoughts on Economics", July December 1998.
Levin, Ross "Stock Markets: "A Spur to Economic growth", Finance & Development, March, 1996; Ahmed, M. Farid, Khan, Harunur Rashid and Islam MD Sadiqul, ‘Industrial Finance Through ‘Capital Market in Bangladesh; A study on the Demand Side’. The Asia Foundation and Bureau of Economic Research, Dhaka University; Annual Report and monthly Review of DSE and CSE, various issues; SEC Quarterly Review and Annual Report, various issues; "Foreign Investment in Asian Stock Markets" ESCAP, Monograph No. 6, 1996; Annual Report of Bangladesh Bank, Various issues. BIBM Bulletin, Vol.2 No. 3, May-June, 1999. The Financial Express, Various issues. MCCI, Chamber News, Various issues. Bangladesh Economic Review, 1999. Islam, M.M., 1996. Stock market in Bangladesh, trends and potential. The Daily Independent, Dhaka. Khurshid, A., 1992. Capital market and privatization- A new horizon of expending equity in the development of Bangladesh. Bank Parikrama, pp: 25-33. Hoque, M.S., 1992. Development of capital market in Bangladesh. Bank Parikrama, pp: 1013. Choudhuri, A.H.M., I. Nurul, S. Sujit. R. and T.A. Choudhury, 1992. Status of capital market in Bangladesh, An Overview. Bank Parikrama, pp: 1-9. Rahman, M.M., 1992. Development of capital market and capital growth, role of investment finance institutions. Bank Parikrama, pp: 20-24 Alam, M.N. and S.B. Jahan, 1996. Impact of stock market-debacle in 1996 on national economy of bangladesh. Bank Parikrama,pp: 11-40. Crock, S., 1981. Experiment in competitive stock trading is likely to be postponed by the SEC, Wall Street J. p: 2. Loeb, T.F., 1983. Trading of cost, The critical link between investment information and result. Finan. Anal. J.pp. Laws on Securities and Exchange, author by Nirmalendu Dhar, Remisi Publisher. SECURITIES AND EXCHANGE COMMISSION Quarterly Review, July- September 2006, Publisher Security and Exchange Commission Others.