Executive Summery

The stock market is the engine of growth for an economy, and performs a critical role in acting as

an intermediary between savers and companies seeking additional financing for business expansion.

Vibrant capital is likely to support a robust economy. While lending by commercial banks provides

valuable initial support for corporate growth, a developed stock-market is an important pre-requisite

for moving into a more mature growth phase with more sophisticated conglomerates. Today, with a

$67 billion economy and per capita income of roughly $500, Bangladesh should really focus on

improving governance and developing advanced market products.

Despite a challenging political environment and widespread poverty, Bangladesh has achieved

significant milestones on the social development side. With growth reaching 6.30 percent in 2012,

the economy has accelerated to an impressive level. It is noteworthy that the leading global

investment banks, Citi, Goldman Sachs, JP Morgan and Merrill Lynch have all identified

Bangladesh as a key investment opportunity. The Dhaka Stock Exchange Index is at a 10-year high,

however, the capital market in Bangladesh is still underdeveloped, and its development is

imperative for full realization of the country's development potential.

It is encouraging to see that the capital market of Bangladesh is growing, albeit at a slower pace

than many would like, with market development still at a nascent stage. The market has seen a lot of

developments since the inception of the Securities and Exchange Commission (SEC) in 1993. After

the bubble burst of 1996, the capital market has attracted a lot more attention, importance and

awareness that have led to the infrastructure we have in the market today.

To enlighten the theoretical aspect of trading policy in the stock market I have gathered information

from the official websites and several books related to the issues regarding the stock markets in

Bangladesh. I have come out with some major findings from the information I got. Finally, I have

focused on making changes in the current trading aspect of the stock market, which I think will help

the stock market to contribute more in the economy of Bangladesh.

Introduction

The financial system of Bangladesh

The financial system is a set of institutional arrangements through which surplus unit transfer their

fund to deficit units. The main constituents of the financial system of Bangladesh are –

a) Financial institutions

1. Banks

i. Private commercial banks

ii. Public commercial banks

iii. Private foreign commercial banks

iv. Specialized financial institutions

2. Non- banks

i. Insurance companies

ii. Security firms

iii. Investment banks

iv. Financial companies

v. Mutual finds

vi. Pension funds

b) Financial instruments

1. Money market instruments

i. Treasury bills

ii. Commercial paper

iii. Negotiable certificate of deposits.

iv. Bank acceptances

2. Capital market instruments

i. Bonds

ii. Stocks

iii. Government securities

iv. Bank & consumer commercial paper

v. Debentures

vi. Mortgages

c) Financial Markets

1. Primary market

2. Secondary market

3. Money market

4. Capital market

As the focus of my report is the stock market of the country, I will emphasize on the related

issues of the primary market & secondary market of the country.

The primary & secondary markets of Bangladesh are regulated by the regulations enacted by

Bangladesh Securities and exchange Commission

Bangladesh Securities and Exchange Commission

The Bangladesh Securities and Exchange Commission (BSEC) was established on 8th June, 1993. 

Earlier its name was Securities and Exchange Commission. Through an amendment of the

Securities and Exchange Commission Act, 1993, on 10 December 2012, its name has been changed

as Bangladesh Securities and Exchange Commission.  The Chairman and Commissioners of the

Commission are appointed by the government and have overall responsibility to

formulate securities legislation and administer as well..  The Commission is a statutory body and

attached to the Ministry of Finance. 

The BSEC aims at protecting the interests of securities investors, developing and maintaining fair,

transparent and efficient securities markets and ensuring proper issuance of securities and compliance

with securities laws.

The Commission's main functions are:

• Regulating the business of the Stock Exchanges or any other securities market.

• Registering and regulating the business of stock-brokers, sub-brokers, share transfer agents,

merchant bankers and managers of   issues, trustee of trust deeds, registrar of an issue,

underwriters, portfolio managers, investment advisers and other intermediaries in the

securities market

• Registering, monitoring and regulating of collective investment scheme including all forms

of mutual funds.

• Monitoring and regulating all authorized self regulatory organizations in the securities

market.

• Prohibiting fraudulent and unfair trade practices relating to securities trading in any

securities market.

• Promoting investors’ education and providing training for intermediaries of the securities

market.

• Prohibiting insider trading in securities. 

• Regulating the substantial acquisition of shares and take-over of companies.

• Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of

securities, the Stock Exchanges and   intermediaries and any self regulatory organization in

the securities market.

• Conducting research and publishing information.

The departments in BSEC are

Administration & Finance Department – that deals with human resources, all sorts of logistic

activities, to carry out day to day executive functions as well as finance & accounts.

Capital issue Department - accords consent to issue equity and debt securities through initial public

offer and also other than public offer.

Capital market regulatory reforms & compliance Department - drafts amendments of securities

laws, suggests reforms of the market and provides clarifications

Central Depository system Department - supervises activities of Central Depository Bangladesh

Limited (CDBL).

Corporate Finance Department - supervises and monitors the listed companies after issuance of

primary shares in light of the securities laws.

Enforcement Department - takes legal measures including imposition of penalty against those who

breach/violate securities laws in consideration of nature of crimes they commit.

Objective of the study

• To provide an idea about primary & secondary market in the stock market.

• To enlighten the concept of stock exchanges in Bangladesh.

• To discuss about the products available in the stock market.

• To focus on the trading activities of the stock exchanges.

• To give one idea about the steps to be taken by the investors.

• To find out some problems in the trading of stock exchanges.

• To come out with some suggestions to improve the trading.

Primary market

The primary market is the market for new long term equity capital. In this market the securities are

sold for the first time. Therefore it is called New Issue Market. The securities are issued by the

company directly to investors. The company receives the money and issues new security certificates

to the investors. Primary issued are used by companies for the purpose of setting up new business or

for expanding or modernizing the existing business.

The primary market performs the crucial function of facilitating capital formation in the economy.

The new issue market does not include certain other sources of new long term external finance, such

as loans from financial institutions. Borrowers in the new issue market may be raising capital for

converting private capital into public capital; this is known as "going public." The financial assets

sold can only be redeemed by the original holder.

IPO (Initial Public offering) - An initial public offering (IPO) is a type of public offering where

shares of stock in a company are sold to the general public, on a securities exchange, for the first

time. Through this process, a private company transforms into a public company. Initial public

offerings are used by companies to raise expansion capital, to possibly monetize the investments of

early private investors, and to become publicly traded enterprises. A company selling shares is

never required to repay the capital to its public investors. After the IPO, when shares trade freely in

the open market, money passes between public investors.

Procedures to go for IPO

There are some instructions have to be followed to get consent from Securities Exchange

Commission. These instructions are mandatory for investors. Through this process Investor has to

organize all the relevant information. The listing procedure is divided into two Parts according to

their behavior; one is work before Consent and another in work after consent. In the whole listing

procedure, the works are separable like work before IPO consent and work after IPO consent.

Works before Obtaining the Consent from Securities Exchange Commission –

1. Selection of Advisors: Before applying for consent every company suppose to have section

of legal advisor. Legal Adviser is responsible for Security of internal information. Local

Organization usually appoints only Local Advisor and multinational organization supposed

to have two legal advisers both Local & Foreign.

2. Completion of Valuation and restructuring: Before getting consent Organization willhave to

complete their total asset Valuation. Another important process is changing organization’s

employee management and also restructuring and obtaining Reports thereon. Listed

organization’s top level employee usually has to be followed by the auditor.

3. Selection of Bankers to the Issue: Bankers Letter confirming opening of separate account for

IPO and accepting their appointment as such Rule -18 of Public Issue Rules 2006. Bankers

to the issue will be the important stake holder and they will be responsible for deposit and

withdraw money of investors.

4. Selection of underwriters: Selection of underwriters & completing underwriting Selection of

underwriters: Selection of underwriters & completing underwriting agreement is another

essential process of IPO listing procedure. Underwriters are liable for successful float of all

the shares. If the shares under subscribed, then underwriter will have to buy and hold that

particular amount of shares. But, in case of Bangladesh Capital Market History, It never

happens besides applications are over subscribe more than 10 times of offer.

5. Collection of NOC from Lenders: Collection of No Objection Certificates (NOC) from

Lenders is a mandatory to get IPO approval. Lender should have to issue a letter that if  the

Company change their existing capital structure then they will not have any objection. If the

company have loan from several banks, then it is necessary to collect NOC from all the

lenders.

6. Audit of Accounts: Organization supposed to have Audit of their accounts by authorized

Auditor duly signed on each page, by the issuer’s chief executive officer/managing director,

chief financial officer and issue manager according to the Rule -3 of Public Issue Rules 2006. The

audited account shall not be older than 120 days of the end of the period for which the Financial

Statement is prepared. 10 copies of Financial Statement have submitted to SEC, one copy each to

DSE and CSE.

7. Credit Rating Report: Generally it takes at least two months to complete the Credit Rating

after the Annual Audit is completed and credit report is mandatory for IPO listing process.

Rule 18 (21) of the Public Issue Rules 2006 says that the application for consent shall be

accompanied by some exhibits including Credit Rating Report. No issue of shares at a

premium or issue of right shares shall be made by a public company unless the issue is rated

by a credit rating company and declaration about such rating is given in the prospectus or

right offer document (Sec.3 of Credit Rating Companies Rule 1996).

8. Agreement with CDBL: Before submission of Application to SEC, it is mandatory to

complete agreement with Central Depository Bangladesh Limited (CDBL). CDBL maintain

online transaction of securities by taking some fees and they listed all the investor in Stock

Market. At present there are more than 1600000(sixteen lac investors) in Bangladesh Capital

Market. After completion of agreement now company will have to take decision on

depositing sponsors shares during Lock-in-Period with Custodial Bank or with CDBL.

9. Approval from Sponsors: At this point of IPO process now it is necessary to take approval

from the sponsor and documentation the process, undertaking and information from

Sponsors/ Directors, Declarations, Due Diligence etc.

10. Refund warrant guarantee: Company supposed to have opened a separate Bank Account for

refund warrant purpose. It also called Mother Accounts for Refund Warrant. Through this

account Company has to refund warrant money to the investor, who will not get the share.

11. Draft Prospectus: Before applying for IPO Company will have to drafting the abridge

version of prospectus and dealing with Printers on printing of Prospectus, Forms, Refund

Warrants, Letter of Allotment etc.

12. Application Submission: Application has to submit to SEC for consent to Issue with

approved Prospectus and deposit the Govt. Fees of BDT 10,000. If the application is

incomplete the SEC shall inform the applicant within 28 days of receipt of application and if

the issuer fails to remove incompleteness within 30 days of communication, it shall file fresh

file fresh application. (Rule -17 of Public Issue Rules 2006).

13. Consent from SEC: if the application and information, documents are provided by the

applicant are reliable then SEC shall issue letter of Consent within 60 days of receipt of

complete application. (Rule -17(4) of Public Issue Rules 2006). If the application submitted

by the applicant is fresh and correct then usually it takes 45days to get IPO consent.

Works After Obtaining the Consent from Securities Exchange Commission –

1. Submission of prospectus: After getting approval from SEC the first step is to submit the

abridged version of prospectus in SEC for approval, usually before 10-15 days prior to

opening of subscription. And also have to submit signed copy of the Prospectus with

Registrar of Joint Stock Company (RJSC) on or before the date of publication of prospectus

in newspapers.( Section 138 of Companies Act 1994).

2. Announcement for the investor: Company will have to Publish of abridged version

of prospectus in 4 newspapers (2 English + 2 Bengali) within 3 working days of the issuance

of Consent Letter (Rule 5(1) of Public Issue Rules 2006). A paper clipping of published

Abridged Version of Prospectus has to submit to SEC within 24 hours of publication in

newspapers. Issuer Company will have to submit a diskette containing the text of vetted

prospectus to SEC, DSE, CSE and Issue Manager and will have to post the full prospectus

vetted by SEC in Websites of Issuer, SEC, DSE, CSE & Issue Manager within 3 working

days of the issuance of Consent Letter (Rule 6(2) of Public Issue Rules 2006).

3. Provide full prospectus: Issuer Company will have to submit 40 copies of printed prospectus

to SEC and also submit printed copies of abridged version Prospectus and application forms

to Bangladesh Embassies by EMS of postal departments within 5 working days from the

date of publication of abridged version of prospectus in newspapers.

4. Application for listing: At this point Applicant should apply to all Stock Exchanges in

Bangladesh and submit the vetted prospectus to the Stock Exchanges within 7 working days

from the date of issuance of the Consent Letter (Rule 17 of the Public Issue Rules 2006).

5. Subscription period: Subscription List shall be opened and sale of securities commence after

25 days of publication of Abridged Version of Prospectus. (Rule - 5 of Public Issue Rules

2006) Subscription List shall be closed after remain open for 5 consecutive banking days.

By NRB be made to the Issuer Company within the closing date so as to reach the Company

by the closing date plus 9 days.

6. Transaction rate: To apply spot buying rate (TT Clean) in US $ and UK pound and Euro of

Sonali Bank for subscription of NRB‟s. Spot buying rate to be collected from Sonali Bank

on the date of opening of subscription.

7. In case of under subscription: In case of under subscription, Issuer shall notify the

underwriter to take up underwritten shares. The time limitation is within 10 days of close of

subscription date. Full payment is to be made by the underwriter of underwritten amount

within 15 days of Issuers notice.

8. Application to Stock Exchanges for Listing: For application for Listing issuer has to submit

it to SEC attested copies of applications filed with Stock Exchanges within 7 working days

of issuance of consent letter (Application shall be made by the Company at least 10 days

prior to issue of first Prospectus (Regulation 3 (2) of DSE Listing Regulations).

9. Approval of listing: Granting of listing applications by DSE & CSE for issuing the share.

The exchange shall decide the question of granting permission within a maximum period of

6 weeks from closure of subscription lists. (Regulation 3(3) of DSE Listing Regulations)

Secondary market

The secondary market, also called aftermarket, is the financial market in which previously issued

financial instruments such as stock, bonds, options, and futures are bought and sold.. In most cases a

stock exchange largely fulfils the role of a secondary market, with the flotation of new issues

representing only a small proportion of its total business. However, it is the existence of a

flourishing secondary market, providing liquidity and the spreading of risk.

In the secondary market, securities are sold by and transferred from one investor or speculator to

another. It is therefore important that the secondary market be highly liquid (originally, the only

way to create this liquidity was for investors and speculators to meet at a fixed place regularly; this

is how stock exchanges originated.

Concept of stock exchange

A Stock Exchange may be defined on the basis of pre-automation and post-automation concept.

Pre-Automation Concept: Stock Exchange is a recognized market place where authorized

representatives of the investors assemble for buying and selling of issued securities on

competitive bids and/or offers.

Post-Automation Concept: It is a recognized market system which provides on-line real

time facilities to the investors for buying and selling of issued securities on electronic

matching basis against competitive bids and/or offers.

Stock Exchanges of Bangladesh

Bangladesh has two Stock Exchanges, Dhaka Stock Exchange (DSE), established in 1954

commenced screen based automated online trading in August 1998 and Chittagong Stock Exchange

(CSE), established in 1995, commenced screen based automated online trading from Chittagong,

Dhaka and Sylhet in June 1998. All exchanges are self-regulated, private sector entities which must

have their operating rules approved by the BSEC. The objectives & functions of the Stock

Exchanges -

• To provide market place or facilities for bringing together buyers and sellers for trading of

securities.

• Listing of the securities.

• Provide investment opportunities for all groups of investors through quick, easy and

accurate transaction.

• To ensure orderly market, fair trading and protect investors in the securities in compliance of

laws.

• Clearing and settlement of the traded securities.

• Stock Exchanges are basically functioning as Self-regulatory Organization (SRO).

• Stock Exchanges have an oversight responsibility on the activities of their members.

• It is also monitor the activities of listed securities.

• Its’ rules provide for the expulsion, suspension and other disciplinary measures against it’s

members for violation of code of conduct as well as other securities laws.

• It has the power to take punitive measures against the listed companies for violation of it’s’

rules/regulations.

• Stock Exchanges may make rules/regulations, with approval of SEC, to carry out the

aforesaid functions.

Category of the listed companies

Companies or firms which are listed with stock exchanges are called listed public limited company. On the other hand firms/companies those are not listed with any of the stock exchanges are un-listed companies.

Settlement of Stock Exchange Transactions Regulations, 1998 grouped the listed companies of our stock exchanges into following four categories:-

A - category companies –

• Regular in holding the current AGM.

• Declared at least 10% dividend in the last calendar year.

• Newly listed company with at least 10% EPS.

• Debentures and Mutual Funds.

B – category companies –

• Regular in holding the current AGM.

• Declared less than 10% dividend in the last calendar year.

• Newly listed company with less than 10% EPS.

Z – category companies –

• Failed to hold current AGM.

• Failed to declare dividend.

• Not in operation for more than six months.

• Accumulated loss exceeds paid-up capital, however, this condition shall not apply if the company declares dividend out of current years profit and holds AGM.

G- category companies –

Newly listed green field companies shall be grouped under this category.

N- category companies –

Newly listed companies shall be grouped under this category for first year.

Conceptual Issues

The products available in the stock market –

The different products available in the stock market are –

Share

• Ordinary Share

• Preference Share

Mutual Fund

Debt Securities

• Debenture

• Bond

Share

A share is a single unit of ownership in a corporation, mutual fund, or any other organization. A

joint stock company divides its capital into shares, which are offered for sale to raise capital, termed

as issuing shares. Thus, a share is an indivisible unit of capital, expressing the proprietary

relationship between the company and the shareholder. The denominated value of a share is its face

value: the total capital of a company is divided into a number of shares. The income received from

shares is known as a dividend. A shareholder, also known as a stockholder, is a person who owns

shares of a certain company or organization, and is thus a part-owner of the company. The process

of purchasing and selling shares often involves going through a stockbroker as a middle man.

• Ordinary share – Ordinary share is a form of corporate equity ownership, a type of

security. Ordinary share usually carries with it the right to vote on certain matters, such as

electing the board of directors. However, a company can have both a "voting" and "non-

voting" class of common stock. Holders of ordinary share are able to influence the

corporation through votes on establishing corporate objectives and policy, stock splits, and

electing the company's board of directors. Additional benefits from ordinary shares include

earning dividends and capital appreciation.

• Preference share - Preferred share is a special class of shares which may have features like

- Preference in dividends, Preference in assets, in the event of liquidation, convertibility to

common stock, Call ability, at the option of the corporation, Nonvoting. In general,

preferred have preference to dividends payments. A preference does not assure the payment

of dividends, but the company must pay the stated dividend rate before paying dividends on

common stock.

Mutual fund

A Mutual Fund is a professionally managed collective investment scheme that pools money from many investors and invests typically in securities (stocks, bonds, short term money market instruments, other mutual funds and other securities) on behalf of the investors/unit holders and distributes the profits. In other words, a mutual fund allows an investor to indirectly take a position in a basket of assets

According to basic financial theory an investor can reduce his risk by holding a portfolio of assets

instead of only one asset. This is because by holding all your money in just one asset, the entire

fortunes of your portfolio depends on this one asset. By creating a portfolio of a variety of assets,

this risk is substantially reduced. Mutual fund investments are not totally risk free. In fact, investing

in mutual funds bears the same risk as investing in the equities, the only difference is that due to

professional management of funds the controllable risks are substantially reduced.

By structure mutual funds are of 2 types – Open-ended mutual fund & Closed- ended mutual fund.

An open-end fund is one that is available for subscription all through the year. A closed-end fund

has a stipulated maturity period which generally ranging from 5 to 15 years. By fund categories

mutual funds are of 2 types – Equity mutual fund categories & Bond mutual fund categories.

• Debt securities –Any debt instrument that can be bought or sold between two parties and

has basic terms defined, such as notional amount (amount borrowed), interest rate and

maturity/renewal date. Debt securities include government bonds, corporate bonds, CDs,

municipal bonds, preferred stock, collateralized securities and zero-coupon securities. The

interest rate on a debt security is largely determined by the perceived repayment ability of

the borrower; higher risks of payment default almost always lead to higher interest rates to

borrow capital.Most debt securities are traded over-the-counter, with much of the trading

now conducted electronically. The total dollar value of trades conducted daily in the debt

markets is much larger than that of stocks, as debt securities are held by many large

institutional investors as well as governments and non-profit organizations. Debt securities

on the whole are safer investments than equity securities, but riskier than cash. Debt

securities get their measure of safety by having a principal amount that is returned to the

lender at the maturity date or upon the sale of the security. They are typically classified and

grouped by their level of default risk, the type of issuer and income payment cycles.

Private placement - Private placement occurs when a company makes an offering of

securities not to the public, but directly to an individual or a small group of investors. Such

offerings do not need to be registered with the Securities and Exchange Commission (SEC)

and are exempt from the usual reporting requirements. Private placements are generally

considered a cost-effective way for small businesses to raise capital without "going public"

through an initial public offering (IPO).

Private placement is a way of raising funds from chosen or selected private investors

without an initial public offering. In Bangladesh's stock market, only an issue manager can

sell shares under private placement on behalf of an issuer company

The stock market regulator has introduced a guideline for placement of shares with private

investors to bring more transparency into the mechanism of fund-raising, especially by non-

listed firms. Restrictions have been placed on the mass-scale distribution of shares through

private placement with a one year lock-in period in the sales of stocks, mandatory tax

identification numbers of subscribers and submission of the subscribers' list to the regulator.

The proposed capital may be raised from not more than 100 investors, including institutions,

according to the guideline. However, the number of investors may be increased to 150

before the final disclosure. According to the guideline, shares allotted through private

placement will be subject to lock-in for one year, before which, it cannot be transferred to

another person or entity. Before raising capital through private placement, a company must

obtain consent from SEC as per rules. “Applications should be submitted to SEC through a

merchant bank along with an information memorandum,” it said. It must contain a

background of the company, profiles of key management personnel, reasons for capital

raising, schedule of project implementation, audited financial statements, basic earnings per

share, diluted earnings per share for the last three years and net asset value based on the last

balance sheet The information memorandum should be provided to potential investors, the

guideline said, adding that a company should not use general solicitation or advertising to

market the shares. A complete list of subscribers should be submitted to SEC within 15

working days of closing of the subscription. Sponsor or promoter groups should maintain a

minimum post-issue shareholding of 30 percent of the total paid-up capital of the company,

it said. “The subscription money should be deposited through beneficiary owner's accounts.

• Bond -Bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt

security, under which the issuer owes the holders a debt and, depending on the terms of the

bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later

date, termed the maturity. Interest is usually payable at fixed intervals (semiannual, annual,

and sometimes monthly). Very often the bond is negotiable, i.e. the ownership of the

instrument can be transferred in the secondary market. At the time of issue of the bond, the

interest rate and other conditions of the bond will have been influenced by a variety of

factors, such as current market interest rates, the length of the term and the creditworthiness

of the issuer.

Database

Dhaka Stock Exchange Ltd

 Last update on Feb 17, 2013 at 11:10AM

DSEX Index 4344.20423 39.23405 0.9113664%

DGEN Index 4429.00919 32.16798 0.7316157%

DS30 Index 1563.75692 11.78293 0.7592221%

Index Calculation Algorithm (according to IOSCO Index Methodology):

 

                                 Yesterday's Closing Index X Current M.CapCurrent Index = --------------------------------------------------------------                    Opening M.Cap

 

                               Yesterday's Closing Index X Closing M.CapClosing Index = --------------------------------------------------------------                    Opening M.Cap

 

Current M.Cap = ∑ ( LTP X Total no. of indexed shares )

Closing M.Cap = ∑ ( CP X Total no. of indexed shares )

There are three indices in the DSE as follows :

Sl.No Index Name Base Index Remarks

1 DSEX (all shares) 350 (as on 01-11-1993)  

2DGEN (A, B, G & N)

817.63704 (as on 24-11-2001)SEC directive regarding index was on 17-11-2001

3 DS20 1000 (as on 01-01-2001)  

 

Abbreviations and Acronyms

M.Cap  - Market Capitalization

IOSCO - International Organization of Securities Exchange Commissions (IOSCO)

LTP      - Last Traded Price

CP        - Closing Price

Highest value: 3692.36558

Lowest value: 3642.70321

Index Graph of 28-03-2013

Highest value: 3805.65384

Lowest value: 3749.07538

Index Graph of 28-03-2013

Highest value: 1370.14759

Lowest value: 1352.67858

Index Graph of 28-03-2013

The Vertical lines of the graphs indicate the index value and the horizontal lines of the graphs

indicate different times when the value of the index got changed.

Index Value Change

CSE30 11605.5055 -7.4474

CSCX 8553.1313 -22.4663

CASPI 13446.6556 -38.603

CSE30 - It provides a discussion about the important criterion for an index, which is to be used as a

benchmark of performance. The criterion is that the movement of the index fully represents the

aggregate movement of the index's constituent assets and that the index's returns are realizable by

an investor who has held a portfolio identical to the asset mix of the index. Value-Weighted Index

satisfies the above criterion. Selection of stocks for the benchmark index should be such that it

represents the whole market.

CSCX - The Base Date of this index is 15th April 2001 (when A, B & Z category were introduced) and Base

Value is set to 1000. The new index includes all but not the Z category companies. This also excludes the

companies/scrips which are debt securities, mutual funds, suspended for indifinte period and non-traded

for preceding six months of review meeting. The index is reviewed in the Index Committee Meeting after

every six months like other two indices of CSE. This index is disseminated on line to the entire Brokers'

Work Stations (BWSs) during trading sessions and after every three minutes the index value will be

refreshed.

All CSE indices are calculated using following formula:

Free-float market capitalization of index constituents/ Base Market capitalization *

Base Index ValueThe closing index value on any trading day is computed taking the weighted average of all the

trades of index constituents in the last 30 minutes of trading session. If an index constituent has not

traded in the last 30 minutes, the weighted average price of last 50 trades is taken for computation

of the index closure. If an index constituent has not traded at all in a day, then its last day's closing

price is taken for computation of index closure. The use of index closure algorithm prevents any

intentional manipulation of the closing index value

The Vertical lines of the graphs indicate the index value and the horizontal lines of the graphs

indicate different times when the value of the index got changed.

Findings of the study

The trading session at DSE & CSE is performed as a non-stop platform in the following session-

Continuous Trading hours - 10.00 am to 3.00 pm

Trading day - Sunday – Thursday

All securities of the stock exchanges are distributed in different sectors. Like as –

• Bank – The banking sector engaged in Stock market of Bangladesh comprises 30

commercial banks. The AB Bank encompasses 483 trading numbers which is the highest

one. The name of the banks are mentioned below –

 AB Bank Limited, Al-Arafah Islami Bank, Bank Asia Ltd, BRAC Bank Ltd. City

Bank, Dhaka Bank, Dutch-Bangla Bank, Eastern Bank, Export Import (Exim) Bank of

Bangladesh, First Security Islami Bank Limited, ICB Islamic Bank Limited, IFIC Bank,

Islami Bank, Jamuna Bank Ltd, Mercantile Bank Ltd, Mutual Trust Bank Ltd,  NBL,

NCCBL, One Bank Limited, The Premier Bank Ltd, Prime Bank, Pubali Bank,  Rupali

Bank, Shahjalal Islami Bank Ltd, Social Islami Bank Limited, Southeast Bank, Standard

Bank Limited, Trust Bank Limited, United Commercial Bank Ltd, Uttara Bank.

• Cement – The cement industries sector engaged in the stock market comprises 7 private

companies. The Premier Cement Mills Limited encompasses 1050 trading numbers which is

the highest one. The name of the companies in Cement sector are mentioned below –

Aramit Cement, Confidence Cement, Heidelberg Cement Bd, LAFARGE SURMA

CEMENT LTD, Meghna Cement, M.I. Cement Factory Limited, Premier Cement Mills

Limited.

• Ceramics sector – Ceramics sector involved in stock market comprises 5 companies.

Shinepukur Ceramics Limited holds 172 trading numbers which is the highest one. The

name of the companies in ceramics sector are mentioned below –

Fu-Wang Ceramic, Monno Ceramic, RAK Ceramics, Bangladesh Limited, Shinepukur

Ceramics Limited, Standard Ceramic.

• Corporate bond – Corporate bond sector involved in stock market contains 3 companies.

IBBL holds 35 trading numbers which is the highest one. The 3 companies are - ACI 20%

Convertible Zero Coupon Bonds, Sub 25% Convertible Bonds of BRAC Bank L, IBBL

Mudaraba Perpetual Bond.

• Debenture – In this sector 8 companies are involved in the stock market of Bangladesh. The

name of the companies in this sector involved in trading currently are - Aramit Cement Ltd.

(Deb-14%), Bangladesh Luggage Ind. Ltd.(Deb-14%),  BD Welding Electrodes Ltd.(Deb-

15%), Bangladesh Zipper Ind. Ltd.(Deb-14%), Beximco Denims Ltd.(Deb-14%), Beximco

Fisheries Ltd.(Deb-14%), Beximco Knitting Ltd.(Deb-14%), Beximco Textiles Ltd.(Deb-

14%).

• Engineering – The engineering sector engaged in stock market comprises 23 companies. The

Singer Bangladesh encompasses 609 trading numbers which is the largest one. The name of

the companies are given below –

Aftab Automobiles, Anwar Galvanizing, Atlas Bangladesh, Aziz Pipes,  BD.Autocars,

Bangladesh Lamps, Bd.Thai Aluminium, BSRM Steels Limited, Deshbandhu Polymer

Limited, Eastern Cables, Golden Son Ltd. GPH Ispat Ltd. Kay and Que,  Monno Jute

Stafflers, Navana CNG Limited, National Polymer, National Tubes, Olympic Industries,

Quasem Drycells, Rangpur Foundry, Renwick Jajneswar & Co (Bd), S. Alam Cold Rolled

Steels Ltd, Singer Bangladesh.

• Financial institutions – The financial institutions sector involved in stock market comprises

22 companies. The Peoples Leasing and Fin. Services Ltd hold 421 trading numbers which

is the highest one. The name of the companies are given below –

Bay Leasing & Investment Limited, Bangladesh Finance and Investment Co.Ltd Bangladesh

Industrial Fin. Co. Ltd, Delta Brac Housing Finance Corp. Ltd, FAS Finance & Investment

Limited, First Lease Finance and Investment Ltd, GSP Finance Company (Bangladesh)

Limited, ICB, IDLC Finance Ltd, International Leasing & Financial Serv.L, Industrial Prom.

& Dev. Co. of BD Ltd, Islamic Finance & Investment Ltd,  LankaBangla Finance

ltd, MIDAS Financing Ltd,  National Housing Fin. and Inv. Ltd, Phoenix Finance and

Investments Ltd, Peoples Leasing and Fin. Services Ltd, Premier Leasing & Finance

Limited, Prime Finance & Investment Ltd, United Leasing, Union Capital Limited, Uttara

Finance.

• Food $ allied – The Food & allied industries sector involved in stock market contains 17

companies. The Golden Harvest Agro Industries Ltd encompasses 1333 trading numbers

which is the highest one. The name of the companies in this sector are mentioned below –

AMCL (Pran), Apex Foods, Bangas, BATBC,  Beach Hatchery Ltd, CVO Petrochemical

Refinery Limited, Fine Foods Limited, Fu Wang Food, Gemini Sea Food, Golden Harvest

Agro Industries Ltd, Meghna Condensed Milk, Meghna Pet Industries, National

Tea, Rahima Food, Rangpur Dairy & Food Products Ltd, Shyampur Sugar Mills Ltd, Zeal

Bangla Sugar Mills Ltd.

• Fuel & power – The Fuel & power sector engaged in stock market comparises 15

companies. The Dhaka Electric Supply Company Ltd holds 343 trading numbers which is

the highest one. The name of the companies in this sector are mentioned below –

Bd. Welding Electrodes, Barakatullah Electro Dynamics Ltd, Dhaka Electric Supply

Company Ltd, Eastern Lubricants, GBB Power Ltd, Jamuna Oil Company Limited, Khulna

Power Company Limited, Linde Bangladesh Limited, MJL Bangladesh Limited, Meghna

Petroleum Limited, Padma Oil Co, Power Grid Company of Bangladesh Ltd, Summit

Purbanchol Power Company Limited, Summit Power Limited, Titas Gas Transmission &

Dist. Co. Ltd.

• Insurance – There are 46 insurance companies which are involved in the stock market.

BGIC holds 242 trading numbers which is the largest one. The name of the companies in

this sector are mentioned below –

Agrani Insurance Co. Ltd, Asia Insurance Limited, Asia Pacific General Insurance Co.

Ltd, BGIC, Central Insurance, City General Insurance Co. Ltd, Continental Insurance

Ltd, Delta Life Insurance, Dhaka Insurance Limited, Eastern Insurance, Eastland

Insurance, Fareast Islami Life Insurance Co. Ltd, Federal Insurance, Global Insurance

Ltd, Green Delta Insurance, Islami Insurance Bangladesh Limited, Janata

Insurance, Karnaphuli Insurance, Meghna Life Insurance Co. Ltd, Mercantile Insurance Co.

Ltd, National Life Insurance, Nitol Insurance Co. Ltd, Northern General Insurance Company

Ltd, Padma Islami Life Insurance Limited, Paramount Insurance Company Ltd, Peoples

Insurance, Phoenix Insurance, Pioneer Insurance, Popular Life Insurance Co. Ltd, Pragati

Insurance, Pragati Life Insurance Ltd, PRIME INSURACE, Prime Islami Life Insurance

Ltd, Progressive Life Insurance Co. Ltd, Provati Insurance Company Limited, Purabi Gen.

Insurance, Reliance Insurance, Republic Insurance Company Limited, Rupali

Insurance, Rupali Life Insurance Company Limited, Sandhani Life Insurance, Sonar Bangla

Insurance Ltd, Standard Insurance Limited, Sunlife Insurance Company Limited, Takaful

Islami Insurance Limited, United Insurance.

• IT sector – The IT sector comprises 6 companies involved in the stock market. Aamra

Tecknologies Ltd is having the highest number of trading values.

• Mutual funds – The Mutual funds sector contains 41 companies engaged in the stock

market. The Grameen One : Scheme Two holds 168 trading numbers which is the highest

one . The name of the companies are given below –

First Janata Bank Mutual Fund, 1st Bangladesh Shilpa Rin Sangstha M.F, 1st ICB

M.F, Prime Finance First Mutual Fund, 2nd ICB M.F, 3rd ICB M.F, 4th ICB M.F, 5th ICB

M.F, 6th ICB M.F, 7th ICB M.F, 8th ICB M.F, AB Bank 1st Mutual fund, AIBL 1st Islamic

Mutual Fund, Aims 1st M.F, DBH First Mutual Fund, EBL First Mutual Fund, EBL NRB

Mutual Fund, First Bangladesh Fixed Income Fund, Grameen Mutual Fund One, Grameen

One : Scheme Two, Green Delta Mutual Fund, ICB AMCL 1st NRB Mutual Fund, ICB

AMCL 2nd NRB Mutual Fund, ICB AMCL Third NRB Mutual Fund, ICB AMCL 1st M.F,

ICB AMCL Second Mutual Fund, ICB Employees Provident MF 1: Scheme 1, ICB AMCL

Islamic Mutual Fund, IFIC Bank 1st Mutual Fund, IFIL Islamic Mutual Fund-1, LR Global

Bangladesh Mutual Fund One, MBL 1st Mutual Fund , NCCBL Mutual Fund-1, NLI First

Mutual Fund, Phoenix Finance 1st Mutual Fund, PHP First Mutual Fund, Popular Life First

Mutual Fund, Prime Bank 1st ICB AMCL Mutual Fund, "Reliance One" the 1st scheme of

Reliance Insurance Mutual Fund, Southeast Bank 1st Mutual Fund, Trust Bank 1st Mutual

Fund.

• Paper & printing – Paper & printing sector comprises one company in the stock market.

• Pharmaceuticals & chemicals – The pharmaceuticals sector engaged in stock market

contains 22 companies. The Orion Pharma Ltd holds 9370 trading numbers which is the

highest one. The name of the companies are given below –

ACI Limited, ACI Formulations Limited, Active Fine Chemicals Limited, Ambee Pharma,

Beacon Pharmaceuticals Limited, Beximco Pharma, Beximco Synthetics, Global Heavy

Chemicals Limited, Glaxo SmithKline, The Ibn Sina, Imam Button, Keya Cosmetics,

Kohinoor Chemicals, Libra Infusions Limited, Marico Bangladesh Limited, Orion Infusion

Ltd, Orion Pharma Ltd, Pharma Aids, Reckitt Benckiser(Bd.)Ltd, Renata Ltd, Salvo

Chemical Industry Limited, Square Pharmaceuticals Ltd.

• Services & real estate

• Tannery industries

• Telecommunication

• Textile

• Travel & leisure

• Treasury bond – The Treasury bond sector engaged in stock market contains 221 companies.

• Papers & printing

• Leather & footwear

• Miscellaneous

After over viewing the trading in the DSE & CSE, the general ways to trade in the stock market can

be mentioned as follows -

Ways to trade in the stock market -

• Trading in the securities can be executed through written orders submitted to the concerned

broker;

• Telephonic orders can also be submitted provided that such orders shall be confirmed in

writing with in 24 hours;

• The price of the securities can not go beyond specified circuit breaker range and an investor

can quote at the tick price of the securities as specified by the exchanges;

• Short-selling of the securities are prohibited if it is not done under Dhaka Stock Exchange

(Short Sale) Regulations 2006;

• Trading in the securities can be executed through written orders submitted to the concerned

broker;

• Telephonic orders can also be submitted provided that such orders shall be confirmed in

writing with in 24 hours;

• The price of the securities can not go beyond specified circuit breaker range and an investor

can quote at the tick price of the securities as specified by the exchanges.

• Short-selling of the securities are prohibited if it is not done under Dhaka Stock Exchange

(Short Sale) Regulations 2006

Types of Order

• Based on price, orders may be of the following categories, namely:-

Limit order; and

Market order

Limit order: Limit order must have a price limit which ensures that the order shall be traded

at the price equal to or better than the limit price.

Market order: Market order is the order to be executed at the touchline price. A market order

is matched immediately on arrival in to the trading engine at the touchline price.

• All orders will match automatically.

• Orders which are at the most favorable price, that is, at the lowest selling or highest buying

price, shall be executed first. If two or more orders are listed in the order book at the same

price, the oldest order shall be executed first.

• Orders that cannot immediately be executed shall be queued for future execution in a

specific order of priority mainly based on price and time of entry.

• If an order is executed partly, the remaining part of such order shall not lose its priority.

• The queue priority is determined by the system through an interactive process.

Trade Confirmation

Trade confirmation note is a proof of the transaction issued by broker;

The broker shall issue a trade confirmation note to his client within twenty four hours of the

execution of order and it should be numbered and time stamped;

The trade confirmation note shall show:

Date of the trade;

Name and quantity of the security bought or sold;

Price of the security, brokerage and other charges;

The order and howla or contract note number and date; etc.

Howla or Contract Note

The automated trading system of the exchanges automatically provides the contract note

immediately upon completion of trade. This note is the evidence of transaction and shows

the contract number with date of execution and other details of the concerned trade.

Clearing and settlement –

• A trade executed through exchanges is settled amongst the brokers through the

clearing house of the exchanges;

• In settlement of trade, except Z category securities, the buying and selling brokers

deposit cheque and securities respectively to the clearing house on 2nd day of the

trade (T+1) and the clearing house deliver securities and give cheque to the buying

and selling broker respectively on 4th day of the trade (T+3). For settlement of the

trades of the securities under Z-category the the aforesaid periods are T+3 and T+7

respectively.

• A member shall make settlement to his client by delivery of securities and/or make

payment by cheque within one day of his receipt of securities and/or cheque from the

Clearing house. Any default shall attract a fine of Tk. 500 for each day for each

default. Interest shall also be payable to a client for delayed payment at 1.5% per

month.

The market intermediaries in the stock market –

Stock-broker/Stock-dealer and their authorized representative

Merchant Banker/Portfolio Manager/ Underwriter

Asset Management Company

Custodian

Trustee

Depository Participant (DP)

Broker is entitled to buy and sale the securities on others account and Dealer is entitled to

buy and sale the securities for his own account;

Broker/Dealers are the members of the exchanges;

They are licensed by the Commission to act as broker/dealer;

Authorized Representatives (AR) are employees of broker/dealer;

Apart from the broker/dealers ARs are authorized to deal with the clients of the concerned

broker;

They are also licensed by the Commission;

Their activities are regulated by SEC (Broker/Dealer and Authorized Representatives)

Regulations, 2000.

Responsibilities of investors to their stock brokers –

The investor/client should have a proper signature in the customer account information to

form a contractual agreement.

The investors should know the client code number for trading.

They should have all the necessary information about the introducers.

In the form of margin facilities several term & conditions are attached. The investors should

be well-informed about all the terms & conditions.

When trading will be done by negotiation the investors should perform the task of setting the

rate of commission.

For the deposits of the share the investors should take acknowledgement receipt which

should contain the signature of the authorized person of the stock broker.

For fund deposit they should posses the money received with proper signature of the

authorized person of the stock broker.

The investors should provide proper declaration in respect of shares trading by director or

sponsors.

Rules and regulations in the stock market –

Securities & Exchange Rules, 1987;

Securities & Exchange Commission (stock dealer, broker and authorized representative)

Rules, 2000;

Securities & Exchange Commission (substantial shares acquisition) Rules, 2002;

Margin Rules, 1999

Settlement of Dhaka/Chittagong Stock Exchange Transactions Regulations, 1998;

Dhaka Stock Exchange (Short Sale) Regulations 2006.

Some factors to be considered while making investment in the secondary market -

• Investments in capital market are primarily made either for capital gain or for getting regular

income as dividend;

• Before making investment decision one should determine his own objective for investment.

• Common objective of investment in secondary market is to maximize profit from bullish

market and or minimize loss from bearish market.

• After determining the objective, the investor should analyze the financial statements of the

company and decide to invest in the shares of that company.

• The investor should have all he necessary information about the industry of the company

and their average return for last few years;

• The investors should be satisfied enough about the management setup of the company

• The investors should gather information regarding some relevant issues of the company.

Like - Earning per share (EPS), Price Earning ratio (P/E), Dividend, Dividend pay out ratio,

Net asset value per share, No. of shares outstanding, Market price and its fluctuation, growth

rate, market position etc. of the company;

• Product, technology, market position of the product etc. of the company;

• Turnover rate of the shares or liquidity position etc.

Major future prospects that will challenge the stock market

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

• Power and energy sectors demand for capital is 5 to 10 billion dollar within short time to

meet the immediate needs of 5000 MW power demand.

• A deep sea port requiring 1 billion dollar is going to start with a policy decision that itwill

also be listed.

• The Pharmaceutical sector and API enjoying WTO benefit is growing shar

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

is booming.

• Export oriented food processing industry needs huge capital and technical capacity to meet

the growing standards in global market for marine food, fruits and poultry.

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

industry of the country

Conclusion

Major findings

The stock exchanges suffer from a major problem like unexpected rise and fall in the share price.

Such fluctuations take place because of the general confidence of the investors about -

• Political stability

• Euphoria of investments 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 SECs to cape with the developments

• Absence of proper application of circuit breakers.

Through the thorough study on the stock exchanges of Bangladesh I have come out with some

major problems. Such as –

• The share values of some profitable companies have been increased fictitiously some items

that hamper the smooth operation of Stock market.

• Financing procedures and delivery of securities sometimes take an unusual long time for

which the money is blocked from nothing.

• Some companies do not hold Annual General Meeting(AGM) and eventually declare

dividends that confused the shareholders about the financial positions of the company.

• Some members being the directors of listed companies of DSE, CSE look for their own

interest using their internal information of share market.

• Many companies do not focus real position of the company as some audit firms involve in

corruption while 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 arise

technical problems and political infighting.

• The intrinsic values for securities traded are sometimes estimated without considering the

current market prices of the securities.

• The absence of comprehensive legal and supervisory framework

• Lack of skilled manpower 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 form the institutional sources rather than the market.

Suggestions & recommendations

There are some ways to make the improvement in the overall performance of the CSE & DSE I

have focused on some issues which can be considered as suggestions or recommendations to

overcome such situation. Suggestions to improve the activities of the stock market -

• 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.

• To control and abolish kerb market form premises of stock market.

• To take remedial action against the issues of fake certificates.

• The composite Quotation system (CQS) should be introduced and implemented that

available the exchange specialist bid-ask quotes to the subscribers.

• To make arrangement to set-up merchant banks, investment banks and floatation of more

mutual funds in the private sectors.

• Banks, insurance companies and other financial institution should be encouraged deal in

share business directly.

• The brokers should not be allowed to deal in the Scripps on their own accounts.

• The management of DSE and CSE should be vested with professionals and should not in

any way be linked with the ownership of stock exchange and other firms.

Conclusion

To expedite the market development process, it may be a good idea to decide on certain milestones

and link them to the disbursement of Development Credit Support of the World Bank. The

government is making good progress in other sectors, including monetary management,

corporatization of public-sector banks and others through this linkage. The missing link between the

SEC, Bangladesh Bank, Bangladesh Telecom Regulatory Commission and other regulatory bodies

is now getting established. Individually, they were not serving each others' interests, and there was

no effective coordination among them, hence the country was deprived of great initiatives. A

dedicated financial market cell at the Ministry of Finance could be formed to coordinate with these

regulators as well as other ministries.

In terms of creating market depth, more profitable state-owned-enterprises should be listed. The

supply of securities can be increased if the SOEs are allowed to operate through the

stock exchanges. Floatation of SOE scrips is expected to expand the market by couple of times

Corporatization of SOEs will bring in transparency as well as confidence on the government

financial system.

The Bangladesh capital market still has a long way to go. The recent measures taken by the

transitional government have already begun to positively impact the markets. If more investor-

friendly policy reforms were to be implemented, the capital market will undoubtedly play a critical

role in leading Bangladesh towards being the next Asian tiger with growth comparable to India,

Vietnam and the other most dynamic economies in the region.