Capital Markets Development in Bangladesh: Capital Markets Development in Bangladesh: The Status of Dhaka Stock ExchangeThe Status of Dhaka Stock Exchange

Faculty of Business Administration and ManagementPatuakhali Science and Technology University

Presented ByPresented By

Md. Mofizer Rahman (L)

Md. Kamruzzaman

Shuvradeb Barai

Abu Zafour

Dipayan Chakma

Sahana Parveen

Shofiq Uddin Khan

Nazmul Alam Siddiqui

Md. Hasan UddinLecturerDepartment of Finance and BankingFaculty of Business Administration and Management

Prepared ForPrepared For

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Meaning of Capital MarketMeaning of Capital Market

The capital market is market for securities, where companies and Governments can raise long-term funds. It is a market in which money is lent for periods longer than a year. The capital market includes the stock market and the bond market. Capital market is the group of interrelated markets, in which capital in financial form is lend or borrowed for medium and long term and, in cases such as equities, for unspecified periods.

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Sub-Markets of Capital MarketSub-Markets of Capital Market

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Sub-Markets of Capital MarketSub-Markets of Capital Market

The secondary The secondary

The secondary market handles the trading of previously-issued securities, and must remain highly liquid in nature because most of the securities are sold by investors.

The Primary MarketThe Primary Market

The primary market deals with newly issued securities and is responsible for generating new long-term capital.

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ROLE OF CAPITAL MARKETROLE OF CAPITAL MARKET

The primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a platform for the trading of securities. This fund rising is regulated by the performance of the stock and bond markets within the capital market.

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Capital Market of Bangladesh Capital Market of Bangladesh

Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia region. It has two full-fledged automated stock exchanges namely - Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange(CSE). It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capita market.

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SEC Regulating the CSE and DSE SEC Regulating the CSE and DSE

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Background of Dhaka Stock ExchangeBackground of Dhaka Stock Exchange

East Pakistan Stock Exchange Ltd was finally named as Dhaka Stock Exchange (DSE) on 14 May 1964.

Although incorporated in 1954, formal trading started in 1956.

Prior to independence in 1971, the number of listed companies in DSE was 196 with a total paid up capital of Tk. 4 billion.

The total number of listed securities is now 378.

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Nature of Dhaka Stock ExchangeNature of Dhaka Stock Exchange

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Nature of Dhaka Stock Exchange Nature of Dhaka Stock Exchange There are four markets in the system -

Public MarketPublic Market Only trading of market lot share is done here through automatic

matching.

Spot Market Spot Market Spot transactions are done here through automatic matching which

must be settled within 24 hours.

Block MarketBlock Market A place where bulk quantities of shares are traded through pick and

fill basis.

Odd Lot MarketOdd Lot MarketOdd lot scripts are traded here based on pick and fill basis.

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Figure 1: Showing the listed securities of DSE during the period from Figure 1: Showing the listed securities of DSE during the period from 2001 to 20082001 to 2008

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Graph 2: Number of Tradable Securities of DSE (2001-08)Graph 2: Number of Tradable Securities of DSE (2001-08)

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Graph 3: % Changes of Securities and Trade able Securities Graph 3: % Changes of Securities and Trade able Securities

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Graph 4: Showing the Issued of DSE during the period from 2001-08Graph 4: Showing the Issued of DSE during the period from 2001-08

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Graph 5: Showing the Market Capitalization of DSE during the period Graph 5: Showing the Market Capitalization of DSE during the period from 2001 to 2008 from 2001 to 2008

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Graph 6: Showing the Turnover of DSE during the period from 2001 Graph 6: Showing the Turnover of DSE during the period from 2001 to 2008to 2008

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POLICIES OF DSEPOLICIES OF DSE

DSE can introduce automate monitoring systems that may control price manipulation, malpractices and inside trading.

It can make sure all the listed companies publish their annual reports with actual and proper information that can ensure the interest of the investors.

To force the listed companies to declare and pay regular dividends through conducting Annual General Meeting.

To make arrangement to set up merchant banks, investment banks and floatation of more mutual funds particularly in the private sectors.

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POLICIES OF DSE POLICIES OF DSE (Continued)(Continued)

More banks, insurance companies and other financial institutions should be encouraged to deal in share business directly

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 train the investors about fundamentals to deal in share transactions.

To punish the member brokers for breaching of contract.

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FUNCTION OF DSEFUNCTION OF DSE

Listing of Companies

Providing the screen based automated trading of listed Securities

Settlement of trading

Granting approval to the transaction

Market Administration & Control

Market Surveillance

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FUNCTION OF DSE FUNCTION OF DSE (Continued)(Continued)

Publication of Monthly Review

Monitoring the activities of listed companies

Investor’s grievance Cell

Investors Protection Fund

Announcement of Price sensitive or other information about listed companies through online.

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PROBLEMS AND LIMITATIONS OF DSEPROBLEMS AND LIMITATIONS OF DSE

Price ManipulationPrice Manipulation

It has been observed that the share values of some profitable companies have been increased fictitiously some times that hampers the smooth operation of DSE.

Delays of settlementDelays of settlement

Financing procedures and delivery of securities sometimes take an unusual long time for which the money is blocked for nothing.

Irregular payment dividendsIrregular payment dividends

Some companies do not hold Annual General Meeting and eventually declare dividends that do not reflect the real or actual financial positions of the company and ultimately shareholders become confused.

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PROBLEMS AND LIMITATIONS PROBLEMS AND LIMITATIONS (continued)(continued)

Selection of membershipSelection 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 Improper Financial Statement

Many companies of DSE 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 the company.

Technical problems and political infightingTechnical problems and political infighting

The concept of centralization of securities market has not been implemented that arises technical problems and political infighting.

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PROBLEMS AND LIMITATIONS PROBLEMS AND LIMITATIONS (continued)(continued)

Lack of skilled manpowerLack of skilled manpower

in DSE as well as financial and non financial institutions involved in the securities market.

The lack of proper policyThe lack of proper policy

Absence on framework that provides incentives and protection to investors.

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SUGGESTIONS TO IMPROVE THE SUGGESTIONS TO IMPROVE THE ACTIVITIES OF DSEACTIVITIES OF DSE

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.

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SUGGESTIONS TO IMPROVE THE SUGGESTIONS TO IMPROVE THE ACTIVITIES OF DSEACTIVITIES OF DSE

To force the listed companies to declare and pay regular dividends through conducting Annual General Meeting.

To take remedial action against the issues of fake certificates.

Banks, insurance companies and other financial institutions should be encouraged deal in share business directly.

To punish the member brokers for breaching of contract.

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Capital Market Development Program Capital Market Development Program in Bangladeshin Bangladesh

Strengthening market regulation and supervision

Developing the capital market infrastructure

Modernizing capital market support facilities

Increasing the limited supply of securities in the market

Developing institutional sources of demand for securities in the market and

Improving policy coordination.

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To ensure an adequate supply of quality shares of telecommunications, energy and pharmaceutical firms, which are attractive sectors for foreign funds.

Surrounding easy access to information and coordination among regulatory bodies that needed attention.

Better coordination among the government and relevant agencies.

Efforts among policy-makers and regulators like the central bank, tax authority, stock market watchdog and investment board which is needed to sustain the present inflow of portfolio investment in the country's stock market.

2010 AS A BRIGHT YEAR IF WE CAN ENSURE2010 AS A BRIGHT YEAR IF WE CAN ENSURE

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Thank You AllThank You All

The EndThe End

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