chittagong stock exchange_critical_analy term paper final by fardin khan

Term paper on “The Problem & prospect of capital market in Chittagong” P a g e | 1

Term Paper On

The Problem & prospect of capital market in Chittagong.

Submitted By

Fardin Khan

Roll No:B141463

BBA (3th year)

Department of B.B.A (Finance)

International Islamic University Chittagong

Date of Submission: 30thjanuary, 2015

LETTER OF SUBMISSION

, National University


Date: 30th January, 2015

ToRaju ShahaAssociate ProfessorDepartment of B.B.A (Accounting)National University

Subject: Submission of Term paper on the Problem & prospect of capital market in Chittagong.

Sir,

It is an issue of immense pleasure for me to present term paper before completing B.B.A program, which covers the area of an evaluation on “The Problem & prospect of capital market in Chittagong or Chittagong Stock Exchange (CSE) Ltd.”.I have concluded my term paper according to my honorable teacher’s suggestions, instructions, motivation & recommendations.

I gave my utmost mind to make the tour report much more informative & ingenious for future learners to enlarge leanings in this field. I believe this practical chore & experience will geared me toward the pave of success in future.

I will be available for any ancillary amplification in this regard if necessary.

Sincerely yours,

(Fardin Khan)Roll ID: B141463BBA (Honors)Department of B.B.A (Finance)International Islamic University Chittagong



ACKNOWLEDGEMENT

Initially, I am indebted to almighty Allah for giving me competence and power to

conclude the term paper timely.

This is a great privilege for me to finish the report in due time. During the preparation of

this report I have received generous help from many individual’s which we would like to

mention with our deepest gratitude especially those who spare time to share their mindful

art of judging of merits and faults and suggestions.

I would like to express gratitude earnestly to my honorable Teacher Raju Shaha,

Associate Professor, Department of B.B.A (Accounting), National University for his

whole-heartedly co-operation, supervision & assistance. Subsequently I am also grateful

to the department for giving such kind of term paper. I really want to express my

gratitude to her for giving valuable advice and time, which helped immensely in

preparing this term paper.

Student’s Declaration

I hereby declare that the report of Thesis report namely “Chittagong Stock Exchange; An

Evaluation of the Operation, Problems and Prospects” I also declare that this paper is my

original worked and Prepared for academic purpose which Is a part of BBA and this term

paper contain actual Information as far I know.



ABSTRACT

CSE is the 2nd largest capital market in Bangladesh. It established with immense

possibility to expand capital market. It plays the important role in regulating the small

investors and intuitional investors. It oversees the legal environment of securities

markets. Its operation is automated but internet trading facilities is not worldly spread. It

maintains various indices such CSE-30 selective index and CSE All Share Price Index to

evaluate performance of listed company. It has various dept. such as Listing and

Membership Department, Market operation Department (MOP) and Inspection

Department etc that concern with assigned functions such as listing, delisting, makes fine

of companies that violates the rules, controlling IPO etc. It faces many problems such as

lack of adequate saving i.e. capital, lack of govt. assistance and lack of honesty of

directors and concern authorities. These major problems can be solved with proper

guidance, governmental support and increasing morality and commitment to the

stakeholder interest. It is expected that the capital market will gain more transparence

and will be able to attract the investors through its increased efficiencies and favorable

atmosphere with the supporting activities of CSE in the course of time.

Keywords:

CSE, Capital Market, Intuitional Investors, Legal Environment, Automated Operations,

CSE-30 Selective Index, CSE All Share Price Index, Initial Public Offering (IPO),

Stakeholder.



TABLE OF CONTENTS

8TITLE PAGE NO.CHAPTER 1: INTRODUCTIONIntroduction 6Rationale of the study 7Objectives of the Study 7Methodology of the Study 8Data possessing 9Scope of the Study 9Limitations of the Study 9CHAPTER 2: REVIEW OF CHITTAGONG STOCK EXCHANGEHistorical background of the CSE 10Mission of CSE 10Objectives of the CSE 11Management of CSE 11Legal Basis of CSE 11Organ gram of CSE 12Boards of Directors 13CSE at a Glance 13Milestones 14Products of CSE 14Legal Environment -Rules & regulation influencing CSE 15-17CHAPTER 3: FUNCTIONS OF CSEFunctions of CSE 18Activities Of Various Department 18Listing and Membership Department 19-21Membership department 22-23Market Operation Department (MOP) 24Session Management 25-28Market surveillance & compliance department 29Inspection and Audit Department 30System Department 31Clearing and Settlement Department 32-33Research & Development Department 34

CHAPTER:4 TRADING SYSTEM OF SECTypes of trading system 35Cry-Out System 35Automated Trading System 35-36Internet Trading System 37CHAPTER: 5 CSE INDICES Types of Indices In CSE 38

Criteria of listed companies for inclusion in the Selective Index (CSE-30) 39-40Market Efficiency 41-42SWOT Analysis 43

CHAPTER:6 PROBLEMS AND RECOMMENDATIONProblems Recommendations to remove the CSE’s problemConclusionsSome AbbreviationReferences



Chapter 1Introduction

INTRODUCTION

In every country, Stock market is an essential & a crucial part of capital market. The

economy condition of our country largely depends on a strong capital market.

Contribution of any stock exchange importantly leads to economic growth by increasing

the funds to finance industries and other enterprises.

In our country, Security and exchange commission is an independent organization, takes

various important decisions independently regarding stock and capital market. The

objectives of security exchange commission are to provide a market place along with the

facilities for both the buyers and sellers of securities to promote just and equitable

principles of trade, protect the overall interest of investors.

A complete automation project of Chittagong stock exchange (CSE) is on full swing.

Considering the important the role of Chittagong stock exchange in development of

capital market of Bangladesh, an attempt, has been in this terms paper to study the

contemporary practices of accounts department as its more informative & accountability

than other organization’s that department in stock trading in Chittagong stock market.

Chittagong stock exchange (CSE) accounts department is very publicly related. At every

stage of work of that department the decision maker develops financial system in

operation. So CSE has become too much closer to all types investors as well as internal

& external people.



RATIONALE OF THE STUDY

Make enable the students to realize the practical field of research.

Help to understand the functions of CSE also.

Help to pursue the study in better way.

To understand and realize where management & financial accounting

practices.

To complete in the job & investment sector in vigorously.

To deserve the international recognition.

To fulfill the condition posed by the BBA program.

OBJECTIVES OF THE STUDY

The present study covers the following specific objectives & goals:

To identify the goal and objectives of the organization.

To identify the legal issue for operation of capital market.

To understand the different indices.

To know the performance of CSE.

To evaluate the performance of overall CSE.

To review the operational system of CSE.

To identify the problem of stock exchange and

To recommended some remedial measures to solve the problems.



METHODOLOGY OF THE STUDY

This study & work is a part of academic curriculum. The amalgamated & concise data

and information have been tabulated, processed and analyzed carefully. The study period

has been made only by 4/5 days. I have tried my best to be acquainted with all the

sections and departments of this organization.

The required information of the tour report has been collected through primary and

secondary sources. Most of the data have been collected from secondary sources.

Primary data:

The primary data had been collected by discussions with executives various departments

of CSE that provide me some insights into the problem and issues of the study.

Secondary data:

For secondary data I have gone through different types of Publications & supplements. I

had also used published data. They are:

Various publications of CSE.

Various publications of international bodies

Trade journal

Research reports connected with the stock exchange.

Internet



DATA PROCESSING

The collected data are have been tabulated, analyzed carefully. The Numerical

presentation is analyzed by using index, graph, etc. The report has been prepared in the

present form in order to make the study more informative and useful.

SCOPE OF THE STUDY

CSE’s managing procedures, working systems and environments which are very helpful

to know & to increase our knowledge & to get more information and data. The

information section of Chittagong stock exchange is very rich that's why I was able to

collect the required books, required materials and the Internet facilities. The study

organized at CSE to be familiar with the genuine life situation of organization structure,

director and overall activities. The study would have been informative, if enough time

might have been utilized. However I’ve found these required findings presented in this

paper.

LIMITATIONS OF THE STUDY

This study is a part of my academic course. The collected data & information have been

processed, tabulated & analyzed carefully and sincerely to make this report more useful

& informative. In spite of that this paper has or may have some limitations likely:

Due to the time limitation, I could not collect enough necessary

data\information about the study.

Primary and Secondary data were not available in organized form.

There is the shortage of collection of literature about the activities

of stock exchange in the CSE library.



Chapter: 2

Review of Chittagong Stock Exchange

HISTORICAL BACKGROUND OF THE CSE

The Chittagong Stock Exchange (CSE) is a nonprofit making organization. It was

incorporated on 1st April 1995 as a limited company by guarantee. After six month, on

10th October 1995 floor trading was started with open cry-out auction system. In the

backdrop of a strong need to institute a dynamic automated and transparent stock

exchange in the country, seventy reputed business personalities under the leadership of

Mr. Amir Khosru Mahmud Chowdhury MP, the founder president established this

bourse in the commercial capital Chittagong. Only 30 securities were listed on the first

day trade when market capitalization stood at US$ 0.2 Billion. Now CSE is a completely

automated exchange with screen based trading facility on countrywide communication

network.

The Chittagong stock exchange will create an effective, efficient and transparent market

of international standard to save and invest in Bangladesh in order to facilitate the

entrepreneurs to raise capital and accelerate industrial growth for overall benefit of the

economy.

MISSION OF CSE

“Practice a set of core values to build competency in compliance, diversification and

technology so that an accessible platform, market confidence and wealth maximization

scope can be ensured.”



OBJECTIVES OF CSE

The Prime objective of the CSE is to create a nation-wide stock market also beyond the

national boundary, which will simultaneously act as a platform for industrial

entrepreneurs and general investors. Explicitly the objectives of CSE are following:

• Increase business turnover

• Modernize trading system

• Ensure effective relationship management

• Achieve high level of confidence & professionalism

• Engage in product and market diversification

• Contribute to capital market policy development

• Ensure exchange related quality service

MANAGEMENT OF CSE

CSE has a policy making body of 18 members, of whom 6 are nominated and 12 are

elected. This Board comprised of one president, three Vice Presidents and 14 Directors.

There is an independent secretariat headed by a Chief Executive Officer (CEO).

LEGAL BASIS OF CSE

As legal entity is a not for profit public limited company. All of its 129 members are

corporate bodies .It has a separate secretariat independent of policy making Board. The

Board comprises of brokers and non- brokers director with equal proportion to ensure the

transparency.

The Board constituted Committees to delegate such functions and authority as it may fit.

There is an independent secretariat headed by a full time Chief Executive Officer. CSE

activities are regulated by its own regulations and bye laws along with the rules, orders

and notifications of the SEC.



ORGANOGRAM OF CSE


CEO

Internal Audit Grade

Secretaries

Grade I & II

Corporate

Dev.

Surveillance Operations IT Company

Secretary

Research and

Publication

Trading Surveillance

Clearing and

Settlement

IT Corporate

Office Finance

New

Listing

Members

Inspection

Market

Operations

IT Regional

Offices Personnel

PR and

Training

Continuous

Listing

Clearing and

Settlement Legal

LibraryMembership


BOARD OF DIRECTORS

Chittagong Stock Exchange Ltd. (CSE) has a policymaking Body of 24 members, of

whom 12 are elected and 12 are none elected. This Board comprises of one President,

three Vice Presidents and 19 Directors. There is an independent secretariat headed by a

Chief Executive Officer (CEO)

Finding and Analysis of CSE



Graph shows that the Actual return for most of the stock is greater than the required rate

of return. It means this stock perform better in case of getting return. But the real case is

the market fluctuated in the year so much and the price of most of the share decreased.

As a result market return was negative. And for that reason required rate was negative.

In case of getting return MPETROLIUM is highest and NBL is lowest. Required is

highest for SQUAPHARMA and lowest for TITASGAS. Because the risk for

SQUAREPHARMA is the lowest and the risk for TITASGAS is the highest.

Desrespective Statistics for CSE:

Table-5 shows that the mean of market return is -0.001007424 and Standard deviation

is 0.065392. Skewness is .147. It shows the positive skewness. So the distribution is

not normal. Its right tail is longer than the left tail. Because normal distribution

shows 0 skewness. And to prove random walk for EMH skewness should be 0. So here

we see that the data set is not following the random walk model. And reject the null

hypothesis. The skewness is closer to zero. Which indicates that there is enough chance

that data are influenced by the past information. Earlier it was that the skewness of

Dhaka Stock Exchange was near about unity. It can be assumed from that situation is

skewness for Chittagong was also high. But in recent time both the stock exchanges are

showing very low skewness. That means investors are taking decision of buying and

selling share by the influence of past information.


Statistic Market return (DSE)

N 236

Mean-0.001007424

SD .0265392

Skewness .147


Arima Test (CSE):

Model Parameters Coefficient Standard Error T-statistics Probability(0,1,0) Constant -.00002891 .002 -.015 .988

(1,0,1)AR1 -.001 .001 -.786 .433MA1 -.386 .778 -.496 .620Constant -.318 .800 -.398 .691

(1,0,0)AR1 -.001 .001 -.791 .429Constant -.057 .065 -.867 .387

Table-5 shows the ARIMA test Result for the Model of (0, 1, 0) (1, 0, 1) 1, 0, 0). Under

the random walk model, the ARIMA model needs to be fitted in to (0, 1, 0). The results

of ARIMA are presented in the Table 5 evident that the return series for indices are

highly insignificant. For ARIMA (0, 1, 0) the coefficient (-.00002891) with T-ratio of

(-.015) reject the null hypothesis with a probability of

.988 for indices. For ARIMA (1, 0, 1) the estimated values for AR1 and MA1 are found

best fitted model for 1% level of significance. Additionally ARIMA (1, 0, 0) is to

calculated for indices to examine the auto- regression coefficient is equal to unity. The

coefficient showing for indices AR1 (-.001) indicates the changes in the return series do

not depend on past information.

But it can not be said that both exchanges are in the form of weak efficiency unless the

skewness is zero.



CSE AT A GLANCE

Type of Organization Non-Profit Public limited Company by guarantee having share capital.

Authorized Capital Tk. 150 Million

Paid-Up Capital Tk. 38.4 Million

No. of Members 130

No. of listed Securities 213

No. of listed companies 199

No. of listed Mutual Funds 9

No. of listed Debentures 5

Trading Days Sunday to Thursday

Settlement system Daily netting, T+2 to T+4

Cost of trade Commissions-025% of the Transacted value from both Buyer & seller, Contract Charge -Tk. 3 from both Buyers & sellers.



MILESTONES

12th Feb 1995: Bangladesh Government approved CSE

1st April, 1995: Incorporated as a limited company

10th October 1995 Floor Trading Started

1st January 1996: became corresponding member of

2nd June 1998: Automated Trading on WAN starts

16th January 2000 Convened SAFE

26th January, 2004 Central Depository Bangladesh Ltd. (CDBL) opened

30th May, 2004 Internet Trading Service (ITS) introduced

4th July, 2004 Over-the-Counter (OTC) market opened

20 Oct, 2013 NGTS and new website

PRODUCTS OF CSE

Current Products of CSE:

Listed Securities: 284

Equity (Share) : 239

Mutual Funds : 42

Corporate Bond : 4

Paid up Capital :Tk. 420.38b [$ 4.39b]

Market Capital : Tk. 1,773.61b [$ 25.31b]

Categories of listed securities:



A, B, G & N Categories

Z Categories

Our Market products: Sector Wise As on 30 june 2010

Source: Collected From Finance & Banking Department.

LEGAL ENVIRONMENT

As per section 34 of the securities and exchange ordinance 1969 the exchange is

authorized to make regulations subject to previous approval of the Securities and

Exchange Commission.

Laws and Regulation:

Name of the by-laws/regulation CSE have promulgated:


INSURANCE12%

TEXTILE & CLOTHING14%

PHARMA CEUTICALS & CHEMICATS

8%FOOD & ALLIED

PRODUCTS9%

CEMENT4%

ENGINEERING & ELECTRICAL PRODUCTS

8%

LEATHER & FOOTWEAR3%

SERVICES & PROPERTY DEVELOPMENT

1%

PAPERS PRINTING & PACKAGING

3%

ENERGY2%

MUTUAL FUNDS

6%

BANKING & FINANCE12%

CERAMIC2%

ICT3%

Leasing & Finance7%

MISCELLANEOUS6%


The listing regulations of the Chittagong Stock Exchange limited-CSE

Chittagong Stock Exchange limited (direct listing of shares of public limited

company) regulations, 2001

Chittagong Stock Exchange limited (over the counter) regulations.

Laws Regulating the Affairs of CSE

Memorandum and articles of Association of CSE

Chittagong stock Exchange (Board and Administration) Regulations,2000

General rules and regulations of Chittagong Stock Exchange Limited

Chittagong Stock exchange Investors’ protection fund regulations,1999

Chittagong Stock Exchange elections regulations,1999

The Securities and Exchange Commission Rules 1987

The Securities And Exchange Ordinance,1969

Laws Regulating the Listed companies

Securities and Exchange Commission (SEC)

The securities and exchange commission rules 1987 includes the listing

regulations relating to submission of periodic report, annual report by issuers etc

The notification issued under the section 2cc of the securities and exchange

commission ordinance, 1969 to impose any conditions to the issuer at any time

which mostly are related to the on going obligations to be done by the listed

companies.

Securities and Exchange Commission (Right issue rules) 2006 includes

regulations for the companies intends to issue right shares.

Securities and Exchange Commission (Prohibition of insider trading) rules, 1995.

Securities and Exchange Commission (Acquisition of substantial shares, Mergers

and take-over rules), 2002 rules related to acquisition procedure.

Securities and Exchange Commission (Over the Counter) Rules, 2001.

The Securities and Exchange Ordinance, 1969

Chittagong Stock exchange (CSE)

Initial listing with the exchange.



Continuing Obligations on going disclosure requirement.

Compliance Monitoring and Enforcement.

Laws Regulating the Trading of CSE:

Chittagong stock exchange Trading regulations, 1998

Chittagong stock exchange (Internet Based Trading Services) Regulations, 2002

Chittagong stock exchange (Member’s Margin) regulation, 2002

General rules & regulations of Chittagong stock exchange Ltd.

Deference in Legal Environment: In case of getting the CSE assent some company show manipulation in their

balance sheet but CSE authority does not take any investigations to find out the

reality.

There are no specific rules and regulations about media to publicize the exact

current capital market situation.

The environment around the capital market is full of rumors of scams and wrong

dealings. Brokers are accused of manipulating prices.



Chapter: 3Functions of CSE

FUNCTIONS OF CSE

CSE performs various functions for betterment of stock market and investors. These

functions can be classified as

- Core functions

- Others functions

Core functions

Trading

Compliance & Monitoring

Clearing & Settlement

Research & Development

Others functions

Listing functions

Post-IPO functions

ACTIVITIES OF VARIOUS DEPARTMENTSThere have various departments in Chittagong Stock Exchange. Some of the important

departments are given below:

Compliance Section:

Listing and Membership Department

Market operation Department (MOP)

Surveillance Department

Inspection Department

Other Section:

System Department (IT)

Clearing And Settlement department

Account and finance Department

Research & Development and Public Relation Department.

The function of various Departments is discussed in respective heads in below:



LISTING AND MEMBERSHIP DEPARTMENT

Every Company must be listed in the Stock market for working for working thereon and

they have to fulfill various formalities. The listing and Membership department deals

with the various formalities of Listing and membership with CSE. Formalities related

with the enlisted of a company and memberships are discussed in below:

HOW TO LIST

CSE while list a company considers ensuring that the companies meet the listing criteria

of the Exchange and also considers the sufficiency of public interest in the company.

The main eligibility criteria for initial listing contained in CSE Listing Regulations is as

follows:

The Company shall be a Public Limited Company under the Companies Act,1994

Minimum Paid up capital of the applicant company shall be BDT Ten Million

(USD 0.20 million)

Share subscription must be by at least 250 applicants

In case your company fulfils the criteria, please fill in the listing application form and

send the documents as mentioned in the regulation III(6) of the LISTING

REGULATION for further processing.

Listing Requirement:

An applicant company is expected to meet the following basic requirements for the

listing of securities:

The Company has to be a registered Public Limited Company

The minimum paid –up capital has to be BDT10 million (US$ 0.20 mil )

Share subscription must be at least 250.

Submission of the following is required:

Memorandum and Articles of Association

Certificate of Incorporation

Prospectus

Audited Accounts for the last 5 years or for the whole of the life of the

company if less than 5 years old.



A brief history of the Company since incorporation giving details of

its activities including: re-organization, changes in capital structure

and borrowings

A statement showing: dividends and cash bonuses and/or bonus shares

or right shares issued during the last 10 years.

A copy of agreements or other documents relating to arrangements

with intermediaries

A statement containing particulars of material contracts (e.g. for

technical advice and collaboration), Name and address of the

Directors and persons holding 10% or more of the equity security on

the date of application together with the number of shares or

debenture held by each.

If any company fails to fulfill above requirement will not allowed to be listed in CSE.

But If any company to fulfill above the requirement then they will get some benefit.

These Listing procure can be completed by two ways:

o IPO SHOWCASE

o DIRECT LISTING

Guideline about Listing:

The number of Board of Directors should not be less than 5 (five) and more than

twenty. The Banks, non-bank financial institutions, insurance companies and

statutory bodies shall follow the prescription of their respective primary

regulators in this regard.

Appointment of at least one-fifth of the total number of the company’s board of

directors should be ‘independent non-shareholders directors’ in the Board.

The Chairman and the Chief Executive officer simultaneously can not be the

same person and the Board should clearly define their respective roles and

responsibilities.

The “Directors’ Report” prepared



DE LISTING

Grounds for explicit de-listing/cancellation of listing criteria are as follows:

Fails to comply with the requirements of any of CSE listing regulations;

Where the Exchange considers it necessary for the protection of investors;

Fails to pay penalty or any other dues payable to the exchange for a period of two

years;

Fails to declare dividend or bonus:

o for five years from the date of declaration of last dividend or bonus; or

o in the case of manufacturing companies, for five years from the date of

commencement on commercial production; or

o for five years from the date of commencement of business in all other

cases

Fails to hold its AGM for a continuous period of three years;

Gone into liquidation either voluntarily or under court order;

Fails to pay the annual list fees for a period of 2 years;

If securities are quoted below 50 per cent of face value for a continuous period of

three calendar years.

No company will be de-listed from CSE unless the company has been given an adequate

opportunity of being heard. Neither stock exchange nor SEC got any guidelines or rules

relating to procedure for de-listing.

OVER-THE COUNTER

A new phase for the listing facility in the Capital Market. OTC is designed for two

segments of companies

The companies who are de listed from trading

Where the Exchange considers it necessary for the protection of investors;

CSE established Over the Counter facilities with a specific facilitate small & medium

innovative and high growth enterprises, in raising resources efficiently through the

capital market.



MEMBERSHIP DEPARTMENT

Membership of CSE facilitates a person prospects to become trading members (stock

brokers) of the Exchange through compliance of the regulatory provisions of CSE and

SEC. There are 129 members in CSE all of whom are corporate bodies.

The eligibility criteria for the membership are presented below:

A corporate body with a minimum paid up capital of BDT 2.5 million

Any partner or director thereof as the case may be is/has not

less than twenty-one years of age;

bankrupt;

person of unsound mind;

Person convicted by a competent court of an offence involving moral

turpitude.

found at any time by SEC or any stock exchange or court involved in

any misconduct in respect stock exchange transaction/market

Broker/Dealer:

The trading platform of a stock exchange is accessible only to broker , dealer and their

authorized representative. At present Dealers can perform transaction on their own

account only while brokers act as agent of their client.

o Broker and Dealers shall be eligible to trade in CSE when it:

Becomes a members of the CSE;

Becomes members of the CSE Clearing House;

Open a Clearing Account with a Depository Participant of CDBL;

Obtains a Brokerage/ Dealership license from the Securities and Exchange

Commission;

Compliance with respect to Broker/Dealer:

The CSE brokers/dealers are required to comply with various requirements for

continuing membership. These include and Submission of:



Audited Annual Accounts within four months of the end of the financial year;

Monthly Net Capital balance Report;

Shareholding pattern by-yearly;

Any changes in respect of management, structural or legal status of Stock dealers/

stock brokers should be informed to the Commission within 15 (fifteen) days

through stock exchange;

Compliance Authority report relating to the compliance of rules and regulations

of the Exchange and SEC by his/her Member Company. The report will have to

submit to the Exchange within 15 days after the end of every six-month period

ending on 30th June and 31st December of the year.

Maintenance of the net worth at least half of its paid up capital at all times.

Renewal of their license annually with SEC.

Disciplinary action against Member:

CSE may exercise any of its following disciplinary powers against a member if the

member or its director, authorized representative or employee commit any act or

omission as mentioned in the Regulation 79 of the General Rules and Regulations of

CSE.

Warning

Penalization;

Temporary prohibition from performance;

Prohibition from any performance of work in a member company within the

period of time prescribed by the Board;

Expulsion



MARKET OPERATION DEPARTMENT

The main functions of this department are as follows:

Control of Session Management.

Control of Circuit Breaker.

Index Calculation.

Operation Control of trading.

How transactions are executed?

Source: Materials Supplied By CSE Authorities.



Session Management:

Regular Trading schedule of Chittagong Stock Exchange:

The system will have four basic sessions (the time mentioned below is Bangladesh Local

Time, which is GMT+6):

Trading Session Trading Time

Pre-Opening 10:05 - 10:25

Opening 10:25 - 10:30

Trading 10:30 - 14:30

Closing 14:30 - 14:35

Close Price Trading 14:35 - 14:40

Post-Closing 14:40 - 15:55


Pre-Opening Session:

Order entry, deletion/modification of limit orders is only permitted; execution of orders

shall not be done during this session. The previous day’s closing price and index will be

available to the dealers/brokers during this session.

Opening Session:

During this session Matching of orders shall be done at opening price. The opening price

for the day based on the orders input during the previous session will be calculated by

the System. The opening price of a security shall be the price at which maximum number

of securities is matched.



In the event of there being no trade for certain securities, then the last closing price for

the security shall be made the opening price for the day. No order entry shall be

permitted during this session.

All types of orders will be accepted by the system during this period. Orders shall be

executed during this session and if an order can not be executed in whole or in part, then

it will be stored as an unfilled order. Unfilled orders from the pre-opening session shall

be carried forward with time stamp to this session.

Closing Session:

No order is received in this session. Pending orders executable at closing price and

orders ‘match at closing price’ shall be executed in this session. The closing price for a

security shall be determined.

Odd Lot Trading Mechanism:

Odd lot orders can be entered as limited orders with the order quantity always not

multiple of market lot for that scrip. These orders would be matched with their counter

orders if the quantities match and prices allow for a match to take place.

Each odd lot would have the following elements:

Scrip Code

Quantity

Price

Buy or Sell Indicator

Retention(GTC/GFD)

Client ID(Optional)

Spot Order:

Spot order are normal orders for which delivery has to take place on the same day. The

scrip in which spot trading is to be allowed is decided by the Stock Exchange.

A spot order is traded against anther spot order only.

Priority of spot order depends on its prier and time .

A trader can submit multiple spot orders in there same scrip.

Spot order can be modified or removed before they are traded. On modified, the

spot order looses its time priority.



Bulk Order Trading:

Bulk orders are essentially limit orders used for trading in quintiles. They

are also referred to as block deals.

Bulk orders will be accepted in the continuous trading session only. The

duration of this order would be same as that existing for limit orders.

Bulk orders will not be considered for BBO formation and closing price

calculation.

Big lot Orders:

This type of orders is almost to the Bulk Orders, Except that the multiplying factor will

be a global system parameter, set to a value of by default. All other rules pertaining to

bulk order trading apply here also.

Limit Order|:

With a Limit Order, the buying price or selling price for a certain quantity of particular

security is specified.

Market order:

Market Order is an order to buy or sell a certain quantity of particular security at the best

price or prices prevailing in the market at that time.

Match at Closing Price Order:

A ‘Match at Closing Price’ Order allows the Member to specify that the order is

executed at Closing Price.

Daily Netting:

The clearing House works out the due position of every member in every scrip in which

the member has dealt on that day. This is done by comparing the total buy with the total



sells of each scrip. The clearing house also ascertains the net balance receivable from and

payable to each member for the trading day. Every member is notified of the due

position and net balance within the subsequent day.

Circuit Breakers:

Circuit Breakers are cheeks enforced by the system to verify that the volatility in the

market is controlled. Circuit breakers are cheeked at matching stage or at order entry

stage. The time at which circuit breakers have to be cheeked can be specified by the

Stock Exchange as a parameter.

Share Pricing:

Share is nothing but divided the total capital in small units. Share price is determined two

times.

At the time of initial public offering.

In the secondary marker



MARKET SURVEILLANCE AND COMPLIANCE DEPARTMENT

CSE maintain an effective market surveillance to detect and prevent unethical, unusual

and illegal practices in the market. The Exchange Compliance and Surveillance

Department is primarily responsible for day to day market surveillance, supervision and

compliance monitoring of trading activities, including review of pricing of orders.

When any unusual market action occurs it is reported to the Manager, Compliance and

Surveillance. In many cases by checking with Surveillance, the Manager will try to trace

the reason for the action to a specific cause such as recently disclosed information, or

rumors.

Market surveillance may also check broker firms as to the source and reason for activity

stemming from their particular firms. If no explanation of the unusual activity is revealed

the Exchange may make a query to the Company to determine whether they know the

cause of the action. It the action appears to be attributable to a rumor or report or to

material information that has not been publicly disseminated, the Company is requested

to take appropriate corrective action and may be advised to halt trading until such action

has been taken.

CSE Surveillance and Compliance Department monitors the issuers' compliance

activities and broker's regular and/or trading activities on regular basis. It watch

performance of members, their net worth, undertakes on-line monitoring of members

turnover position and exposure, margins arrangements with exchange and clients etc.

While surveillance action, the fundamentals of the companies are also taken into

account.

Suspension of Scrip

High Turnover

Monitoring newly listed share.

Suspension of Traders/Brokers.

Other actives of this department are:

Watching net high –low position.



Taking Disciplinary Action.

Investigation into specific deals of Broker/Dealers.

The surveillance functions are conducted through the surveillance module of the

computer system. This system usually runs manually. The surveillance

department through its wide information source carries out this function.

INSPECTION AND AUDIT DEPARTMENT

There are two types of inspection likely-

Regular Inspection –In a regular inspection, the inspection cheek whether the

brokers are maintaining all the books of account.

Spot or Special Inspection- In this sort of inspection a surprise visit is made by

the inspector or it is on a particular item.

We can write down the function of this department as follows-

1. Checking whether the brokers are maintaining rules and regulation under

SEC, company act, income tax law.

2. Making physical visit to the broker house as the command of SEC or

Surveillance department of CSE.

3. Scrutinizing the draft prospectus of IPO, and commenting over that the

SEC decide whether to allow the IPO on the basis of the comment made.

Herby the falling points are considered for assessing for the draft

prospectus of IPO-

Familiarity of the directors.

Who are holding the shares ( Foreign or local or corporate

investors)

List of top executives.

Factory size, products type etc.

Credit rating of the company as per various credit rating agencies (

for example-CRISL).

4. Preparing internal report and forward to SEC if needed.



SYSTEM DEPARTMENT

System department is very important department of CSE. This department is also known

as information technology (IT) department. Following are the functions of this

department:

To maintain technical soundness for the entire CSE.

To develop Software.

Data Entry

Data Analysis.

Hardware Maintains.

To store and print out all data.

Information providing to various department.

To advise the brokers about there technical difficulties.

System followed by the department-

Hardware

Software

Network



CLEARING AND SETTLEMENT DEPARTMENT

This is the department in the Chittagong Stock Exchange. The function lf this department

are conducted by the “Settlement of Stock Exchange Tractions Regulations, 1998 of CSE

ltd.” The main function of this department is:

Collecting Security Deposit.

Preparation of contract of Settlement.

To clear and settle the tractions

Automation buying in and selling out.

Charge fine/interest from the defaulting members

Deal with the defecting share.

Spot traction.

Sending report to the CSE.

Clearing & Settlement

Category Transaction Clearing

Securities

Clearing

Cash

Settlement

A T+0 T+0 T+1 T+3

B T+0 T+0 T+1 T+3

G T+0 T+0 T+1 T+3



N T+0 T+0 T+1 T+3

Z T+0 T+0 T+1 T+9


For an example, let’s sell 500 SQPH shares on Sunday. SQPH is in A Category.

Clearing &

Settlement

T+0 T+1 T+2 T+3 T+9

Transaction day Sunday

Securities Clearing Sunday

Cash Clearing Monday

Securities Settlement Wednesday

Cash Settlement Wednesday


Transfer of securities:

The Stock Exchange receives securities at the Clearing House on the Settlement day.

Settlement day is T+3. The buyer receives the securities certificates from the Clearing

House on T+5 if there is no receivable money pending from them.

Transfer of funds:

The Stock Exchange receives Checks at the Clearing House on Settlement day.

Settlement day is T+3. The seller receives Checks from the Clearing House on T+5, if

there are no receivable securities pending.

Electronic funds transfer has recently been introduced and is being encouraged among

members.

Failed trades:

If a member fails to deliver securities or make payment within the settlement day, the

stock exchange automatically squares-up the unsettled transaction. This is done by



buying-in or selling- out, as required on T+4 on the risk and account of the defaulting

member.

RESEARCH & DEVELOPMENT DEPARTMENT

Research & Information development are essential pre-requisites for effective

functioning and development of any stock exchange. Chittagong stock exchange has

Research and information department. This section deals with research and development,

library and public relation of the organization.

Research is a foremost necessity for any stock exchange. In I order to fulfill the need CSE has established a research center and are keeping close contacts with the UN bodies,

DP SERVICE

CSE is proud to say that we pioneered the concept of Central Depository System in

Bangladesh and acted as one of its leading sponsors to establish Central Depository

Bangladesh Ltd. (CDBL). We are now one of the Depository Participant (DP) of CDBL

to give more Value Added Service for most esteem investors who holds security in

electronic form i.e. YOU. Customer Services has always been the prime focus and CSE

attends to the needs of the clients well on time.

Automatic credit

Off market settlement:

Arrange Dematerialization & Revitalizations

Transaction Statement

Amendment to your profit



Circuit Breaker and Circuit Filter:

Circuit Breaker:

The maximum and the min imum price range of any particular stock which can be ary in

a singl e trading day from the Yesterday Closing Pri ce (YCP). It refers to any of the

measures used by stock exchanges during large se ll-offs to ave rt panic selling. After an

index has fallen a certa in percentage, the exchange mi ght activate trading halts or

restrictions on program trading. Circuit Filter: It is a mechanism for calculating the limit

of any particular stock that can be increase or decrease from any particular trade or

transaction. Circuit Breaker and Circuit Filter was first introduced in 1996 but was not

working effectively, later on January 25, 20 II Circuit Breaker and Circuit Filter was

modified and reintroduce in the stock market to minimize the downward movement of

share prices.



From the table, we can see modified circuit breaker and circuit filter is just 50% of the

previous circuit breaker and circuit filter if any share price (yesterday trading price) is

up to Taka 200 had earlier circuit breaker of 20% but from 25th January it is changed to

10% that means earlier share price can change by 20% (increase or decrease) but after

modification, share price can change by 10% (increase or decrease). Here in the share

price slab of up to Tk 200, when instrument's last trade price is Tk 175 or more, then

instrument's price can change either increase or decrease maximum Tk 17.50 but if last

trade price is bellow Tk 175, then share price can either increase or decrease by 10%. If

share price is in the slab of Tk 201 to Tk 500 and instrument's last trade price is Tk 428

or more, then instrument's price can change either increase or decrease maximum Tk

37.50 but iflast trade price is bellow Tk 428, then share price can either increase or

decrease by 8.75%. Similar rule will be applicable for other share price slab but with

modified percentage rate of circuit breaker. In case of circuit filter, Share price slabs are

divided into four criteria and circuit filter percentage are calculated on the basis of last

trade price.



Chapter: 4

Trading System of Chittagong Stock Exchange

TYPES OF TRADING SYSTEM

There are three types of trading system contain in Chittagong Stock Exchange Limited.

These are mention in below:

1. Cry-Out System.

2. Automated Trading System

3. Internet Trading System

CRY-OUT SYSTEM

Before starting on-line trading system, at the Chittagong Stock Exchange, trading were

conducted through Cry-Out System. Under this system, Member and their Authorized of

the Stock Exchange who have license to trade from the Securities & Exchange

Commission would come to the Stock Exchange floor and participate in trading. But

there were a number of shortcomings of this trading system.

Difficulties of Cry-out System and need for Automation

The following difficulties are found in this system:

Cry-out floor trading was incept and slows down the process of finalizing deals

on the stock exchange floor between the stock dealers

Manual clearing and settlement system is clumsy and slow causing an affliction

in stock exchange settlement department and untimely limiting the trade volume

and transactions

Participation in the stock market remains restricted within a community, etc.

AUTOMATED TRADING SYSTEM

Chittagong Stock Exchange appointed an internationally reputed consulted. International

Securities consultancy (ISC) was selected following security of proposal. The primary

task of the consultant was to produce a full Request For Proposal (REP) for establishing

the Chittagong Stock trading system. Thereafter, an international tender was floated.



Finally, in June, two MOU (Memorandum of Understanding) was signed with tow

venders CMC of India and bell core of U.S.A. for design and implementation of

Chittagong Stock Exchange’s automated trading system.

The program is window based and user friendly. The system has three modules-

1. Brokers Workstation (BWS).

2. Market Operation (MOP)

3. Surveillance.

Impact of Automatic Trading System:

The new automated Screen-based trading system in Chittagong Stock Exchange is

replaced by saying good-by to the traditional Cry- Out system. The following are main

impact of Chittagong Stock Exchange’s automated trading system in the area of-

Transparency

Trading time increased

Directed participation by the investors

Trading from various area.

Reduction of Fake Share Transaction.

Ongoing Human Resource Development.

Restoring Investors’ faith.



Total Traded Value in Taka (million):Figure 5: Total Traded Value in Taka (mn)


Post Trade Settlement

Trading Conformation

Agreement with a broker

Cash account and Margin account

Agreement with a broker

Password

Placing & execution of order

Check your position- own index

Collection of money and shareCertificate

Procedures of Internet trading


INTERNET TRADING SYSTEM

CSE introduced Internet Trading System on 30th May 2004. The system was made more

user- friendly by upgrading with the introduction of Next Generation Trading System

(NGTS) in October 2011.

Features of the CSE Internet Trading system:

It is a real time Internet based trading application directly integrated with the

main trading engine.

investors' orders hit directly to the matching engine provided the investors have

enough stock/cash available in their portfolio.

This application supports Multiple Brokers, Direct Dealer and Investor Access.

It has configurable User Interfaces and Comprehensive Market Information.

It provides both Thick (EXE clients) and Thin Clients (Browser Based), Provides

online Cash, Margin, Back office reports to both Dealer and Investor s. This ITS

complements the existing ITS of CSE.



CHAPTER: 5CSE Indices

TYPES OF INDICES IN CSE

• All Share Price Index

• CSE-30 Index

• CSCX

• Sector Index

Factors Considered For Construction Of CSE Indices:

The following conditions are followed while calculating the All Share Price Index:

All Share Price Index does not necessarily mean that all the listed stocks should

be considered for calculating the index. Inactive stocks not being traded for

consecutive six months will not be considered in the calculation.

Only the active scripts will be considered for calculating the index.

Mutual Funds and Debt securities will not be considered in calculating index.

A newly listed scrip will be included in the index after one consecutive trading

days.

All share price index will be calculated only once in a day – after the trading hour

in the on line system.

Index committee will review the index – its criteria, performance, calculation

method after every six month.

Index Base Date is 30th December 1999

Base Day index 1000

The following conditions are followed while calculating the All Share Price Index:



All Share Price Index does not necessarily mean that all the listed stocks should

be considered for calculating the index. Inactive stocks not being traded for

consecutive six months will not be considered in the calculation.

Only the active scripts will be considered for calculating the index.

Mutual Funds and Debt securities will not be considered in calculating index.

A newly listed scrip will be included in the index after one consecutive trading

days.

All share price index will be calculated only once in a day – after the trading hour

in the on line system.

Index committee will review the index – its criteria, performance, calculation


Index Base Date is 30th December 1999

Base Day index 1000

CRITERIA OF LISTED COMPANIES FOR INCLUSION IN THE

SELECTIVE INDEX (CSE-30)

Two layer methods are followed for selection of listed companies in the CSE-30 Index.

In the first layer method, basic criteria are considered for primary selection.

Basic Criteria

1. Must be listed with the Chittagong Stock Exchange.

2. In case of IPO/New Issue, this should be on listing either with DSE or CSE for a

minimum period of 2 years or remained in Commercial Production for the minimum

same period prior to its listing.

3. Companies that did not hold their Annual General Meetings regularly will not be

considered.

4. Minimum market capitalization must be Tk. 200 million.

5. Must have at least 20% free floating share capital. Free floating share capital shall

mean the share capital which will exclude Govt.'s holding (other than ICB),

Sponsors/Directors & their Associates' holding plus other locked-in portions.

6. Must have positive revenue reserve/ retained earnings.

7. Must be traded for at least 20% days in trading.



8. Paid dividend in any of the last 2 years.

9. Company having negative Earning per Share (EPS) for last two consecutive years

will not be considered.

10. Financial Institution falling under the problem list of Bangladesh Bank will not be

considered provided such information is available from an acceptable source.

11. Company failing to pay the listing fees and/or penalty imposed under the Listing

Regulations of CSE for a period of 2 years will not be considered.

12. At least one company from each sector will be taken in the index if the scrip satisfies

the above criteria and achieves the minimum point as evaluated on the basis of the

following Selection Criteria.

On being qualified on the basis of the Basic Criteria, the companies are required to meet

the following further Selection Criteria to have the final berth in CSE-30 Index.

Selection Criteria

1. Higher Net Assets Value (NAV) per share

2. Higher rate of Earning per Share (EPS)

3. Higher rate of dividend

4. Higher rate of free floating in equity.

5. Larger number of shareholders.

6. Higher liquidity in terms of trading day.

7. Higher percentage of market cap in terms of Paid-up Capital.

8. Longer duration of continuous remaining in the CSE-30 Index.

9. Regular payment of listing fees.



MARKET EFFICIENCY

Market efficiency is primarily related with information delivery that is provided to the authority as their necessity. Its emphasis is related with the information swiftly and reliably.

Index Selection Criteria

I. Must be listed with the Chittagong Stock Exchange.II. In case of IPO/ New Issue, this should be on listing either with DSE or CSE

for a minimum period of 2 years or remained in Commercial Production for the minimum same period to its listing prior to its listing.

III. Companies that did not hold their Annual General Meetings regularly will not be considered.

IV. Minimum market capitalization must be Tk.200 million.V. Must have at least 20% free floating share capital. Free floating share capital

shall mean the share capital which will exclude Govt’s holding (other than ICB), Sponsors/ directors & their Associates’ holding plus other locked-in portions.

VI. Must have positive revenue reserve/retained earnings.VII. Must be traded for at least 20% days in trading.

VIII. Paid dividend in any of the last 2 years.

IX. Company having negative Earnings per Share (EPS) for last two consecutive

years will not be considered.

X. Company falling under settlement category “Z” will not be considered.

XI. Financial Institution falling under the problem list of Bangladesh Bank will

not be considered.

XII. Company falling to pay the listing fees imposed under the Listing Regulations

of CSE for a period of 2 years will not be considered.

CSE-30 Selective Index

I. Higher net assets value (NAV) per share.

II. Higher rate of earning per share ( EPS)

III. Higher rate of dividend



IV. Higher rate of free floating in equity in equity

V. Larger number of shareholders

VI. Higher liquidity in terms of paid-up-capital

VII. Longer duration of continues remaining in the CSE-30 Index.

VIII. Regular payments of listing fees.

CSE All Share Price Index (CASPI) Selection Criteria

I. Only the active scrip will be considered for calculating the index

II. Mutual funds and debts securities will not be considered in this index they are

trade in another index as prescribed by the authority.

III. Only normal public market trades will be considered any kind of private

company can not included.

IV. Selective index will be refreshed after three minutes time interval during online

trade.

V. At the time of update the Selective index will consider the weighted Average

Price for each constituent stock

VI. No changes in number of shares will be allowed during the VECTOR session in

the corporate level.

VII. A newly listed scrip will be included in the index after five consecutive trading

days

VIII. Index committee will review the index- its criteria, performance calculation


CSE Selective Categories Index (CSCX)

Chittagong Stock Exchange (CSE) launched a new index named CSCX

comprised A, B & G category companies from 14th February 2004 to replace the earlier

CSE Trade Volume Weighted Index.

The new index includes all but not the Z categories companies. This also

excludes the company’s scrip which is debt securities, mutual fund, suspended for

indefinite period and non- traded for preceding six months of review meeting.



SWOT ANALYSIS

Here a brief subjective evaluation of CSE is done in the form of SWOT:

Strength: The nationwide connectivity and recently the worldwide connectivity

through the Internet is the superiority over the other stock exchange of

Bangladesh. Efficient management and effective Corporate Governance gives

CSE an edge over the competitor.

Weakness: CSE’s operation is less effective due to the lack of professional

attitude of the members, lack of Dhaka based member, non-availability of the

dual listing facilities, small number of active members, regional image problem,

etc.

Opportunity: With the growth of Internet users and government’s interest in the

capital market ushers new opportunity for CSE. As a member of SAFE, CSE will

get the opportunity to trade regional (Sough Asian) shares in future.

Threat: New regulations of the different regulatory bodies (e.g. Government,

SEC, Bangladesh Bank, etc.) change the trade volume in the exchange. Besides

connectivity to the Internet also increased the security concern of the network.



Chapter: 6

Problems and Recommendations

Reasons behind the "Stock market Crash 2011"

Bangladesh stock market experienced the fall for first quarter of 20 II. The bullish trend

of market suddenly turned to bearish more than expected which ultimately made the

market plummet and reduced confidence level that adversely affected to the trading

behavior and attitude of retail investors. The reasons behind the stock market crash 20 II

are given below: • Lack of monitoring and proper action by the regu latory body, the

Securities Exchange Commission (SEC), which then only held a news conference with

the functionaries of Dhaka Stock Exchange (DSE) to warn investors to avoid its liability.

The Stock market regulator introduced regulations one after another which neither gave

any clear direction nor set any "standards" for the market. It discontinued direct listing of

private sector companies; and pursed a slow-approval process about initial public

offerings (IPOs). The result was further restriction on supply, leading to overheating of

the market. These over-regulations led to syndication, manipulation and distortion in the

market and, thus, the current crisis. • There are more than 1,00,000 retail or individual

investors on an average are joining the share market every month as the number of active

B/O account holders doubled in a year to reach 3.2 million in December 2010. Most of



the new investors have little knowledge about market environment and mechanism. So

during this price fall they became panicky and started to sell their shares even at a loss.

So the downward trend got more speed and ultimately market fell more steeply. • There

are several reasons which made the market fall recently. More tightened policies came

from several sides like SEC, Bangladesh Bank and the government that pushed down

uptrend of market to downtrend. A large portion of the market investors are

institutional investors and most of them are commercial banks. Moreover

commercial banks are now investing more in share market to enhance their profit

through capital and dividend gain. It is alleged that many of commercial banks

invested industrial loan in share market. We see that Bangladesh Bank has

declared several circulars regarding money market exposure. Sudden increase of

CRR from 5.5 % to 6%, SLR from 18.5% to 19 % and increase of paid up capital

created an extra pressure for commercial banks to raise their liquidity.



Problem and prospect of Bangladesh stock market

The recent performance of the stock markets in Bangladesh, notably from December 20 I

0 till February of 20 11 , has been very poor compared with its performance over the last

five years. The index fell from a high of around 8,900 points to 5,200 points, a drop of

almost 42 percent in just three months. Bangladesh stock markets have been in the top

three best performing markets in the world over the last three years. However, its recent

performance has cast a big doubt about its future performance. It is a case of "too much

money chasing too few stocks" .

The problems of the stock market:

The problems of the stock market in Bangladesh are structural, and, actually quite

farreaching than what meets the eye. 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 SECS to cape with the developments, absence of proper application of

circuit breaker etc. Delivery versus payment mechanism was used as one of the main

vehicles of manipulation. The problems of Bangladesh stock market are given below:

• The DSE index calculations being incorrect. Ifwe look at the issues individually

like the DSE Index, the syndicates, comprising of stock exchange members and

the SEC we can find the common link, which is the stock exchanges and the

SEC.

• There are big syndicates acting together to artificially influence the prices

resulting in huge profits for them at the expense of the average investors who put

in their hard earned lifetime savings.

• Many of the stocks are over priced and this is a serious risk factor for the

inexperienced investors. Entry of new companies in the market can help reduce



gap between demand and supply and help bring stability in the market. New

companies need to be encouraged to come to the bourse through market friendly

policy. But recent policy interventions do not seem to be moving towards that

end. The stateowned companies are not coming forward for listing despite

repeated assurances given by the authorities. Immediate entry of at least two or

three large companies could be extremely helpful for a balanced growth of the

market.

• Access to high quality and credible corporate information remains a major

problem in the market. While a handful of institutional investors may enjoy

certain benefits since they have an investment unit manned with qualified

officers, nothing exists for retail investors. And, in the absence of independent

research houses, retail investors primarily focus on advice given by their brokers,

which often consists of market rumors. This is not acceptable, and it often leads

to enormous losses for small investors who are vital for a low-income and

emerging market like Bangladesh. Filtering of information among different types

of investors may leave scope for manipulation; this assumption had been proved

right in the 1996 market meltdown at the cost of many individuals and

households.

• The market does not have an adequate number of fundamentally sound scrips.

The authorities should not force major corporations to come into the market,

without creating an enabling environment. The focus should be on the

privatization of state owned enterprises through public offerings in the bourses.

The market has to reach such a stage of development that companies will take it

as a serious alternative to bank financing.

• An important aspect for stock market is reflection of fair value of scrips. This is

not adequately present in the current scenario, and due to this reason the market is

not receiving the attention of an important segment of investors, both foreign and



local. Investors are perhaps depending more on speculative analysis, resulting in

volatility in the market, as opposed to fundamental analysis, which could attract

more stable longterm investors who are sure about their investment tenure and

expectations.

• It has been observed that the share values of some profitable companies has been

increased fictitiously some items that hampers 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.

• 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. On the other hand Some companies do not hold Annual General

Meeting (AGM) and eventually declare dividends that confused the shareholders

about the financial positions of the company

• Growth of mutual fund in Bangladesh has been slow. Only recently there has

been a rush for new funds. Many banks and financial institutions are in the queue

with proposals for their funds. Mutual fund is often a misunderstood subject in

Bangladesh. Many investors do not understand the difference between mutual

fund shares and other company shares. Mutual fund share is not the share of a

company. It is a fund under a trust. Investment in mutual fund is ideal for

investors who do not want to take risk because the fund is managed

professionally and the collective investment is diversified. Mutual fund share

price can also fluctuate heavily and be subject to wild speculation. As a result the

safe investment tool often becomes a risky area.

• And last, but definitely not least, is the Securities and Exchange Commission

(SEC) whose total policy and regulations favors' the syndicates which primarily

consists of high net worth people and the stock exchange members resulting in an



"artificial demand driven market" . Until and unless these fundamental issues are

addressed the stock markets here will fail to see the light of the day.

The Prospect of Bangladesh Stock Market:

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

stockmarket 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, such as derivatives, swaps etc.

Despite a challenging political environment and widespread poverty, Bangladesh has

achieved significant milestones on the social development side. With growth reaching 7

percent in 2006, the economy has accelerated to an impressive level. It is noteworthy that

the leading global investment banks, Citi, Goldman Sachs, lP 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 stock market in Bangladesh is still

underdeveloped, and its development is imperative for full realization of the country's

development potential. The recent growth of stock market of Bangladesh was behind

time. We have witnessed the money market grow stable in this country over the last

decade; our economy was starving for a matured and stable stock market. The stability

came through a variety of sources namely, educated retail investors, institutional

investors and last but not least the stock market regulators. The prospects of Bangladesh

stock market are given below:

• As it is a market that involves both the sponsors and investors, the need for a

healthy and stable market became necessary. Through various forms of reforms



and automation the stock market of Bangladesh won the confidence of investors

from all walks of life. It is a fact that stock market outperformed money market

by far in the last couple of years but that was only possible due to the uniform

and state of the are technology that has been used as the platform of our stock

market. In addition to that, the government facilitated our stock market by

structuring its monetary and fiscal policies in a pro- stock market manner.

• The central bank played a thoughtful part in developing our stock market. It

brought transparency to the banking sector, which actually welcomed the retail

investors to join the stock market with high confidence. The performance and

healthy return of the banking sector worked as a crucial component to bring in

institutions and foreign investors. Power and pharmaceutical sector also

outperformed the expectations of general investors; resulting fresh fund injection

into our stock market.

• Our emerging economy mostly invited the funds from all over the globe. Market

capital has shown amazing growth. Although current market price earning ratio is

higher than that of the neighboring country but that considering the demand for

lack of avenue to invest, the capital market

• Addressing the issue regarding our stock market, 'liquidity' and lack of

"instrument" would top the list of challenges that we have right now. The major

reason for the existence of the stock market is to provide liquidity of shares and

diversified instruments which helps increase market capitalization. It also helps

investors to gain more confidence and positively impact Gross Domestic Product

(GDP) of our country. Neighboring countries such as India and Pakistan have

market capitalization of more than 75% of their GDP. Comparatively, the

Bangladesh stock market accounts for a far lesser share of its GDP indicating



ample scope for future intensification in this sector. Hence, we should address the

above to issues with utmost seriousness and with a future vision.

• As we know, our economy is an emerging one; there is ample scope of growth of

our stock market. Our market capitalization, accounts for a lower share of our

GDP in a comparative regional perspective. With the help of upcoming issues

(IPO) we are very optimistic that the market capitalization is reach a higher level

within a short span of time. Automation and introduction of Central Depository

helped our capital market to grow considerably. The regulatory body, namely

Securities and Exchange Commission, is continuously facilitating our stock

market with its international standard surveillance and monitoring. The

continuous endeavor of the SEC has resulted in our stock market to be free from

fraudulent and manipulative activities. Thus presence of the SEC has impacted

significantly in the development of the market. However, considering our market

Size, the SEC should employ more professionals from private sector. Would

bring more dynamism to the market.

• Absence of capital gain tax is the most attractive reason for foreign investors (FI)

to invest in Bangladesh stock market, which is not very common in emerging

economies such as Bangladesh. In addition to high return and significant

dividend yield, FIs should be attracted to our stock market because ofthe easy and

hassle free repatriation of funds.

• From the present point of time the future seems bright, not only because of our

vibrant stock market but also of our room for new products. With the introduction

of direct listing and possible book building method, our primary market is

improving in line with the secondary market. The market cap will grow

significantly within next few years and turnover shall reach an international level.

Moreover, institutional clients, namely banks are entering the market with their

huge liquid fund causing the stock market to grow very rapidly. Domestic and

international banks have started not only to invest in the stock market but also to

operate brokerage and merchant banking wing. Cross border trading and index



trading are ideas we might adopt in future, which will result in liquidity and new

avenues for investment and minimize our cash market risk.

The Bangladesh stock 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 stock market will

undoubtedly playa 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.

Suggestion for Regulatory Bodies' of Stock Market:



Securities and Exchange Commission (SEC), in collaboration with other relevant

agencies, can initiate several steps with a view to enhancing the confidence of the

investors, increasing the quantity and variety of instruments, and improving the

functioning of the market. Some of the measures to help in sustainable market condition

and improved performance of stock market are as follows;

• It is expected that stock market has its own nature and if regulatory body and

respective parties perform their role perfectly then this unwarranted situation can

be over. The SEC should protect investors' interest and create an efficient market

environment for issuers. It must employ more resourceful, competent and

qualified people. The SEC may think of imposing a permanent policy for the

margin ratio rather than frequent experiments. Merchant bankers and brokerage

houses can organize regular awareness program for investors. They can also

motivate investors to invest in fundamental based share and avoid rumors based

investment. Besides, brokerage houses should stop comments about speculation

of share price.

• Government can improve its guidelines for stock market. At present there are

more than 3600 garments in Bangladesh with strong financial background. These

garments industries should be encouraged to be listed. Innovative financial

products and hybrid securities needs to be introduced to enrich our stock market.

A separate corporate bond market can be introduced. Less time-consuming

compliances of numerous formalities, low cost of initial public equity offerings,

elimination of double taxation will be helpful to equity market improvement.

• SEC should initiate awareness, educational and promotional programs through

institutional training for a vibrant market with active presence of issuers and



investors. Bangladesh Bank needs to strictly monitor the activities of commercial

banks specially their activities leading to stock market exposure.

• Stock market cannot be functional without investors. So the activities of investors

have high influence on market movement. The decisions regarding the market

should be taken considering behavioral psychology of the investors. Now long

term policy, appropriate guideline by Bangladesh Bank for commercial banks to

adjust stock market exposure, support of big institutional investors and easing of

rules, regulations are necessary to restore confidence of retail investors. Finally

there should be a proper coordination between all market players -SEC, DSE,

CSE, merchant banks and government so that stock market can playa vital role

efficiently for the economic development ofthe country.

• During downtrend, it has been observed that most of the general investors came

to the street, show protest and then suddenly prices go up. This indicates the

existence of syndicates and market manipulators in the stock market. Market

experts believe that the bearish trend is a result of market correction. It is true that

a correction is needed but it should be in a proper way. If the correction destroys

the market and confidence of the investors then there is no need such type of

correction.

• It has been observed that Z category shares offering more capital gain than A

category even these are very much risky. This attracts new investors and they

invest in Z category share which increase the risk of loss. The number of Z

category shares is about 100 or about 40 per cent of the total shares I isted with

the market. These shares are floated mostly by companies of the manufacturing

sector. Although a few of these labor-intensive units have real problems, the

majority of the companies have been consistently showing losses artificially in

their balance sheets. Their conditions are not as bad as they used to claim or show

in calculation. The boards of directors of these companies are doing so only to

siphon off capital from the companies and evade corporate tax to be paid to the



government. As a result, the net asset value of these companies has been

decreasing every year, leading to abnormal fall in the prices of shares. The

Securities and Exchange Commission (SEC) should play the role of a watchdog

on these Z categorized company to protect the interests of the common investors.

• In order to make the market more attractive, the corporate tax bracket can be

lowered in order to encourage sponsors to list their companies in the exchanges.

We can also introduce Future and Option Market and help our already existing

bond market to be more vibrant leaving the investors with more instruments.

Although we have some mutual funds (MF) currently trading in the secondary

market, but it is unexpected that these close end mutual funds are traded below

the face value. Usually most of the investors invest in mutual funds to reduce

investment risk but traded below the face value incur them loss

• Recently there is an announcement about floatation of a Taka 50 billion open-

ended mutual fund to be called Bangladesh Fund (BF). The timing of its

floatation has not also been specified. In this context, the announcement about the

fund is clearly purported to give a positive signal to the small investors about the

joint efforts of seven state-owned financial institutions, including the Investment

Corporation of Bangladesh (ICB), four commercial banks and two insurance

companies, to help improve the demand-side situation in the country's stock

market, in the midst of a turmoil, ifnot a collapse. Offloading this fund with in a

short period of time can make the stock market stable.

• The regulatory bodies' frequently changing policy and rules that is not good for

the market stability. For example margin loan ratio. No stock market regulator in

any country fixes loan margin ratio but that was done in Bangladesh. On

February 0 1, 2010, SEC, as a bolt from the blue, fixed loan margin ratio at 1:

1.5. Just two days after, it reversed its decision to I: I which was in existence for

months and years. SEC again increased this ratio to I: 1.5 on March 15, 20 I 0,

then again reduced this to I: 1 in July, 20 10; and I :0.5 in October, 20 I O. SEC

never explained proper reasons for such frequent revisions. It has now rectified



those errors, increasing margin loan ratio to 1: I, to 1: 1.5 and 1:2 on January 10,

20 10 but with little effect. It is not SEC's business to dictate to whom, when, and

how much the loan is to be given. It is a bilateral decision between the lender and

the borrower. Such over-regulations created constant imbalance between demand

for, and supply of, shares/funds, and over-heating or overcooling of the market.

• As of now, enforcement powers of SEC are, after due enquiry and giving an

opportunity to the violators to be heard, limited to cancellation or suspension of

registration of market intermediaries, and imposition of penal measures which

may involve levying of fines on or filing of cases in competent courts against

issuers / market intermediaries. These are no legal provision for SEC to award

compensation to shareholders or to file cases on behalf of shareholders. SEC is in

the process of drafting amendments to the relevant laws so as to be able to better

protect the interests of the shareholders.

• The need for strengthening compliance by all market intermediaries is greatly

felt. As present, the regulatory requirement for appointment of a compliance offer

extends only to stock broker/dealer. SEC intends to extend the requirement to

other market intermediaries laying down the qualifications of the concerned

officials and specifying the issues to be addressed in implementing internal

compliance procedures.

• A sound stock market requires depth with a wide range of products and

instruments to cater to varying risk return liquidity preferences of investors and

also to ensure that the adverse effects arising from disturbance in some part do

not assume systemic proportions. In this regard, SEC, in collaboration with

Bangladesh Bank had made long term government bonds tradable on stock

exchanges. But, not much of trading has been actually taking place. SEC and

Bangladesh Bank have formed a joint committee to suggest measures to activate

trading in government bonds. Recently introduced asset backed securities which



are now being issued only on private placement basis need to be brought into the

mainstream secondary market.

• At the initial stages of stock market development, privatization of state owned

enterprises can make a signification contribution. In Malaysia, for example, the

Privatization Master Plan resulted in many governments linked firms being listed

with Kuala Lumpur stock exchange. Seven largest firms listed with the exchange

belong to this category. Government linked firms account for 34 per cent of total

market capitalization. In Bangladesh also efforts are being made to progressively

offload government shares through the stock exchanges.

• A healthy stock market requires engagement of competent professionals by a

wide range of market actors. Among the positions which require the services of

people with adequate knowledge of the principles of corporate governance as

well as security laws and regulations are the members of company boards,

company secretaries, officials of the share departments of companies, authorized

representatives of brokers, compliance officers of market intermediaries etc.

Academic institutions or the professional bodies in the country do not produce

enough people to fill up such positions. SEC has constituted a Steering

Committee for preparing suggestions to set up a stock market training institute to

bridge the gap. Asian Development Bank is expected to assist in this endeavor.

SEC's investors' education program has been intensified to enable investors to

make informed decisions concerning their portfolio.

• SEC is revisiting IPO and rights issue rules and drafting direct listing rules. The

objectives are to reduce issue cost, simplify procedural requirements and shorten

the time gap between submission of an application to and consent by SEC. The

Securities and Exchange Commission (SEC) should formulated a revised

guideline on book building method because through this system investors are



paying higher premium on the face value that actually have bad reflection on the

market.

• All the Bangladesh Bank economic data should be provided to the market as and

when they come. It will help to balance the investors' decision with the pace of

country's economy. Major daily political, economical, whether and environmental

data update (both domestic and international) should be disseminated in the

market as and when they come basis from proper sources. 'Reuters' can be tagged

with DSE and CSE terminal and also with their respective website so that

investors can take their investment decision with overall global scenario.

• Regular TV and Radio program should be made on developments and other

topics relating to the stock market to make the investors aware and also to train

them up. It would help them to learn more about market fundamentals and

technicalities.



PROBLEMS

Notable Problems of CSE:

Most of the members of CSE are not rendering optimum services to the investor’s.

Lack of saving i.e. lack of capital formation.

Inadequate govt. assistance.

Some stock exchange members also serve as director of listed companies. This can

lead to the chance of insider trading especially in such a poorly regulated market.

Some stock exchange members act only at brokers, i.e., they buy and sell on behalf

of the clients on receipt of specified trading commission. They do not undertake the

market making roles.

Stock market efficiency depends upon the availability of reliable and unbiased

information about the capital issue and companies. Though existing provisions in the

companies act ensure disclosure of adequate information though prospectus, but

several defects are noticed in practice.

Raising the number of curb operators.

Inefficiency of the SECS to cape with the developments,

Lack of proper and adequate disclosure

Certifiers of financial statements and Property values of the company are the

identical

Management and Owners (Councilors) of CSE are entwined

Lack of enforcement with the compliance of rules and regulations

Corporate governance - sponsor-owners are managing the firm. All most all cases, no

professional management are hired to run the affairs of the listed company.



CONCLUSION

The capital 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. Bangladesh's stock market is

poised for rapid development. For this the SEC, DSE, CSE and all market players should

work together with the support of the government.A healthy, strong and stable stock

market is highly desirable. The quintessence from economic and political points of view

is that continuous falling of share prices, unstable and shaky stock market, tarnishes the

image, goodwill, creditability, reputation and popularity of the government in any

country. With the dipping down of share prices, the hard-earned popularity of the

government of any country is also depleted and diminished slowly but surely.

At the end point of the report, we can say that the existing and potential sectors of

investment of Bangladesh are certainly lucrative and prospective. If proper initiatives

are taken by CSE it will provide huge contribution to the economy. CSE plays an

important role in the investment of various Public Ltd. Investors feel secured investing

through CSE as it offer to invest in the ready and strong sectors.

Recently large companies are coming to IPO (Initial Public Offering) through conversion

of public Limited company. If all the profitable sectors come to IPO CSE will play

important in the overall investment sectors yet it has a great impact on investment



through capital market.

SOME ABBREVIATIONA

BWS -Brokers Workstation

CSE ─ Chittagong Stock Exchange

IPO - Initial Public Offering

SEC ─ Securities & Exchange commission

MOP -Market Operation

NGTS -Next Generation Trading System

SEC ─ Securities & Exchange commission

T+O ─ Trading day

T+1 ─ Trading day + The following day

T+2 ─ Trading day + The successive 2 days




AGM ─ Annual General Meeting

BO ─ Beneficiary Owner



REFERENCES

Market Update (Monthly Bulletin) of CSE..

Rules & Regulation of CSE, Published in 1995.

“Bangladesh Capital Market”-A publication of Chittagong Stock Exchange

The Financial Express, Various issues.

“CSE Bazaar Porikroma” –2011

Annual Report and monthly Review of CSE, various issues;

SEC Quarterly Review and Annual Report, various issues;

Class Materials

WEBSITES

www.google.com

www.wikipedia.com

www.csebd.com

www.bangladeshstockmarket.com

www.sec.bd.com


http://www.sec.bd.com/

http://www.bangladeshstockmarket.com/

http://www.csebd.com/

chittagong stock exchange_critical_analy term paper final by fardin khan

Data & Analytics