Bangladesh stock market : Operation, Effeciency, Success & failure

PresentingMd. Taifur Hassan Talukder

#41324032Sal Saad Al Deen Taher

#41324033Syed Navid Jaman

#41324087

DSE, the first stock exchange of the land was incorporated on April 28, 1954, while the second stock exchange – CSE was established in 1995

After independence of Bangladesh, trading activities started in August 1976.

From 1998 automated screen based trading was introduced by both the exchanges through LAN and WAN connectivity and HP non stop trading platform is providing basic architecture.

Structure: Background

The Stock Exchanges are registered as Public Limited Companies under companies Act.

Presently DSE has 250 outstanding shares (members) while CSE has 148 shares outstanding as of year 2013.

The exchanges are Self Regulatory Organizations and their activities are regulated by - Articles of Association- Own set of Rules, Regulations and Bye-laws- Securities and Exchange Ordinance 1969- Securities and Exchange Rules 1987- Other relevant laws.

Structure: Corporate Struture

Public Market : For general tradingSpot Market : For pre-book closer tradingBlock Market : For bulk volume trading Odd lot Market : For odd lot trading

Trading SessionTrading at DSE & CSE is performed through a

non-stop platform in following sessions : Continuous Trading hours :10.00 AM to 2 PM

Trading day : Sunday To Thursday.

Structure: Basic Market

All Securities are Distributed in 16 Sectors :1. Banks 2. Investment3. Engineering4. Food & Allied Products5. Fuel & Power6. Jute7. Textile8. pharmaceuticals & Chemicals9. paper & Printing10. Services & Real Estate11. Cement12. IT13. Tannary Industries14. Ceramic Industry15. Insurance16. Telecommunication17. Travel & Leisure18. Miscellaneous

Structure: Basic Market Statistics

DSETotal Issued Capital of all listed Securities Tk 98,359.42 croreMarket Capitalization of all listed Securities Tk 253,024.60 croreListed Securities As on June, 2013Companies 251, Mutual Fund:42 Debentures: 8 Govt Treasury Bond: 221 Corporate Bond:3Total:525 CSETotal Issued Capital of all listed Securities Tk 42,856.43 croreMarket Capitalization of all listed Securities Tk 191,989.07 croreListed Securities As on June, 2013 Companies 220, Mutual Fund:42 Corporate Bond:3 Total: 265

Structure of Bangladesh Stock Market: Basic Market Statistics

Efficiency of a market can be perceived by The theory of efficient market hypothesis (EMH) proposed by Fama (1965). Firstly, in weak form efficiency, security prices fully reflect only the history of prices or returns themselves. Secondly, in semi-strong form efficiency, security prices reflect all publicly available information. Finally, in strong form efficiency, security prices reflect all public and private information.

Although the EMH is divided into three forms of efficiency depending on the information set to which share prices adjust, it is usually believed that the markets in developing and less developed countries are not efficient in semi-strong form or strong form and so it is very much convenient to test the weak-form of efficiency in such type of a market. Research has been concluded that the stock market in Bangladesh is not efficient in weak-form of efficiency.

The  inefficient  nature  of  the  functioning  of  Bangladesh’s  capital  market  is  well  known  and  has  been  reported  widely  in  various  studies  (Hassan  et al.  2000;  Mobarek  and  Keasey  2002; Ahmed  and  Imam  2007;  Uddin  and  Khoda  2009;  CPD  2010). 

Normally,  in  an  inefficient market,  movement  of  stock  prices  fail  to  adequately  reflect  the  changes  happening  in  the real  economy  (Beechey  et  al.  2000). 

Ali  (2011)  found  DSE  as  an  ‘informationally  inefficient market’;  Alam  et  al.  (2011)  showed  that  changes  brought  about  with  regard  to 

the functioning  of  the  DSE  did  not  improve  the  level  of  efficiency  in  the  market.  Others  have argued  that,  capital  market  of  Bangladesh  continues  to  remain  in  its 

early  stage  of development  and  will  have  to  mature  further  before  it attains  a  semblance  of  stability (Rahman and Rahman 2011). 

Efficiency of Stock Market

Success Of Stock market100% repatriation of capital, dividend and investment profits.

o Reinvestment of repatriable dividend treated as new investment.

o No tax on capital gains

o 10% of all IPOs are reserved for NRBs.

o World’s Bank Investor Protection Ranking for Bangladesh 19th, Pakistan 25th, India 38 th & Sri Lanka 70th.

o Bangladesh was considered as one of the Goldman Sachs Next 11 countries for a high potential of becoming the world’s largest economies in the 21st century along with the BRICs (Brazil, Russia, India and China).

o Easy access to ownership of Infrastructure Development companies, high net worth private banks and companies through Capital Market.

Failure In Stock MarletTHE CAPITAL MARKET SCENARIO IN 1996

There was a huge surge in the stock market in 1996 evidenced by an enormous increase in the market capitalization. Total annual turnover and daily average turnover in DSE general index increased from 775.65 in January 1996 to 3064 in November, 1996. After an increase in the general index of DSE for a short period, the index started to fall down dramatically and in December 1996, the index fell down to 2300.15. The short time ‘game plan’ made the investors to invest more in the capital market but when this ‘game plan’ achieved its goal; the confidence of the investors was significantly damaged because of excessive speculations, allegedly aggravated by widespread irregular activities. This fall down of general index of DSE continued over the calendar year of 1997. In April 1997, the general index of DSE was 957.48 while in December 1997 it fell down to 756.78.

Trend of general index of DSE during capital market clash of 1996

Percentage change in monthly closing index DSE during the nose dive of the capital market in 1996

THE CAPITAL MARKET SCENARIO IN 2011

The trend of general index of DSE during July 2009 to August 2010 shows that the general index of DSE has increased smoothly. In July 2009 the general index of DSE was 2914.53 while in April 2010 it increased to 5654.88. During this time period, there was an increasing trend of general index. In August 2010 the general index of DSE stood at 6657.97 and finally in November 2010, it reached the peak and became 8602.44. After this general index has started to fall down and in February 2011 it reached to 5203.08

The trend of general index of DSE during capital market downturn in 2011

The percentage change in general index of DSE during the capital market downturn in 2011

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