Assignment-1

On
Share Market in Bangladesh
Course code: IB-517

Submitted by:
Israt Jahan Hira
Batch: MBA-12th
Class Roll: 10

Prepared for:
Prof. Chowdhury Saima Ferdous, PhD
Department of International Business
University of Dhaka

Submitted To:
Department of International Business
Faculty of Business Studies
University of Dhaka

Date of Submission: 26 January, 2020

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Table of Contents

History of Stock Exchange......................................................................................................................3

Vision, Mission, Objectives.....................................................................................................................4
Functions: Dhaka Stock Exchange Ltd. (DSE) & Chittagong Stock Exchange Ltd. (CSE).....................5
Functions: Central Depository Bangladesh Ltd. (CDBL)........................................................................5
Structure of Share market in Bangladesh.................................................................................................5
Present Condition of Market:...................................................................................................................6
The Market Collapse:..............................................................................................................................7
Well-Functioning Capital Market............................................................................................................8
Situation of Capital market in Bangladesh...............................................................................................8
Conclusion:............................................................................................................................................10
References.............................................................................................................................................11

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Share market in Bangladesh

Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia
region. It has two full-fledged automated stock exchanges namely Dhaka Stock Exchange (DSE)
and Chittagong Stock Exchange (CSE) and an over-the counter exchange operated by CSE. It
also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it
implements rules and regulations, monitors their implications to operate and develop the capital
market. It consists of Central Depository Bangladesh Limited (CDBL), the only Central
Depository in Bangladesh that provides facilities for the settlement of transactions of
dematerialized securities in CSE and DSE.

History of Stock Exchange

Dhaka Stock Exchange was set up on 28thApril,1954 that started formal trading on early 1956.
Post–independence government did not promote capital market during the first five years, and it
was activated again in 1976 with 9 issues on board. In 1995, a second bourse, the Chittagong
Stock Exchange, was set up with sophisticated logistic support and modern management. The
Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its activities are
regulated by its Articles of Association rules & regulations and bye-laws along with the
Securities and Exchange Ordinance, 1969, Companies Act 1994 & Securities & Exchange
Commission Act, 1993.

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 stockexchange 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 firstday trade when market capitalization stood at US$ 0.2 Billion.
Now CSE is completely automated exchange with screen based trading facility on countrywide
communication network.

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Vision, Mission, Objectives

i Vision, 

1. Regulating the market structure through proper rules and strict compliance by members.

2. Expansion of CSE trading network to cover 504 thanas.

3. Introduce Book Building system in Bangladesh capital market.

4. Introducing derivative market Continuous promotion of stock investment throughout the

country.

5. Create opportunity to cross border trading with SAFE countries.

6. Introduce Global Depository Receipts (GDR).

ii   Mission

To create an efficient and transparent Market facilitating entrepreneurs to raise capital, so that it
accelerates industrial growth for overall benefit of the economy of the country.

iii  Objectives

1. Develop a strong platform for entrepreneurs for raising capital;

2. Provide an investment opportunity for small and large investors;

3. Develop a transparent market ensuring investor’s interest;

4. Provide a fully automated trading system with most modern amenities to ensure: quick,
easy, accurate transactions and easily accessible to all;

5. Attract non-resident Bangladeshis to invest in Bangladesh stock market;

6. Attract foreign institutional investors to invest in Bangladesh;

7. Collect, preserve, disseminate data and information on stock exchange;

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Management of Stock Exchanges

 DSE & CSE comprises of 25 members of whom 12 are elected through direct election from the
235 and 134 shareholders respectively. Another 12 members representing distinguished
personalities from different key economic and social arena of the country. The CEO of the
Exchange is also a Director of the Board.

Functions: Dhaka Stock Exchange Ltd. (DSE) & Chittagong Stock Exchange
Ltd. (CSE)

 Listing of securities and ensuring compliance by the issuers.

 Trading provisions for listed securities through efficient trading platform (Online screen
based trading system).
 Over the counter market (OTC) & Internet based trade facilities provide by CSE.
 Real time online market Surveillance of trading and regular monitoring and compliance
inspection of trading operations.
 Clearing and Settlement of executed trades.
 Management of the Members.

 Functions: Central Depository Bangladesh Ltd. (CDBL)

 Operate and maintain the Central Depository System (CDS) of Electronic Book Entry.
 Recording and maintaining securities accounts and registering transfer of securities.
 Changing the ownership without any physical movement or endorsement of certificates.
 Execution of transfer instruments, as well as various other investor services including
providing a platform for the secondary market
 Trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank.
 Supervision of Depository Participant activities.

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Structure of Share market in Bangladesh

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

The Primary Market:

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

The Secondary Market:

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

Present Condition of Market:

Market is in bottom line at present. All the share prices stand at reasonable and they are
attractable. If we see the price earning ratio of the companies of different sector, we can find
overall PE is low enough to invest into those shares. The PE ratio is the lowest if we analysis last

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five years data of DSE. Today PE of bank sector is 14.13 which was 21.75 last year. So there
occurred a huge price correction in the [rice of banking sector shares and the prices are in bottom
line now. The lowest PE ratio is 9.15 for Mutual Fund sector. Some companies of mutual fund
are traded below their face value. So we can easily determine the correction level of share’s price
last five months. Average PE of total market stands at 17.79 which was 26.66 last year.

The Market Collapse:

So we have observed a market crash in our capital market which we many didn’t expect after
1996 turmoil. The 1996 crash of share market not only depleted the market value and volume of
the Dhaka Stock Exchange, it ruined many families, mainly from the middle class, who were
enticed by a few manipulators. When thousands had put in their last stake, insiders made profit
by selling at the pick of value before leaving the market and siphoned the cash outside the
country. This happened while the government was in full function and regulatory bodies were
active. When millions lost their cash and left with scripts of negligible value, the courts, lawyers,
government bodies, human right groups and the civil society did not seem to care. Despite
everything that was said, nothing happened on the ground, except those who lost remained
losers. The subsequent government also dropped a few crocodile tears and shrugged off the
matter.

In 2010 we also experienced the same as 1996. Aggrieved investors set fire to wood and paper in
front of the DSE building and blocked the road from Shapla Chattar to Ittefaq Moor. They
chanted slogans against the top bosses of the premier bourse and market regulators, and
demanded resignation of the central bank governor. Market insiders blamed the recent fall on the
central bank's measures to control the liquidity flow in the banking system. The central bank also
issued another directive asking financial institutions to adjust their stock investment exposure by
December. From January, no institution will be allowed to invest more than 10 percent of its
total liabilities in the stock market, and the exposure will be calculated based on market price,
not cost price.

The International Monetary Fund's prescription to Bangladesh Bank for addressing the
overexposure of commercial banks to the stock market also propelled the unprecedented fall. The
SEC's excessive initiatives to cool the market in a short time are also blamed for the crash. The

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measures and unexpected and unnecessary intervention of a donor agency took a big toll on the
market.

Well-Functioning Capital Market

Well-functioning capital markets should encourage private saving and investment by channeling

surplus funds to reach their most productive uses. In the process, well-functioning capital
markets create a diverse menu of saving and investment options: some at higher risk, some at
lower risk, some shorter term, some longer term. A fully developed market will
facilitate the financial interactions of households, corporations, banks, and governments.

In advanced economies, banks and capital markets often provide complementary services.

Economies with sizable capital markets (which are less reliant on banks) benefit from the
discipline of market forces on credit decisions and risk assessment, which not only increases the
efficiency of financial intermediation but may also reduce the likelihood of financial crises.

In many developing countries, however, banks are dominant. Excessive reliance on bank finance

can create a suboptimal situation in which a potentially small number of decision makers are
controlling the allocation of capital.

A well-functioning capital market also contributes to economic growth. It is intuitive that better-
developed capital markets are more efficient at channeling savings to its most productive uses
and thereby boost economic growth. Moreover, recent studies conclude that financial
development disproportionately helps the poor. These studies find not just that the rising tide lifts
all boats, but that financial development reduces poverty and inequality independent of its impact
on the economy’s growth rate.

Situation of Capital market in Bangladesh

In developed and emerging capital markets, banks play a pivotal role in preparing entities
entering the capital market. However, that’s not the case in Bangladesh. We should think about
the meager amount of money we are earning as a manager to the issue or as a banker to the issue.

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In Bangladesh, the capital market listing is viewed as an opportunity gainer. So it becomes a
daunting task for banks to get the entity ready for public listing. Everyone is solely focused on
the rate the IPOs will be issued. If an alternate source promises to get an IPO approved by the
regulators at the desired premium, the prospect invariably prefers to switch.

Even though the banks performed satisfactorily in 2017, foreign investment in our banks
continues to be woeful. The yield on asset went down at the beginning of 2017, but a huge
number of banks were still offering out of the market interest rate for attracting deposits. Some
of those banks were the top choices or favorites for capital market investment. Local investors
are quite indifferent to how the capital market should be run in their constant chase of insider
information.

Although some of the banks’ value might be understated or under-traded, my biggest concern
remains on the real quality of the asset portfolio, the diversity and depth of the deposit portfolio,
and the multiplicity of the revenue streams.

Bangladesh is an attractive investment destination and within the next 30 years, Bangladesh
should be able to see itself among one of the top 3 fastest growing countries. In 2017, we have
received significant investments from large firms in the USA beyond the banking and financial
sector. Foreign investors are now quite interested in the power sector, especially alternative
energy sources. They are also interested in our manufacturing and pharmaceutical companies as
these companies are now entering the capital market. Our small investors, institutional investors,
IPO managers and issuers have increased leverage and can also expect more investment from
foreign institutional investors in the coming days.

Some of the stocks in Bangladesh capital market are still undervalued. The average return has
been quite attractive against other frontier markets or even the emerging markets in stocks, but
there is still room for foreign institutional investors. It is necessary for us to focus on certain
related guidelines, like the NITA account to facilitate foreign investment in our stock market.
The recent valuation done by Bangladesh Bank on the Holcim acquisition by Lafarge has given a
wrong message to the international investment community as Lafarge did not have much to do
about it but to accept the central bank’s valuation in order to remit money to the Holcim
headquarter.

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Our power sector is viewed as an attractive zone where even foreign investors have bid for pre-
IPO or post-IPO stocks. But they are a bit jittery as the power companies are being burdened
with multilayer tax on their dividends. This matter has been referred to the Finance Ministry and
the National Board of Revenue, but to no avail.

Anyone who will invest in the capital market is more likely going to check whether these
companies are increasingly becoming profitable and to what extent they abide by the law and
avoid cheating or depriving the investors, especially the foreign institutional ones. If the
investors cannot reap a high amount of earnings, then stocks will not be that attractive to them on
a continued basis. This is why we need to revamp our tax impositions on 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.
Market confidence is sure to erode if conflicting signals are received from different authorities.
At the same time investors will have to understand that in any stock market there are ups and
downs and they cannot blame others whenever stock prices slide down. Fortunately, investors
are getting matured gradually and hopefully we may not have to see shouting and slogan in front
of the exchanges any longer. Bangladesh should really focus on improving governance and
developing advanced market products, such as derivatives, swaps etc

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References

Text:
Financial Markets & Institutions by Jaffe Madura- 11
The edition Fundamentals of Investments (Charls J. Corrado)

Journals:

CPD, 2011. Independent. Review of Bangladesh’s Development (IRBD).

<http://www.cpd.org.bd/downloads/IRBD%20FY11_First%20Reading.pdf>[Accessed March 28
2014].

Economy watch, 2010. A Brief Introduction to the Dhaka Stock Exchange.[Internet], Available

from:<http://www.economywatch.com/stockexchanges/dhaka.html> [Accessed March29 2014 ].

Websites:
http://www.dsebd.org/ 
http://www.cse.com.bd/   
http://www.cdbl.com.bd/   
http://www.stockbangladesh.com/users/index   
http://www.thedailystar.net/business/tribunal-moves-1996-stock-scam-122539
http://news.priyo.com/story/2010/dec/20/15063-1996-revisits-stock-market
http://www.academia.edu/   
http://www.financialexpress.org/   

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