Present State of Bangladesh Stock

Market-Its Problems & Prospects

Present State of Bangladesh Stock Market-Its Problems & Prospects

Submitted to
Jamal Uddin Ahmed
Supernumerary Professor
Department of Finance,
Faculty of Business Studies,
University of Dhaka.

Submitted by
Md. Ohidur Rahman
ID: 23-158
Section: B, 23rd Batch
Department of Finance,
Faculty of Business Studies,
University of Dhaka.

Date of Submission: 21.05.2019

 Letter of Transmittal
May 10, 2017

Jamal Uddin Ahmed

Supernumerary Professor,
Department of Finance,
Faculty of Business Studies,
University of Dhaka.

Subject: Submission of Term Paper on “Present State of Bangladesh Capital Market: Its
Problems & Prospects.”

Dear Sir,

It is a great pleasure for me to submit the report on “Present State of Bangladesh Capital
Market: Its Problems & Prospects.”, which is prepared as a fulfillment of the requirement of
the course named “Financial Markets & Institutions (F-304)” of BBA program under
‘Department of Finance’ of the Faculty of Business Studies, University of Dhaka.

This study has given me the opportunity to learn the basics of Capital Market and also given
me
the practical Knowledge through the study of capital market inception & its mechanism. I
have
also learned the reasons of major crashes of Bangladesh Capital Market. The analysis that I
observed through this report will help me in our future, indeed.

I would like to convey my special thanks and gratitude to you for patronizing my effort & for
giving me proper guidance and valuable advice. You will be delighted to know that, I have
tried my best to make this report more & more informative and factual.

Sincerely Yours,

Md. Ohidur Rahman

ID: 23-158
Section: B, 23rd Batch
Department of Finance
 TABLES OF CONTENTS
Chapter Number and Name Page no
1. INTRODUCTION: 2

2
1.1 Background of the study
1.2 Origin of the Project 3
1.3 Objectives of the study
1.4 Scope 4
1.5 Methodology
4
1.6 Data Collection
1.7 Limitation of the study 5

2. BANGLADESH STOCK MARKET 6

2.1History of stock Market 6

2.2History of Bangladesh Stock Market 6
2.3Bangladesh Stock Market 7
2.3.1 Dhaka Stock Exchange (DSE) 7
2.3.2 Chittagong Stock Exchange (CSE) 8

3. REGULATORY BODIES 9

3.1 Bangladesh Securities and Exchange Commission 9

(BSEC)
3.1.1 Mission of the BSEC 9
3.1.2 The Commission main Functions 9

4. MARKET CRASH 10

4.1 Stock Market Crash 10

4.2 Crash in Bangladesh Capital Market 10
4.2.1 Crash During 1996 11
4.2.1 Crash During 2010-11 13

4.3 Comparison Between Two Years 18

4.4 Market Scenario and Investors’
Behavior after Market Crash 19

5. ANALYSIS OF MARKET CRASH 24

5.1 Analysis Market Crash in 1996 with Example 24

5.2 Analysis Market Crash in 2010-11 with Example 26
6. FINDINGS & RECOMMENDATION 30

6.1 Findings 30
6.2 General Recommendations 30
6.3 Recommendations for the Government 31
6.4 Recommendations for Bangladesh Bank 31

7. CONCLUSION 32

8. REFERENCE 33
 EXECUTIVE SUMMARY

For my project a discuss with two professional person Mr. Shajahan Khan director of
Danmonndi Securities and Mr. Sohag Hossain director of multi securities of Platan Branch.
They give me lots of information about stock market and Stock market crash in Bangladesh.
Which help me to make my project.
My Project is divided into seven major parts, which are Introduction Part, Overview Part,
Regulatory Bodies Part, Analysis Part, Market Crash Part, Findings and Recommendations
Part and Conclusion.
Chapter one describes the introduction of my report, background of the study, objectives,
scope and limitations of the study.
In chapter two, I tried to describe in brief an overview Bangladesh stock market (DSE &
CSE) and its history, mission, vision and major functions
Chapter three consists of Regulatory Bodies of Bangladesh Securities and Exchange
Commission (BSEC), Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE).
Also describe about their rules-regulation and responsibility.
Chapter four Analysis of Bangladesh Stock Market, Structure of Bangladesh Stock Market,
market capital, settlement and clearness.
Chapter five Crash in Bangladesh Capital Market which occurred in 1996 and 2010 and
reasons of the crash. Market Scenario and Investors’ Behavior after Market Crash.
Chapter six Analysis of market crash with some example of company which play a big game.
Chapter seven Findings & Recommendations. And finally, chapter eight Conclusion.
I have tried my best to accumulate relevant information in this report and make the report
vivid and comprehensive within the scheduled time and limited resources.

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 CH AP TER O NE
I NTRO DUCTI O N

1.1 Background of the Study

Sound Capital Market is an indispensible part of an Economy. Without sound and efficient
capital market, rapid economic development could be hampered as capital market provides
long term funds to entrepreneurs. Capital Market of Bangladesh is still highly speculative and
lacks transparency due to poor regulatory framework. In Bangladesh, Financial sector was
historically driven by banks and capital market had fewer rules to play as people had mixed
perception about the risk pattern in capital market that discouraged them mostly to invest
there. But in the mid of ninetieths of last century capital market started to show vibrant
behavior that make people interested about the stock exchanges. As the index was rising
sharply and everyone was making money, many people started to invest their money to the
heated market that made a bigger bubble and finally the bubble bursts. Benchmark index
came down to 700 point in November 1997 from its highest 3600 point in November 1996.
Thousands of investors lost their money that made them reluctant to invest in the capital
market again. It took one decade for them to forget the history of collapse.
After that, regulators had taken many steps to stabilize the market. Hundreds of new issues
came to the market. Central depository, circuit breaker, online trading, etc. were introduced in
the market to attract investors. As a result, the market started to grow again. Investors started
to forget the history of 1996 and started to invest again. This time most investors were new
and young with little knowledge about stocks and did not care about market risk. They
invested their money and finally lost everything when the bubble started to burst in
December, 2010 that had started to grow from the year 2009. This time Benchmark index
came down to 4600 points in early July 2015 from its highest point 8918 in December 2010.
Millions of investors lost their money and came down to the street. This is the small picture
of stock market crashes in Bangladesh. In both cases regulators had failed to take proactive
measures to not grow the bubble and caused losses for millions of investors when the bubbles
burst. When analysts were anxious about the bubbles, regulators were ignoring them and
even defended the bubbles. The recent volatility of the capital market of Bangladesh is an
abnormal phenomenon and such volatility tends to economic instability. I believe it will be
interested enough to look into the causes of the problem. As such volatility affects mass
people (many investors), it is essential to try to minimize such volatility by identifying the
causes (esp., Regulatory failure) and solving the problems. In my study, I will try to identify
the reasons of this volatility and also to recommend some suggestions to minimize such
volatility in future

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1.2 ORIGIN OF THE PROJECT
Project is a requirement for the course of Financial Market and Institution. The main
purpose of Project is to get familiar with the analysis of corporate and business world.

 To get and organize detail knowledge on the job responsibility.

 To experience the real business and market.
 To compare the real scenario with the lessons learned in the University
 To fulfill the requirement of BBA Program.

I accomplish the project, under the guidance of , . As a requirement of the completion of

the project, I had to submit this report, which includes an overview of the organization
and a research and analysis part.

1.3 Objectives of the Project

Objective of the report can be divided into two parts. These are:
 General objective
 Specific objective

General objective The general objective of the report is to find out the market scenario
and investors’ behaviors on capital market.

Specific objective The specific objective of this topic is to find out the scenario behind
the market crash 1996 and 2010-2011and after the historical crash, investors’ behavioral
trend in capital market. In the whole report, I will thoroughly discuss about capital
market and also discuss about trend after market crash and the rules and procedures of
capital market. Besides, in the project, I will discuss about the effective solutions of these
problems.

1.4 SCOPE:
In my whole report, I will focus on the Stock market of Bangladesh and trend after the
market crash 1996 and 2010-2011 and how investors are behaving after the market crash
and why they are losing their money gradually, what capital market indicators show after
the market crash. What are the reasons which make them satisfied and what are the
barriers they find out. To complete a reflective and informative report, I studied different
reports of market researchers on market crash 1996 and 2010-2011 and investors’
behaviors.

The study also explain the regulatory aspects of capital market of Bangladesh on the
basis of disclosed regulations and will try to judge the quality of the regulations in terms
of its achievement of the goals. This study is basically descriptive in nature.

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1.5 Methodology
While doing this assignment, I have used both theoretical and practical elements for the
assignment. And then compare and contrast both and come up with what is needed for
the betterment of the organization. Basically, I mix up the theory, analysis with the
practical scenario and then convey findings after the assignment.

The report is both descriptive & calculative by nature. The report is based on information
collected from primary as well secondary sources. The indicators which are responsible
for recent crash are measured by calculation. The trend of those indicators has also been
measured for last three years. Statistical approach has also been used in the report.

To find out the critical issues of this sudden drama, I have collected secondary
information from various sources. I have emphasized on quantitative and qualitative data
to analyze the recent share market crash and it’s prevail crisis in Bangladesh stock
market. All the quantitative data are extracted from Dhaka Stock Exchange website and
qualitative data are collected from published research journals, newspapers, websites etc.

The task of data collection begins after the research problem has been defined and
research design chalked out. While deciding the method of data collection to be used for
the study, the researcher should keep in mind two types of data.

1.6 Data Collection:

Data is collected from both Primary (Stock Exchange, SEC) and secondary sources like
different publications of DSE, CSE, BSCE and CDBL.
Some other research papers in this line will also be used.
The areas that will be concentrated are:

 Various aspects of capital market regulations of Bangladesh

 Recent trends of Capital Market
 Bubble creation and Bubble Burst and reasons behind this market
collapse

In order to make the report more meaningful and presentable, two sources of data and
information has been used.

The Primary Sources are as follows-

 Practical work exposure

 Discussion with the respective executives & officers.

The Secondary Sources of data and information are-

 Annual Reports of DSE.

 Various publications regarding DSE

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1.7 Limitation of the Study
While doing this assignment, I have faced some problems. Even though the Director of
Danmonndi Securities was so helpful, but he has some limitations while giving interview
like time-constrain. And for some extent, he does not want to give the whole information.

Other problems are basically from the organization. But there are also limitations from
us-.

 BSCE and DSE do not show confidential data.

 Problem to get appointment of the men in honorable position.
 Limitations of our knowledge.
 Limited information in website.
 Limited sources to collect data.
 Unhelpfulness from the organization

However, from the nature of the study it could be easily understood that respondents
were hard to reach. Another limitation was time constraint. The time was too short to
complete a research on a topic like this. For further analysis, more time was required.
Lack of secondary source is another limitation that I have faced. In fact, I did not find
any previous research on this topic. However, I had to rely on other relevant studies,
books and websites for this purpose.

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 CH AP TER TW O
BANGLADESH STOCK MARKET
2.1 History of the stock market
The idea of debt dates back to the ancient world, as evidenced for example by ancient
Mesopotamian clay tablets recording interest-bearing loans. There is little consensus
among scholars as to when corporate stock was first traded. Some see the key event as
the Dutch East India Company's founding in 1602, while others point to earlier
developments. Economist Ulrike Malmendier of the University of California at
Berkeley argues that a share market existed as far back as ancient Rome.

In the Roman Republic, which existed for centuries before the Empire was founded;
there were society’s publican rum, organizations of contractors or leaseholders who
performed temple-building and other services for the government. One such service
was the feeding of geese on the Capitoline Hill as a reward to the birds after their
honking warned of a Gallic invasion in 390 B.C. Participants in such organizations
had parties or shares, a concept mentioned various times by the statesman and orator
Cicero. In one speech, Cicero mentions "shares that had a very high price at the time."
Such evidence, in Malmendier's view, suggests the instruments were tradable, with
fluctuating values based on an organization's success. The societies declined into
obscurity in the time of the emperors, as most of their services were taken over by
direct agents of the state.

London's first stockbrokers, however, were barred from the old commercial center
known as the Royal Exchange, reportedly because of their rude manners. Instead, the
new trade was conducted from coffee houses along Exchange Alley. By 1698, a
broker named John Casting, operating out of Jonathan's Coffee House, was posting
regular lists of stock and commodity prices. Those lists mark the beginning of the
London Stock Exchange.

2.2 History of the Bangladesh Stock Market

The voyage of Bangladesh stock market started on April 28, 1954 as East Pakistan
Stock Exchange Association Ltd. At that time Pakistan ruled Bangladesh and the
name of the country was East Pakistan. Other than trading on this market started in
1956 with a total paid up capital of Taka 4 billion and 196 securities were listed on
this market. Besides, the exchange was renamed as Dhaka Stock Exchange (DSE)
Limited on June 23, 1962. On the other hand, trading on Dhaka Stock Exchange was
suspended from 1971 to 1976 because of liberation war and its post-independence
weak economy. In 1976, the trading was started again with 9 listed securities having a
total paid up capital of Taka 137.52 million.

By 1987, the number of listed companies in DSE increased up to 92. But high
development of the market is noticeable in the 1990s comparing with any other time
since its establishment. (Economy watch, 2010
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2.3 BANGLADESH STOCK MARKET
Here, the study explains history of the Bangladesh stock market and the history of the
two exchanges, Dhaka and Chittagong stock exchanges, with their role and functions.
Moreover, it also gives concise information about the capital market structure of the
country, Security & Exchange commission as the market regulator and CDBL as an
important organization of the market.

2.3.1 Dhaka Stock Exchange (DSE)

Dhaka Stock Exchange is the first & biggest stock exchange of Bangladesh. The
business of Dhaka Stock Exchange started on May 14, 1964 after renaming East
Pakistan Stock Exchange Limited. Dhaka Stock Exchange (DSE) is registered as a
Public Limited Company and its actions 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.

In the beginning it was a physical stock exchange and used to buy and sell in the open
out-cry system. After that automated trading system was introduced to secure smooth,
timeliness & effective operation on the market. Moreover, the system was installed on
10th August, 1998 and was advanced time to time. The latest upgrading was done on
21st December, 2008.

On the other hand, the members in Dhaka Stock Exchange are 250 and total 533 listed
securities. The working days of DSE is 5 days in a week without Saturday, Sunday
public holidays & other government holidays. The trading time is from 11:00 am to
15:00 pm (local time). Investment options for an investor in this market are ordinary
share, Debenture, Bond & Mutual funds.

As mentioned by Fellowes (2013), “Every stock market has its indices to show
movements in the market as a whole”. In the beginning DSE had only one index.
However, now there are three different indices which are DSI (All share), DSEX (A,
B, G & N) and DSE 20. DSE introduces two new indices, which are known as the
DSE Broad Index (DSEX) and DSE 30 Index (DS30).

The major functions are:

 Listing of Companies (As per Listing Regulations).

 Providing the screen based automated trading of listed Securities.
 Settlement of trading (As per Settlement of Transaction Regulations).
 Gifting of share / granting approval to the transaction/transfer of share outside
the trading system of the exchange (As per Listing Regulations 42).
 Market Administration & Control.
 Market Surveillance.
 Monitoring the activities of listed companies (As per Listing Regulations).
 Investors’ grievance Cell (Disposal of complaint by laws 1997).

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

2.3.2 Chittagong Stock Exchange (CSE)

The Second stock exchange of Bangladesh is Chittagong Stock Exchange. As it

introduces modern technology & sophisticated logistic support, it is said that CSE is
the pioneer of the modern capital market of the country. Besides, it was incorporated
as a self regulated non-profit organization on 1st April, 1995 and formally opened on
November 4, 1995. Though it started its trading through cry-out system but after that
Chittagong Stock Exchange started first automated trading bourse of the country. CSE
started its automated trading on 2nd June, 1998 and internet trading service on 30th
May, 2004.

The trading time of CSE is between 11:00 am to 15:00 pm. The working days &
holidays of CSE are same as like as DSE. CSE consists of 25 members of whom 12
are elected through election of CSE members, 12 members are elected from different
major economic & social arena of Bangladesh and CEO is nominated and appointed
by its own board but the approval of SEC mandatory.

There are 147 members and 273 of listed securities in Chittagong Stock Exchange.
Moreover, there are four different markets in CSE same as DSE which are public,
Spot, Block & Odd Lot market. In addition, trading is done through all these four
markets. The Five categories of company listed in CSE are A, B, N, G and Z but in G
category there is not any company.

Chittagong Stock Exchange has its own indices to calculate movements of its total
market value. CSE maintained only one index that was All Share Price Index until
10th October, 1995. Now CSE has 3 indices in the stock exchange those are All Share
Price Index (CASPI), CSE Selective Index (CSE30) and CSE Selective Categories'
Index (CSCX).

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 CH AP TER TH REE
REGULATORY BODIES

3.1 Bangladesh Securities and Exchange Commission

The Bangladesh Securities and Exchange Commission (BSEC) was established on 8th
June, 1993 as the regulator of the country’s capital market through enactment of the
Securities and Exchange Commission Act 1993. Through an amendment of the
Securities and Exchange Commission Act, 1993, on December 10, 2012, its name has
been changed as Bangladesh Securities and Exchange Commission from previous
Securities and Exchange Commission. The Commission consists of a Chairman and
four Commissioners who are appointed for fulltime by the government for a period of
four years and their appointment can be renewed only for further one term, but the
condition is that age can’t exceed 65 in position during the tenure. The Chairman acts
as the Chief Executive Officer (CEO) of the Commission. The Commission has
overall responsibility to formulate securities legislation and to administer as
well. The Commission is a statutory body and attached to the Ministry of Finance.

3.1.1 Mission of the BSEC is to:

 Protect the interests of the investors in securities.
 Develop and maintain fair, transparent and efficient securities markets.
 Ensure proper issuance of securities and compliance with securities laws.

3.1.2 The Commission's main functions are:

 Regulating the business of the Stock Exchanges or any other securities market.
 Registering and regulating the business of stock-brokers, sub-brokers, share
transfer agents, merchant bankers and managers of issues, trustee of trust
deeds, registrar of an issue, underwriters, portfolio managers, investment
advisers and other intermediaries in the securities market
 Registering, monitoring and regulating of collective investment scheme
including all forms of mutual funds.
 Monitoring and regulating all authorized self regulatory organizations.
 Prohibiting fraudulent and unfair trade practices relating to securities trading
in any securities market.
 Promoting investors’ education and providing training for intermediaries.
 Prohibiting insider trading in securities.
 Regulating the substantial acquisition of shares and take-over of companies.
 Undertaking investigation and inspection, inquiries and audit of any issuer or
dealer of securities, the Stock Exchanges and intermediaries and any self
regulatory organization in the securities market.

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  Conducting research and publishing information.

CH AP TER F O UR
M ARK ET CRAS H

4.1 Stock market crash

A stock market crash is a sudden dramatic fall of stock prices across a significant
cross-section of a stock market, resulting in a significant loss of paper assets. Crashes
are driven by panic as much as by underlying economic factors. They often follow
speculative stock market bubbles. Stock market crashes are social phenomena where
external economic events combine with crowd behavior and psychology in a positive
feedback loop where selling by some market participants drives more market
participants to sell. Generally speaking, crashes usually occur under the following
conditions, a prolonged period of rising stock prices and excessive economic
optimism, a market where P/E ratios exceed long-term averages, and extensive use of
margin debt and leverage by market participants (Galbraith, The Great Crash 1929,
1988).
There is no numerically specific definition of a stock market crash but the term
commonly applies to steep double-digit percentage losses in a stock market index
over a period of several days. Crashes are often distinguished from bear markets by
panic selling and abrupt, dramatic price declines. Bear markets are periods of
declining stock market prices that are measured in months or years. While crashes are
often associated with bear markets, they do not necessarily go hand in hand. The crash
of 1987, for example, did not lead to a bear market. Likewise, the Japanese Nikkei
bear market of the 1990s occurred over several years without any notable crashes

4.2 Crash in Bangladesh Capital Market

The capital market of Bangladesh had two major debacles which occurred in 1996
and2010, creating some bad impacts upon the country’s total capital market.

4.2.1 Crash during 1996

During 1996 some local and foreign initiatives succeeded in drawing some
international attention which was followed by an international conference in 1994.
The conference followed by some regional as well international market destabilizing
events, some hedge fund managers started investing in the local capital market. The
market was neither operational nor in terms of legal structure ready to absorb such
sudden surge in demand both at home and abroad. Consequently within a very short

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 tenure (from July to October of 1996) the market price level soared to a record level
(of that time) height with the index rising from 894 levels to 3627 level.

The market P/E ratio of all the listed securities reached to the level of 66.5 within a
short period of 4 months. The 'cry-out’ auction based trading system of DSE could not
handle the huge demand coming from several thousand investors who crowded the
Motijheel thoroughfare. Consequently street based curb market took over the legal
trade executed through stock market sys-tem. Unsuspecting inexperienced new
entrant investors allured by very quick profit potentials were buying anything without
understanding substance, legality and validity of their investment. Unscrupulous
market players (which even include some issuers) were minting fortunes by selling
fake securities to the crowd who were eager to make quick profit from the market.
Thereafter, for obvious reason the market experienced first major crash in l996
affecting about fifty thousand investors

Background of the 1996 crash

The scenario of stock market crash in 1996 was totally different. The number of BO
account holders was only 300,000 and most of them were very new in the market.
During the crash of 1996 paper shares used to be sold in front of DSE and it was not
easy for investors to indentify fake and original shares. The market was enough
developed to gain confidence of investors. There was no automated trading sys-tem,
surveillance was not enough strong and no circuit breakers as well as international
protections.

From 1991 to the end of 1995 DGEN price index gained by 139.3% and reached to
834 point. But in 1996 the market experienced dramatic change and pushed the price
index up by 337%. DGEN Index recorded high growth from July and stood at 3648.7
points or by 280.5% on 5th November 1996.

During the ‘Bull Run’ period new records were posted almost every day in both
bourses for example market capitalization achieved to $2 billion which is equal to
20% of total GDP. As market became overheated government took step by selling
state owned institutions and Taka 2 billion will be given to ICB for buying shares and
support the market. But the steps taken by the government did not work.

Finally abnormal rise of share prices started to fall and Bangladesh stock market
experienced its first crash of the history in 1996. The index lost over 233 points on
Nov 6, 1996. After the bubble burst DGEN index dropped to its lowest point and
stood at 957 in April 1997. It stood at around the same point where it was 10 months
before and DSE General Price index lost almost 70 percent from its highest point of
November 1996.

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 Reasons of the 1996 crash

Manipulation

Some foreign portfolio, 28 managers, few brokers and sponsors of few listed
companies were behind the stock price manipulation in October 1996. As a result all
share price index of DSE dramatically sky rocketed to 3600 point from 1000 point in
six months time. Few foreign & local investors that had inside information made huge
profit and a lot of general investors paid heavily.

Demand Supply mismatch

The cause of stock market crash in 1996 was the failure of market regulators
mentioned by Afroz (2006). Stock exchanges did not take any action against the
dramatic price in-crease of listed securities during June to November 1996. Bubble
formed due to abnormal demand of securities by new investors where the numbers of
listed securities were very few. The reason of huge influx of investors was political
stability in the country and bringing confidence in investor`s mind.

Defective (DVP) system

The delivery versus payment (DVP) system of trading used to allow buyer-seller to
settle their transactions between them without stock exchange participation. Many
brokers/dealers used it as a tool to show fake trading to increase demand of share
from the general investor’s side. According to Bangladesh Bank analysis that there
was an unauthorized kerb market consisting of over 25,000 investors outside the stock
exchange where securities were traded at a very high price. Moreover, SEC could not
handle the crisis for its defective infrastructure. Weak regulations and surveillances
could not monitor market manipulators and market intermediaries. Even information
inefficiency, artificial financial statements certified by chartered accountants, false
information and rumor were other important factors that overheated the market and
burst the bubble.

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4.2.2 Crash during 2010

The market crash of 2010 drew greater degree of attention because much larger
segments of population spreading all around the country are affected this time as the
market in this period has gained significant growth. The securities market debacle in
2010 need to be viewed from different perspectives. The following section attempts to
ex-amine those issues mostly from demand side factors. This is a plain logical
analysis supported by some facts and figure. The analysis covered the period from
2004 till2010 because, the impacts of 1996 continued until 2003 period. It can be
considered that, the market started consolidation and development from 2004.

Background of the 2010- 2011 crash

History of the stock market crashes show that ‘Bull Run’ before a stock market crash
is kind of normal phenomenon. There was no exception for the stock market crash of
Bangladesh in 2010-11.

According to CPD (2011), the total number of BO Account holders on 20th

December, 2010 reached to 3.21 million though the number was 1.25 million in
December 2009. Most of these new investors don’t have enough knowledge about the
stock market but invest their most or all savings in the market.

As CPD (2011) found, internet-based trading operation, opening branches of

brokerage houses across the country, easy access to the market information, arranging
a countrywide ‘share mela (fair)’ are the factors for increasing investors. But supplies
of new securities through IPOs were not enough to chase huge capital of too many
investors in the market.

Last couple of years broad money made excess liquidity and the main motive behind
it was Bangladesh Bank`s ex-change rate policy. A big portion of this excess liquidity
had gone to the stock market but there were very few shares in the market. The policy
that was adopted by BB to grow economy by increased exports & investment
eventually misguided and ended up blowing the mother of all bubbles.

Moreover Security & Exchange Commissions was not capable to monitor the market
conditions properly. Due to the poor monitoring & market surveillance share prices of
Z Category Companies and small companies increased dramatically

15th December, BB increased CRR and SLR by 0.5 percent and increased to 19 & 6
percent. Another important directive initiated by BB was withdrawal of illegally
invested industrial loans by December 31, 2010. As a lot of the reserved money was
invested in capital market, banks started selling shares and withdrawing that money
from the market. By the time investors became panicked. To handle the disastrous &
assure the panicked investors BB extended its deadline for submitting and adjusting
loans. For the merchant banks the deadline was January 15, 2011 and for the
commercial bank February 15, 2011.

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 Institutional investors including financial institutions started selling shares from the
be-ginning of December to show high return on investment at their balance sheet. As
the Institutions & banks started selling their shares from the beginning of December
the turnover of DSE was the highest ever in its history on 5th December. (Raisa,
2011)

19th December was a historical day of the financial year 2010-11 in Bangladesh stock
market. On this day DSE witnessed its biggest one day fall in 55 years history until
the date with losing 551.76 points or 6.71 percent. The losing index was even higher
than 284.78 points or 3.32 percent of 12th December. Prices started to nosedive in an
hour after the trading started and about 200 points were wiped off. In the middle of
the session it recovered little bit and ended up the session at 7654 point.

Causes of stock market crash in 2010-2011

Increase of BO a/c

Most of the BO accounts were opened during June ’2009 to January ’2011 that
indicated that more than half of the investors could be treated as new investors.
During 2009, stock exchanges, Institutional investors and SEC make many campaigns
within and outside the country to attract new investor that seems to be successful as
the BO accountholders was doubled in last two years that might be treated as a
potential for market development.

But due to scarcity of new securities market price increased substantially. This
demand-supply mismatch along with inadequate investor’s knowledge made the stock
prices in a new height and finally turned into a big depression that is still going on.

Increase of listed securities

The fundamental strength of the market essentially comes from financial strength of
the listed companies. The market witnessed that last few years many fundamental
companies with strong financial strength have been listed in the market. From the
graph, it is seen that number of security listing are increasing year to year and highest
amount is in the year 2011.

But growth of market demand for stock was much then that of supply that inflated the
market in recent years and made the market most volatile one in the region

Increase of Market Cap and Turnover value.

The graph shows that market capitalization and turnover of Dhaka stock exchange,
prime bourse of Bangladesh increased substantially in consecutive three years that
might be considered as a good factor for capital market development. But as the
supply side response was poor, stock price might go up due to excess liquidity. SEC

14 | P a g e
 had nothing to do with this as they had no direct tool to control money supply and
also they cannot force companies to come to the market.

The DSE General Index (DGEN) crossed 3000 marked point in December 2007 for
the second time. Since the third quarter of FY09, the DGEN gained sharply and it
jumped to 8918.51 in December 2010 increased by 5908.51 points or 197 percent
from the index of end June 2009(3010 points).

Fluctuation of DGEN

In December 2010, DSE index had crossed 8500 points. The market had called bullish
during this period. After this period, the market became bearish. The exchange lost
1800 point between, December 2010 and January 2011. In January 2011, the General
Price Index (DGEN) fall 660 points. Again that during December 2011 to January
2012 Dhaka Stock Exchange general Index (DGEN) felled by more than 50% during
that period, i.e., DGEN lose its value by 50% during the period that says that this is
not simple volatility and it can be defined as a collapse.

January 2011, the General Price Index (DGEN) fall

Graph gives the highly volatile and sharply falling index trend of DSE general Index
that started to increase from 2600 points in January 2009 and crossed its zenith price
of 8600 in December 2010.

After climbing the highest point it started to fall sharply and came down below 4000
in December 2011 to January 2012 less than half of the highest point.

From graph, we find that DSE general index, Daily trade value and market
capitalization of DSE increased substantially during last 4 years. But number of listed
securities remained almost the same during the period that implies that supply side
response was less relative to demand side response and market capitalization and
index increased due to increased demand for securities.

Faulty listing methods

In the year 2010, regulator introduced Book building method to attract new
companies to the market. Some companies abused this opportunity to exploit
maximum benefits from listing that inflated the market. SEC allows companies to
float securities through IPO (Fixed Price and Book Building method), Direct Listing
and Repeat IPO where Book building method is used mostly in the year 2010.

Listed Companies with financial information

Traditionally DSE used fixed price method for flotation of new companies. But fixed
price method does not attract good companies always. So, to attract new companies,
SEC decided to introduce Book building method that is a globally acceptable method

15 | P a g e
 for IPO. But in Bangladesh, Book Building method is handled very roughly that
caused loss for millions of investors.

Changes in Face Value (Stock Split) of Securities

With similar financial condition or weaker financial conditions lower face value
companies were overvalued relative to higher face value companies in same
industries. This situation was persisting for many years and regulator failed to identify
the face value of all listed companies that created some overvalued securities in the
market. Investors were eager to buy the securities of these companies that were going
to change face and before split price of these were jumping.

Stock price Manipulation:

Stock price manipulation was very common in last few years as some company’s
stock price grew by more than 4000% in one year without any significant change in
company fundamentals. Stock price was inflated with the help of serial trading by few
numbers of big investors that was one of the reasons of recent collapse of stock
market in Bangladesh.

Pre-IPO & IPO process:

Investigation committee considered that due to Pre-IPO & IPO manipulation share
prices sky rocketed and that is the main reason for the share market crash.
Manipulators illegally & unethically created a Curb market in Pre-IPO stage. Without
recommendation by the listing committee application for IPO was accepted. SEC did
not examine abnormal asset revaluation and indicative price. As a result in Pre-IPO or
IPO stage placement process and placement trade Curb market overvalued share
prices. This eventually generated liquidity crisis in the capital market.

Investment of bank in the capital market

In 2010 & 11 banks and financial institutions invested huge amount of deposit money
in the stock market. As a result share prices sky rocketed until December 2010. When
Bangladesh Bank restricted more than 10 percent investment of deposited money,
increased CRR and SLR ratio, created liquidity crisis and market crashed.

Omnibus account

Investigation report found Omnibus accounts of ICB and merchant banks as another
major reason behind the stock market debacle. Every branch of merchant bank
operates only one omnibus account. There could be 3-10 thousands BO Accounts
under the omnibus account which are not under the surveillance of SEC. So,
information of individual accounts and its transaction 40 are kept only with merchant
banks. As investigation reports shows that this kind of account made a lot of illegal

16 | P a g e
 transactions. It publishes name of 30 big players including ICB for a lot of suspicious
transactions and says most manipulators traded from the omnibus accounts. It was
also reported at least Taka 2.5 billion has been traded from hidden or omnibus
accounts.

Asset revaluation & Rumor

By taking chance of weak asset revaluation method companies have overvalued their
asset. In this process dishonest auditors generated artificial audit reports. So,
calculating of NAV on overvalued asset indicates wrong signal. Some companies
issued Bonus shares against unrealized gain of revalued asset price which is a faulty
accounting practice. There is rule to maintain provision against “deferred tax” during
asset revaluation to pay tax in future, but companies are not following it.

Block placement

There was a lot of suspicious block trading of mutual funds. Some investors got
enormous amount of placement time to time.

Direct listing:

With the approval of SEC few companies have been directly listed in the stock
exchange. These companies come to the market with inflated share prices.

Suspicious transaction of top players

Investigation report reveals some names of individual and institutional investors as

top buyers and sellers during abnormal increase and decrease of index in different
time periods. The transactions of these investors were suspicious and affected the
market heavily and liable for abnormal rise and fall.

Serial and artificial trading

Some manipulators created artificial active trading environment among themselves

through bulk transaction and increased share 41 prices. Moreover serial trading and
price manipulation by many buy-sell orders through different accounts and broker
houses which overheated the market.

17 | P a g e
4.3 Comparison between two years:

2010-2011 1996

Trading was automated, Computer based Trading was not automated, Paper Based

Surveillance was strong Surveillance was weak

Circuit breakers and international Circuit breakers and international

protections were in place protections were not properly in place

Being automated there were no forged Being not automated there were no
shares traded. forged shares traded.

There were also omnibus accounts in the There were no omnibus accounts in the
market market

The BO account value was 35 lacs 2010- Compared to 3 lacs before the 1996 crash
2011 crash was an asset bubble was a result of a speculative bubble

While in 2011 it lost up to 660 points, In the end, in 1996 the index lost 232
nearly 10 percent, Maximum Lost Index points, Maximum index lost by one day
in one day

18 | P a g e
4.4 Market Scenario and Investors’ Behavior after Market Crash

Market Scenario:
Before and after the market crash 2010-2011, the scenario of stock market is different.
If we look at the stock market trend from different views, we can predict the market
conditions and investor’s movement according to this changing market.

By Collecting Data 2009-2014 data Market indicators are Describe Below:

Market Turnover:

Turnover 2009 2010 2011 2012 2013 2014

Total Turn. 1475300. 4009912.67 1560912.09 1001084.90 952742.08 1154458.87

In Tk 88
million
Daily Avg. 6046.32 16434.07 6642.18 4206.24 4003.12 4850.67.
Turnover
Highest 12451.79 32495.76 19579.28 12884.27 12946.16 12885.538.
Turnover

Lowest 2120.14 5064.12 680.84 1157.03 1012.72 1499.64

turnover

Total Turnover Tk. Mn

4500000

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

0
2009 2010 2011 2012 2013 2014

Figure 2: After Crash 2010-2011 total stock market turnover in 2009 to 2014

19 | P a g e
Here, we can see the huge turn over in 2010 by Tk. 4009912.67 million and the percentage
change of that time is 171.8 which simply indicate that on that time huge liquidity was seen.
Moreover, it indicates that trading is vigorous and stocks are highly liquid. It is simple to find
buyers and sellers, although the pricing may be highly variable. And we all know that in 2010
the huge participation of investors made the market highly liquid.

Besides, a low share turnover reflects illiquidity, where shareholders have difficulty buying
and selling stocks and could be in a trouble if they need to sell off their stock. On the other
hand, in 2011 the market turnover in terms of Taka is decreasing which point out the market
improvement a little bit from an abnormal scenario in 2010.

Foreign Trade Turnover:

Foreign Trade 2009 2010 2011 2012 2013 2014

Turn. Tk Mn
Buy 5816.32 10791.59 12168.35 13483.94 26525.05 32582.03
Sell 8567.57 17557.44 11384.03 5558.02 7096.10 9708.10
Total 14383.89 28349.03 235532.37 19041.93 33621.16 42290.13

35000

30000

25000

20000
Buy
15000 Sell

10000

5000

0
2009 2010 2011 2012 2013 2014

The chart of the foreign trade turnover indicates that from the 2009 to 2011, foreign investors
sold more their shares rather to buy more. In 2010, the selling volume was huge compare to
another year and as a result local investors were scared and they also sold their shares more.

20 | P a g e
When investors are selling their shares rapidly, there is a chance of market crash. So, this
could be a result of 2010-2011 market crash.

Market P/E Ratio:

2009 2010 2011 2012 2013 2014

25.65 29.16 13.68 12.07 15.07 18.19

35

30

25
2009

20 2010
2011
15 2012
2013
10
2104

0
Market P/E

A high P/E ratio depends on both the industry sector as well as the stock itself. Moreover, a
high P/E ratio indicates that people are willing to pay a higher price for the stock in
anticipation of future company performance. In 2010, the P/E ratio was higher than ever
which was 29.16 or 30 percent compare to other years. It signifies that on that year people
were willing to pay a higher price for some stocks and retail investors at that time had less
knowledge about the market and they trade most of the time based on the rumor. For that
reason, in 2010 we saw a historical fall in stock market.

21 | P a g e
Investors’ Behavior Scenario:
The stock market or share market is a vital part of a country’s economy. People invest their
money in the capital market to obtain economic prosperity for them, which also has positive
effect on the country. However, if, for any reason like the stock market crash, this process of
resource enlistment is threatened and as a result, investors become panic and begin seeking
safe alternatives. Statistics shows around 3.3 million retail investors of Bangladesh engaged
in the stock market during the market crash of 2010. In addition, they used to invest money
from various sources such as savings in bank, idle money, and part of earnings or proceeds
from selling their movable or immovable assets and so on. Unfortunately, after the crash they
were left with nothing significant. After the month March, 2014 BO account numbers stood
at 60 thousand and the total number of the BO account holder increased at 29lakh 55
thousand and 731 which was before at 29lakh 4 thousand 832. Moreover, in February the
men BO account holders were 21lakh 43thousand and 917 and this number is increased by
21lakh 78thousand 305 that means after one month BO account of men increased at 34
thousand and 388. Besides, women BO account holders are 7lakh 67thousand and 569 in
March. On the other hand, in March the company BO accounts is 9thousand and 857. Now a
chart is giving below which shows the two months comparison of BO accounts.

3500000

3000000

2500000

2000000
February
1500000
March

1000000

500000

0
Men BO Holder Women BO Holder Company BO Total Bo
Holder

We can see from the chart is that BO account is increasing. But the true fact is, investors are
now more relying on IPO than secondary market because of the risk factor. Though IPO is
held by lottery but there is no such chance to loss investor’s whole investment whereas in
secondary market, there is no such chance and that’s why investors are opening BO account
for the IPO and after IPO they are not interested to hold their shares in secondary market as
they scared of losing their whole investment in secondary market.

22 | P a g e
Demutualization:
Recently, capital market regulatory body the Securities and Exchange Commission
has finalized a scheme to transform the country’s two bourses into joint stock
companies, or in other words demutualising them. This is indeed a new step for the
country’s share market. This demutualization was also proposed in the probe report
filed by a committee set up to investigate the 2010 share market collapse. The report
also said that such demutualization was very necessary to ensure that such scandals do
not occur in the bourses in the long term. If the demutualization takes place, every
stock exchange will be run by a board of 13 directors. Of these 13 individuals, one
will be elected as an independent director.
The stakeholders of the exchange houses, that is, those who are involved with bourses
sometimes do not take effective measures against an irregularity if it suits their
personal gains and sometimes create bars to such actions. Therefore, the bill proposes
five directors to be chosen from the owners and the rest seven will be independent
directors. One would have to think of how much change this limited number of
independent directors can bring in a stock exchange of Bangladesh. If the Securities
and Exchange Commission is not active in reality, doubts would continue to remain
on the success that this demutualization processes can bring.
At the same time, the extent of effort these independent directors would give for the
benefit of investors would determine the true results of the demutualization scheme.
But, one thing can be said that if these independent directors are chosen from honest
individuals and are kept out of political influence, then a demutualization can indeed
bring a relief in the sector.
But it has to keep in mind that the instability and the share market scandal did not
occur only because of the absence of a demutualization. Adverse decisions in
monetary policy and other state decisions have given an untoward push in the indexes
of the markets. Therefore, focus also has to put there or else a demutualization alone
will not be able to solve the problem.
Apart from that, other state policies has made other investment tools unattractive for
savers, thus the entire investment was poured into the share market. Demutualization
is a good step. Apart from demutualization, factors which have given rise to this
sudden ‘bubble’ in the bourses also need to be checked. Or else, the scheme would
not be of much use and the problems existing in the capital markets will continue to
remain

23 | P a g e
 CH AP TER F I VE
ANALYSIS OF MARKET CRASH
Bangladesh stock Market Crash in two times in 1996 and 2010-11. Behind the market crash
there are some big investor as well as some company are responsibly. But Bangladesh
Securities and Exchange Commission (BSEC) fail to catch those big fish. There are also
several company price bubbles for the reason for big crash.

5.1 Analysis Market Crash in 1996 with Example:

In 1996, Index starting with a base of 350 points, the share price index of the DSE rose, when
the Awami League government was in power, the index of the DSE soared from 1,000 in
June to 3,648.75 points on November 5, 1996 before the market crashed. Then it started
falling and it came down to 462 points in May 1999.

DSE Index
4000
3000
2000
1000
0

That time share traded only by paper to paper. There was no grape or computer base trade
system. Invest was trade on the basis of rumor which was used by big market player. They
spared rumor that, that company will up because foreign buy will buy it or foreign investor
was buying etc. Big player was used group of syndicate, who spared the rumor to small
investor and small investor believe that rumor and they buy those share on highest price.
That was the big reason for market crash in 1996.

During the period, some shares were sold by foreign investors, and there were some price-
sensitive announcements when the prices peaked. It clearly indicates an act of manipulation
and these dealings come within mischief under a section of the Securities and Exchange
Ordinance.

A number of companies and some of the country's biggest brokers and influential individuals
to be involved in market crash. BSEC found that there are 38 individuals, eight listed
companies and six brokerage firms on charges of manipulating share prices through
fraudulent means in 1996.

24 | P a g e
Heidelberg Cement, it was listed Bangladesh stock market in 1989. The prices crossed Tk
18,000 per share in 1996 against its book value of Tk 134. After market crash it price came
again around 2000 at 1997. One of the directors of the company transferred a large number of
shares during the July-November period of 1996 to one of his relatives that were sold in the
market

Heidelberg Cement
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Dec-90

Dec-95
Dec-89

Dec-91

Dec-92

Dec-93

Dec-94

Dec-96
Apr-96
Apr-90
Aug-90

Apr-91

Apr-92

Apr-93

Apr-94

Apr-95

Apr-97
Aug-91

Aug-92

Aug-93

Aug-94

Aug-95

Aug-96
Fig: Price Chart for Heidelberg Cement at 1989-1997

Another company was also involving market crash in 1996. It was Singer BD.
SINGER BD, it was listed in Bangladesh stock market at 1983. Which face value was TK
100. In January 1996 its price was only 350 and then for market babble its price goes up
around 16000+ TK. But the crash its price goes down and reached at around 4000.

SINGER BD
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Jul-84

Nov-86

Nov-93
Feb-85
Sep-85

Jul-91
Feb-92
Sep-92
Dec-83

Jun-87

Jun-94
Mar-89

Dec-90

Mar-96

Dec-97
Jan-88

Oct-89

Jan-95

Oct-96
May-83

May-90

Aug-95

May-97
Apr-93
Apr-86

Aug-88

For the limitation of computerized system share was not traded eclectically. For that company
have not any historical grape or data for annual report. So it is hard to analysis the company
which was mainly play the rule for market crash 1996.

25 | P a g e
5.2 Analysis Market Crash in 2010-11 with Example:
In 2010-11 market crash, when again Awami League government was in power. The Awami
League led alliance government to power in January 2009, the general index of the DSE
stood at 2,726 points. Before the crash began, the general index had soared in 29 trading days
from 7,522 points on October 20 to 8,918.51 points on December 5.

DGEN Index
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Nov-09

Jul-10
Jul-09

Nov-10
Sep-09

Sep-10

Jul-11

Nov-11
Sep-11
Mar-09

Mar-11
Jan-09

Jan-10
Mar-10

Jan-11

Jan-12
May-09

May-10

In 2010-11, stock market was computerized and investor around 33+ lacs who was traded May-11
electrical share computerized software. The company have historical data, annual report,
grape of price which recorded by computer program. There are so many companies, big
investors; Finance Institute and Bank was involved in market crash 2010-11. Like Bexmco,
Aftab Auto, CVO-PLT and CMC Kamal, IDLC, Prime finance, PLFSL, NBL and South east
Bank etc.

Bexmco Aftab Auto, CVO-PTL and CMC Kamal:

2009 2010 2011
EPS Price Range EPS Price Range EPS Price Range
Lowest Highest Lowest Highest Lowest Highest
BEXMCO 3.46 30 95 4.20 92 160 2.10 50 155
Aftab 3.19 20 110 19.61 95 310 16.15 93 240
Auto
Chittagong (24.4) 1.90 9.7 2.1 8.30 446 4.50 129.40 295.2
Vegetable
(CVO)
CMC 1.01 1.20 7.30 1.92 3.30 68.50 1.42 22.10 68.90
Kamal
*EPS Calculate by according to face value of share TK 10

26 | P a g e
Bexmco is one of the largest company in Bangladesh, ASF Rahman (Chairman)
Salman F Rahman(Vice Chairman) of the company.
It was one of them company that was involve in market crash 2010-11. In 2009 Bexmco eps
was 3.46, price TK 30 in January and December was TK 90. In January 2010 price was TK
92 and than its goes up TK 160 at December 2010 before crash start, 2010 EPS was 4.20.
Then its fall quickly and reached TK 50 at 2011.
EPS growth (4.20-3.46=0.74) but Price Rise TK 30 to 160. That was the reason for Big Fall.

In 2009 Aftab Auto EPS was 3.19, price TK 20 in January and December was TK 97. In
January 2010 price was TK 95 and than its goes up TK 310 at December 2010 before market
crash start, while EPS was 19.61. Then its fall quickly and reached TK 93 at 2011.

In 2009 Chittagong Vegetable (CVO-PTL) EPS was (–24.38), January price was only TK 1.9
and December was TK 9.7. January 2010 price was TK 8.30 and than its goes up TK 446 at
December 2010 before market crash start. 2010 EPS was 2.10. Then its fall quickly and
reached TK 93 at 2011.

In 2009 CMC Kamal EPS was 1.01, January price was only TK 1.20 and December was TK
7.30. Then January 2010 price was TK 3.30 and than its goes up TK 68.50 at December
2010 before market crash start. 2010 EPS was 1.92. Then its fall quickly and reached TK 93
at 2011.

EPS growth (1.92-1.01=0.91), but Price Rise TK 1.20 to 68.50. That was the reason for Big
Fall.

500
450
400
350
300
MEXMCO
250
Aftab Auto
200
CVO-PTL
150 CMC Kamal
100
50
0

Fig: Market Up and Down Diffirent Company

27 | P a g e
Analysis Finance Institute:
Some financial institute company also responsible for market crash. Those companies play a
significant game by up and down the share price. Like IDLC, Prime Finance and PLFSL.

2009 2010 2011

EPS Price Range EPS Price Range EPS Price Range
Lowest Highest Lowest Highest Lowest Highest
IDLC 15.50 27.90 71 22.12 71 201.30 5.05 73 156
Prime 2.86 16 44 4.04 43 170 1.90 51 148
Finance
PLFSL 4.94 9 23 9.94 21 155 2.76 44 145

*EPS Calculate by according to face value of share TK 10

In 2009 IDLC finance company EPS was 15.50, price TK 27.90 in January and December
was TK 71. In January 2010 price was TK 71 and than its goes up TK 210.30 at December
2010 before market crash start, while EPS was 22.12. Then its fall quickly and reached TK
93 at 2011.

In 2009 Prime Finance EPS was 2.86, January price was only TK 16 and December was TK
44. Then January 2010 price was TK 43 and than its goes up TK 170 at December 2010
before market crash start. EPS was 4.04 in 2010. Then its fall quickly and reached TK 51 at
2011.

In 2009 PLFSL financial insinuate EPS was 4.94, January price was only TK 9 and
December was TK 23. Then January 2010 price was TK 21 and than its goes up TK 155 at
December 2010 before market crash start. EPS was 9.94 2010. Then its fall quickly and
reached TK 44 at 2011.

Price was rise quickly against the growth of EPS. That was the reason for Big Fall.

250

200

150
IDLC
100 Prime Finance
PLFSL
50

0
Nov-10
Jul-09

Nov-09

Jul-10
Sep-09

Sep-10
Jan-10
Jan-09

Mar-09

Mar-10

Jan-11

Mar-11
May-09

May-10

May-11

Fig: Financial Institute

28 | P a g e
Analysis of Bank:
Some bank also involve in market crash in 2010-11

2009 2010 2011

EPS Price Range EPS Price Range EPS Price Range
Lowest Highest Lowest Highest Lowest Highest
NBL 0.73 7.4 13.5 1.56 12.50 62.40 0.77 31 58
South East .54 8.60 15.60 .45 15.80 49 .23 25 40
Bank
*EPS Calculate by according to face value of share TK 10

In 2009 NBL EPS was 0.73. January price was only TK 7.4 and December was TK 44.
January 2010 price was TK 12.5 and than its goes up TK 62.4 at December 2010 before
market crash start. EPS was 1.56 in 2010. Then its fall quickly and reached TK 31 at 2011.In
2009 South East Bank EPS was only 0.54. January price was only TK 8.60 and December
was TK5.60. January 2010 price was TK 15.80 and than its goes up TK 49 at December
2010 before market crash start. EPS was .45 in 2010. Then its fall quickly and reached TK 25
at 2011.

Big investor, some company, Finance institute and Bank create an artificial crisis of share in
market which helps market babble. That’s why the big fall was occurred.

70

60

50

40

NBL
30
South East
20

10

Fig: Bank Sector

29 | P a g e
 CH AP TER S I X
FINDINGS & RECOMMENDATIONS
After preparing this report, it has been come to my mind that only one factor cannot be
mentioned greatly for this share market crash. But it is the collective of various factors who
are responsible for this huge crash. The followings are some findings that are_

6.1 Findings
 Investors are influenced by other investors’ decisions.
 Individual investors invest most of their investment in the stock market
without any research.
 Investors most of the time take decisions based on the rumor.
 They want to grab short term profit rather long term profit.
 Most of the investors think, behind the market there are some people who
manipulate the market.
 Some people are giving false information so that they can take some
advantages.
 Regulator bodies are failing to control the false information.

Financial institutions are the biggest investors in the market and there aggressive involvement
increased market liquidity manifold in recent years. Financial Institutes could invest more
than 10% of their demand and time liabilities to the stock market and greater involvement of
financial institutes increased the liquidity in the market that created a bubble in the stock
market.SEC must be aware about this.

6.2 General Recommendations

Strengthening the Market Surveillance Systems

To strengthen the SEC’s operations and governance, (i) a real-time market
surveillance system should be installed, and (ii) capacity building will be provided to
improve monitoring, supervision, and enforcement capacity of the SEC.

Co-ordination between SEC and Stock Exchanges

From the analysis and Investigation report we found lack of coordination and
inconsistencies between the functions of SEC and Stock Exchanges. Esp. in case of
Company listing and surveillance, Coordination is highly important. To combat future
debacle both SEC and stock exchanges should work closely.

30 | P a g e
 Bank Finance in Capital Market
Commercial Banks relies heavily on capital market by investing directly and
indirectly (Margin Loans) that creates high risk on depositor’s money. So Regulators
should impose restriction on investment on Capital market by Banks. In India, Banks
can invest a certain portion of their owner’s equity/capital (not deposit) to capital
market but in Bangladesh Banks can invest 10% of their total liability that is not
rational at all. Such huge investment by banks pushes only the demand side and
creates bubble to the market as supply side response is very low in Bangladesh. SO,
regulators should set new limit on the basis of Shareholders equity and should
monitor this very strictly.

Consistency in Regulation
From the analysis made in this report, I found various inconsistencies in the SEC
regulations. SEC notification came only when the market rises continuously for many
days that do not reflect good regulation.

Serial Trading and Manipulation

As there are many evidences that some investors and institutions were involved in the
serial trading and insider trading to manipulate the price of individual stocks under
regulatory supports. Manipulative trading under Omnibus accounts should be fully
investigated and peoples and institutions under the hidden accounts should be
identified and also should bring under trial if any irregularity is found.

6.3 Recommendations for the Government

There is no doubt that the failure of the government in making various decisions regarding
capital market played role behind the recent crash:-

 Government should ensure the supply of fundamentally strong shares in the

market to meet the demand which will make the market efficient as investors
would not go for buying junk shares. For ensuring the supplies of such shares,
Government can offload the shares of different companies which it possesses now.
It also can urge the private limited companies to go public by offering tax benefits
 Government should delegate all power to the SEC to take legal actions against the
criminals. Even if necessary, new Act may be passed in the Parliament in this
regard.

6.4 Recommendations for Bangladesh Bank

Former DSE chief executive officer professor Salahuddin Ahmed told New Age that the
recent shortage of cash in the banking sector following the Bangladesh Bank’s move created
a liquidity crisis in the capital market resulting in the market collapse.

31 | P a g e
The banks and financial institutes accumulated funds by borrowing from other banks or by
selling off shares on the capital market to fulfill a BB directive to increase their SLR and
CRR. So BB should take positive Bank exposures limit which help Capital market.

CH AP TER S EVEN
CO NCLUS I O N
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.

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 REF E R E N C E S
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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

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