Capital Market:

One of the funny things about stock market is that every time one person buys, another sells and both
think they are astute.
Capital market is a market where buyers and sellers engage in trade of financial securities like bonds,
stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions.
 Capital markets help channelize surplus funds from savers to institutions which then invest them into
productive use. Generally, this market trades mostly in long-term securities.
There are broadly two types of financial markets in an economy – capital market and money market. Now
capital market deals in financial instruments and commodities that are long-term securities. They have a
maturity of at least more than one year.
Capital markets perform the same functions as the money market. It provides a link between the
savings/investors and the wealth creators. The funds will be used for productive purposes and create wealth in
the economy in the long term.

One of the important functions of the capital markets is to provide ease of transactions for both the investors
and the companies. Both parties should be able to find each other with ease and the legal aspect of things
should go smoothly. Now let us take a look at the two major types of capital markets.

Functions of Capital Market:

 It makes trading of securities easier for investors and companies.

 It assists the transaction settlement in time.

 It helps minimize transaction costs and information costs.

 It mobilizes the savings of parties from cash and other forms to financial markets.

 It offers insurance against market risk.

1
 Capital Market of Bangladesh

Over the last 12 years, the Bangladesh economy has sustained an average GDP (gross
domestic product) growth of around 6.0 per cent per year, accompanied by significant
shifts in the sectorial outputs, away from agriculture to industry and services, towards an
increasing contribution of the private sector to growth in investment. One of the drivers of
the private sector contribution to investment has been the remarkable growth of the
Bangladesh banking sector.
Although less than a quarter of the population are formally classified as "banked", there
are over 50 private commercial banks in the country, and several of them have acquired
mobile banking licenses to bridge the gap between the banked and the unbanked.
With regard to capital market organizations, although merchant banks and brokerage firms
typically constitute the non-banking financial institution (NBFI) sector of the economy,
several banks have sister-concern brokerage firms and merchant banks. However, despite
the growth and development of the banking sector, the NBFI sector at large, and the
capital markets in particular, have lagged behind.
Although stock exchanges were formally inaugurated in Bangladesh as early as 1954, the
markets did not see any noticeable activity until 1990s. However, till that time, the
number of equities traded, average turnover and market capitalization in the Dhaka Stock
Exchange (DSE) and the Chittagong Stock Exchange (CSE) remained significantly lower
than indicators for regional counterparts.
The regulatory environment was inadequate and market regulations outdated and not
systematically enforced. In this milieu of weak institutional structure and inadequate
governance, the market experienced its first speculative bubble and burst in 1996-1997.
Investors who were affected due to the bubble and burst stayed away from the market for
the next several years.
However, the bubble and burst also led to operational developments such as the
introduction of electronic trading in August 1998, the establishment and incorporation of
the Central Depository Bangladesh Ltd (CDBL) as a public limited company in August
2000 and the incorporation of the Central Depository System (CDS) as an independent
company in January 2004.
From 2007 onwards, in the aftermath of the largest IPO at the time, that of Grameenphone
Ltd., the market began to appreciate culminating in a significant bubble in 2010. In 2010
alone, the DSE was the second-highest performing market globally, with the general index,
DGEN, posting a 92 per cent y-o-y return. However the bubble was short-lived, as the
market began to slow from December 8, 2010, beginning a protracted phase of contraction.

2
 STOCK MARKET CRASH 1996

In 1996, the number of Beneficiary Owner (BO) account holders was only 25,000 and
most of them were new to the market. The number is put into context when one considers
that the number of BO accounts opened in February 2010 alone was 250,000. The Dhaka
Stock Exchange was yet to witness electronic automated trading, as paper shares used to
be sold in front of the DSE, which rendered the detection of fake shares from original ones
considerably difficult. Between 1991 and 1995, DGEN price index rose 139.3 per cent to
reach 834.
Subsequently, in 1996 alone, the rate of appreciation took a dramatic turn, and the price
index rose 33 per cent, with DGEN reaching 3649 on November 5, 1996. Meanwhile, the
CSE also experienced a dramatic uptrend, appreciating 258 per cent. The CSE Index
appreciated from 409 to 1157 points in 1996. November marked the turning-point, with the
DGEN losing 233 points on November 6, 1996, which initiated the downturn. In less than
six months, as the bubble burst, DGEN index dropped to 957 in April 1997, erasing gains
of the previous ten months. The market slowdown continued for the next 7 years until
April 2004, during which time, DGEN seldom crossed 1000.
In 1996, the sharp increase in the general index was the obvious indicator of bubble
formation. In fact, in developing countries like Bangladesh, the formation of bubbles is
usually more easily discernible, and can be judged from anomalies in index trends alone.
Weak correlation between underlying fundamentals of companies and the prices of their
stocks are usually sufficient to determine bubbles. However, given the embryonic stage of
capital markets in Bangladesh in 1996 as well as very low levels of investor literacy,
investors resorted to heavy usage of margin lending, fuelled by accelerated money and
credit growth.
Moreover, there was significant collusion between certain brokerage houses and listed
companies, which ensured the uptrend of certain companies' stock prices between June and
November 1996. Certain companies that were listed from 1994 onward, through relatively
small IPOs, played an important role in the crash. For instance, Excelsior Shoes, which
issued 11,850 shares with a face value of BDT 100, managed to sell 10,000 shares at BDT
503 each, on its first day of trading, on account of relations with particular brokers.
Shinepukur Holdings experienced a similar uptrend as its share price rose from BDT 70 to
BDT 700, while companies such as Wonderland Toys, Jihil Bangla, Rupon Oil, and Mark
BD also experienced and contributed to the price bubble, reportedly, in collusion with
brokerage houses.
One of the noteworthy take-away's from the crash of 1996 is that the bubble had formed
within a very short period of time. The DGEN at its peak on November 05, 1996, had
appreciated by 332 per cent in only six months. When the market began to reverse, the
correction also occurred very quickly. This is not unusual of stock markets at very early-
stages of their development, since the index's rise and decline are usually a function of
collusive behavior between institutional investors, high-net worth investors and brokerage
firms, which cumulatively, drive the majority of the volume of shares traded.

3
 STOCK MARKET CRASH 2010

After a protracted period of relative inactivity, the DGEN began to recover in April 2004.
Although DGEN recorded a CAGR of 14.63 per cent from 2001 to 2009, it was not until
late 2007 that the index showed any sustained appreciation. In late 2007, several foreign
institutional investors (FIIs) began to take positions in leading Bangladeshi equities - both
multinational companies as well as large local conglomerate stocks - partially driven by a
global move towards frontier market equities, and partially in response to favorable
corporate fundamentals.
The 12-month cumulative net inflow of foreign funds reached US $148 million in October
2007. As is the case for most frontier markets, infusion of foreign funds into equities tend
to stabilize the market and pave the way for appreciation, since foreign investors tend to
not be day-traders and prefer long positions instead, on the basis of company
fundamentals.
Next, in 2009, DGEN posted a 62 per cent appreciation y-o-y. However, the most
significant acceleration of the index set in from November 2009 around the time of IPO of
Grameenphone. On November 15, 2009, a day before the launch of trade of GP shares,
DGEN stood at 3383, 2.0 per cent higher from January 2009. In only one day - on
November 16, 2009 - the DGEN rose to a historical high of 4148, which marked a 23 per
cent rise day-on-day.
Thereafter, DGEN continued to climb sharply, reaching 5828 on February 17, 2010,
registering a 71 per cent increase from November 2009. Between February and May, the
index took a minor dip to 5500, but from the second week of May, the bubble was back in
force, reaching 6333 on June 13, 2010. Fuelled by investments by banks, the DGEN
reached 8500 by the second week of December. At the time, the market capitalization of
the DSE was around US$ 52 billion, about 50 per cent of the nation's GDP at the time, and
more than 60 times the market capitalization of the year 2000.
A leading indicator for the bubble in the market was the increasing BO accounts. The
number of registered BO accounts with the CDBL increased from 1.79 million in end-
December 2009 to 1.90 million in January 2010. As of June 2010, the number of BO
accounts stood at 2.5 million thereby indicating that around one hundred twenty six
thousand new retail investors took to the market every month in FY 2010.
As indicated earlier, the liquidity into the capital markets was driven by increasing routing
of bank funds into the markets. Banks with sister concern merchant banks and brokerage
wings invested in the market either through margin loans through their merchant bank and
brokerage concerns, direct portfolio investment, or indirectly, as several debt products
from banks, including credit card loans, were routed by bank customers into the market.
Meanwhile, with regard to FIIs, as the market continued to heat up, they began to pull out
of their positions and the twelve-month cumulative net withdrawal from DSE peaked to
US$486 million by April 2010. By the time the index peaked in December 2010, it is
believed that virtually all foreign portfolio investment had been withdrawn from the
market. In fact, between 2009 and 2010, sizable amounts were withdrawn from the stock
market and FIIs booked capital gains and awaited the market correction.
Once the most significant phase of the market correction ended around April 2011, FIIs
began to return to the market from May onwards to pick up undervalued stocks. Statistics
indicate foreign investments in Bangladesh's bourses peaked in 2013 at $930 million that
dropped to $610 million in 2014.This is a significant sign of market recovery, and bodes
well for the market heading in 2016 and 2017, since foreign portfolio investment tends to
have lagged effect on the market.

4
 STOCK MARKET'S PRESENT & FUTURE:

On January 28, 2013, the DSE launched three new indices: the DSE Broad Index ("DSEX"), DSE 30
Index ("DS30") and the DSE Shariah Index ("DSES"). The first two, DSEX and DS30 were designed and
developed by S&P Dow Jones, the leading global provider of benchmark indices. On April 29, 2013, The
Exchange Demutualization Act 2013 was passed by the Bangladesh Parliament, gazette on May 2, 2013.
An Appellate Board comprising retired judges from the High Court Division was also formed to settle
investor claims related to the 2010 market collapse. Surveillance software was installed in order to
maintain transparency and accountability of the markets through closer scrutiny of transactions.
Both the Securities and Exchanges Commission Act 1990 and Securities and Exchange Ordinance 1969
have been amended.
Despite some initial delays, both the demutualization Act and the Banking Control Act (BCA) have been
submitted to and approved by Parliament and the demutualization of Dhaka and Chittagong Stock
Exchanges has been completed. Also after initial delays, the new Financial Reporting Act which includes
provisions for setting up an independent Financial Reporting Council has been approved by Parliament in
September 2015.
With regard to the outgoing year 2015, the market yielded a negative 4.8 per cent return, which is hardly
a disaster keeping in mind that business activity in the country was significantly slowed down in the early
part of the year due to political turmoil and blockades.
The year also witnessed certain decisive steps by the government. First of all, corporate income tax for
listed companies was lowered and rules for new stock and mutual fund issues were revised. A second
silver lining of 2015 was the fall of short and long-term interest rates in the economy.
The depositors' rate is below double-digit after being above double-digit in 2013 and 2014. The money
market has idle funds as evidenced by some of the lowest call money rates in recent history and the
savings rate on national savings instruments has also declined.
A determinant of the performance of fledgling stock markets also tends to be the issuance of stocks of
large multinational companies or large local conglomerates. In the case of the former, the last
multinational company to be listed with the bourse was Grameenphone in 2009.
Currently, 13 multinational companies are listed on the DSE, including Bata Shoe, Grameenphone,
Heidelberg Cement, Lafarge Surma Cement, British American Tobacco, Berger Paints, Linde BD and
Singer Bangladesh.
However, given that several new regulatory frameworks are in place, merchant bankers and analysts have
redoubled efforts to persuade multinationals to come to the market. At the Bangladesh Capital Market
Expo 2015, Commerce Minster Tofail Ahmed urged the BSEC to prepare a comprehensive plan of action
to list multinational companies in Bangladesh.
Very encouragingly for the market, the Minster said, "Multinational companies like Unilever and Nestle
should come to the market, and the regulator should make a comprehensive plan of action to bring in
more such firms." Steps towards actualizing this would enable long-term growth for the market.

5
Types of Capital Market:

Let us discuss each type of capital market in detail:

Primary Market:

The most important type of capital market is the primary market. It is what we call the new issue market. It
exclusively deals with the issue of new securities, i.e. securities that are issued to investors for the very first
time.

The main function of the primary market is capital formation for the likes of companies, governments,
institutions etc. It helps investors invest their savings and extra funds in companies starting
new projects or enterprises looking to expand their companies.

The companies raise money in the primary market through securities such as shares, debentures, loans and
deposits, preference shares etc. Let us take a look the various methods of how new securities are floated in
the primary market.

Features of Primary Markets:

This is the market for new long term equity capital. The primary market is the matter where the securities
are sold for the first time. Therefore it is also called the new issue market (NIM) In a primary issue, the
securities are issued by the company directly to investors. The company receives the money and issues
new securities certificates to the investors. Primary issues are used by companies for the purpose of
setting up new business or for expected or modernizing the existing business. The primary market
performs the crucial function of facilitating capital formation in the economy.

6
Methods of issuing securities in the primary market are,

Initial Public Offering (IPO):

Rights issue (for existing companies), preferential issue. In stock market the initial public offer
constitutes the primary market. When someone deals in already issued shares then it is of secondary
market a newly issued IPO will be considered a primary market trade when the shares are firs purchased
by investors.

IPO

The first sale of stock by a private company to the public. IPO are often issued by smaller, younger
companies seeking the capital to expand, but can also be The main purpose of an IPO is to raise capital
for the corporation. IPO’s are offer stock for sale to the public the first time. IPO concepts an initial
public offer is the selling of securities to the basic steps for a company venturing and IPO is the primary
market. The IPO process requires SEC and shareholder approval, in addition to choosing an exchange and
trading symbol.

Preparing an IPO

When a corporation decides to go public a portion of it will be put up for sale to the public through the
sale of stock. An IPO is the first offering of shares of a privately held to have an IPO is to bring money
into the Business. It is often the main way that a startup company will be able to make the money it needs
to succeed in the market. 11 To preparing an IPO there are 5 steps available & they are given,

 Determine if company is eligible to go public:

In order to qualify for an IPO, generally the business must be proven to be profitable and have a
significant amount of assets. Since there are no set requirements to define eligibility, consider
scheduling a meeting with an investment banker on outside consultant to determine whether your
company is of the type that the public would want to invest in.

 Contract with an investment banker:

An investment banker will help determine how much money you should raise, at what price the
shares should be sold, and what portion of the company should be offered in the IPO. The
investment banker serves as an underwriter in that will agree to purchase all of the shares that the
company decides to offer.

7
  Draft a prospect and file it with the Securities and Exchange Commission (SEC):

The SEC call this document “S-1” Its purpose is to disclose the details of the company. In the
initial prospectus the first document filed the firms of the IPO C the number of shares and the
price per share will likely no be finalized, but they are included as an estimate of what the final
terms will be the initial prospectus is filed early on the IPO process. In the final prospectus, filed
shortly before the IPO. The amount of shares and share price of the offering are fixed. Before the
actual IPO, the Banker and the corporation’s top officials will give presentations to individuals
and offer organizations to entice them to purchase the shares of the IPO. The investment banker
selects the potential investors based on the type of business that wishes to go public and the
interest that the potential investor may have in the corporation. This process results in non-
binding commitments called “subscriptions”, to purchase shares. It is Longley used as a tool to
determine whatever the public will be interest in investing in the company, as discussed in the
first step, as well as to determine the price of the shares.

 Sell the shares to the investment banker:

On the day of the IPO, The investment banker will purchase the shares and simultaneously sell
them to investors. The banker’s purchase price is the IPO price minus the commission, which
usually hovers around 7 percent. The shares can now be publicly traded.

Secondary Market:

After the primary market is the secondary capital market. This is more commonly known as the stock
market or the stock exchange. Here the securities (shares, debentures, bonds, bills etc) are bought and sold by
the investors.

The main point of difference between the primary and the secondary market is that in the primary market
only new securities were issued, whereas in the secondary market the trading is for already existing securities.
There is no fresh issue in the secondary market.

The securities are traded in a highly regularized and legalized market within strict rules and regulations. This
ensures that the investors can trade without the fear of being cheated. In the last decade or so due to the
advancement of technology, the secondary capital market in India has seen a great boom. Secondary markets
can be said to exist in some real estate context as well (e.g. ownership shares of time-share vacation
homes are bought and sold by investors, traders and speculations alike.

Secondary market’s or private share such as second market and share post provide founders, employees,
angels and institutional investors.

8
 The process of selling new issues to investors is called under writing in the case of a new stock issue.
This sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the
security offering through it can be found in the prospectus.

ROLE OF CAPITAL MARKET IN AN ECONOMY

Financial market deals about the raising of finance by various institutions through the issue of various
securities. Every business concern requires two types of finance. They are Short-term or working
capital requirements and long-term or fixed capital requirements. The short-term or working
capital requirements are raised or borrowed in the money market through the issue of different securities
such as bills, promissory notes, etc.
Government raises the short-term funds through the issue of treasury bills. Banks play a vital role in
providing short-term funds. The long-term funds or fixed capital are raised by companies by the  issue of
shares, debentures and bonds in the capital market. The long-term funds or fixed capital are raised by
companies by the issue of shares, debentures and bonds in the capital market. Let’s look at some of the
importance of capital market in economy.

IMPORTANCE OF CAPITAL MARKET:

1. It is only with the help of capital market, long-term funds are raised by the business community.
2. It provides opportunity for the public to invest their savings in attractive securities which provide a
higher return.
3. A well-developed capital market is capable of attracting funds even from foreign country. Thus,
foreign capital flows into the country through foreign investments.
4. Capital market provides an opportunity for the investing public to know the trend of different securities
and the conditions prevailing in the economy.
5. It enables the country to achieve economic growth as capital formation is promoted through the capital
market.
6. Existing companies, because of their performance will be able to expand their industries and also go in
for diversification of business due to the capital market.
7. Capital market is the barometer of the economy by which you are able to study the economic
conditions of the country and it enables the government to take suitable action.
8. Through the Press and different media, the public are informed about the prices of different securities.
This enables the public to take necessary investment decisions.
9. Capital market provides opportunities for different institutions such as commercial banks, mutual
funds, investment trust; etc., to earn a good return on the investing funds. They employ financial experts
who are able to predict the changes in the market and accordingly undertake suitable portfolio
investments.

Nature of Dhaka Stock Exchange:

9
There are four markets in the system.
Public Market: Only trading of market lot share is done here through automatic matching.
Spot Market: Spot transactions are done here through automatic matching which must be settled within
24 hours.
Block Market: A place where bulk quantities of shares are traded through pick and fill basis.
Odd Lot Market: Odd lot scripts are traded here based on pick and fill basis.

Market System:

Buying a Mutual Fund Directly from a Mutual Fund Company:

If we know you want to have your money invested in a specific mutual fund, you can often open an
account directly with the mutual fund itself. We have to fill out paperwork online, mail it in with a check,
and tell the company whether want to open a regular account, or a special account such as a retirement
Roth IRA or Traditional IRA. We can even set it up so that the mutual fund automatically makes
investments for by regularly withdrawing money from our checking or savings account each month! This
technique, called dollar cost averaging, is a fantastic way to smooth out the average price you pay for our
mutual fund shares and helps lower the risk that put all your money in the market at a peak, such as the
day before the dot-com crash orthe Wall Street meltdown that started the Great Recession in 2008. The
biggest advantage to buying mutual fund shares directly from the mutual fund company itself is that we
often won't get charged a commission, meaning more money goes into our investments and is working for
you. For example: The ticker symbol is a short code assigned by the stock exchange to represent an
investment. If you were buying shares of Coca-Cola, for example, the ticker symbol is KO. If you were
buying shares of the Tweedy Browne Global Value Fund, a mutual fund, tend the basics of using mutual
funds in the portfolio.

Procedure of Placing a Stock Purchasing Order:

There are five different types of stock orders that your broker will likely let you use. They are:

1. Market Order
2. Limit Order
3. Stop Order
4. Stop-Limit Order
5. Trailing Stop Order

Market Order:

A market order is an order to trade a stock at the current market price.

If you do not give your broker additional instructions, the trade will automatically be entered as a market
order.
When using a market order, you're almost guaranteed that your order will be executed. When
you call your broker and say, "Buy 10 shares of ABC stock," the broker will enter the trade as a market
order and you will buy ABC at whatever price it is trading at when the order is fulfilled.

10
The downside is that the price you end up paying with your order is fulfilled may not be the price you
were quoted before you decided to trade the stock. Trade execution is not instantaneous, and markets can
move dramatically in very little time.
Though market orders are popular among retail investors, many do not consider the risks involved.
A retail investor using market orders will rarely get his order filled at real-time prices. When using a
market order, you're essentially saying you'll take any price that someone will offer you. This is
particularly dangerous in volatile markets because your order to buy can be filled at a much higher price
than you originally thought when you decided to buy. Similarly, your order to sell can be filled well
below the price you were expecting.
An alternative to market orders are limit orders, which allow you to set a price at which you want to buy
or sell.

Limit Order:

A limit order is a type of order to purchase or sell a security at a specified price or better. For buy limit
orders, the order will be executed only at the limit price or a lower one, while for sell limit orders, the
order will be executed only at the limit price or a higher one. This stipulation allows traders to better
control the prices they trade. By using a buy limit order, the investor is guaranteed to pay that price or
less. While the price is guaranteed, the filling of the order is not, and limit orders will not be executed
unless the security price meets the order qualifications. If the asset does not reach the specified price, the
order is not filled and the investor may miss out on the trading opportunity. This can be contrasted with a
market order, whereby a trade is executed at the prevailing market price without any price limit specified.
A limit order is the use of a pre-specified price to buy or sell a security. For example, if a trader is looking
to buy XYZ’s stock but has a limit of $14.50, they will only buy the stock at a price of $14.50 or lower. If
the trader is looking to sell shares of XYZ’s stock with a $14.50 limit, the trader will not sell any shares
until the price is $14.50 or higher.  By using a buy limit order the investor is guaranteed to pay the buy
limit order price or better, but it is not guaranteed that the order will be filled. A limit order gives a trader
more control over the execution price of a security, especially if they are fearful of using a market
order during periods of heightened volatility. 

There are various times to use a limit order such as when a stock is rising or falling very quickly, and a
trader is fearful of getting a bad fill from a market order. Additionally, a limit order can be useful if a
trader is not watching a stock and has a specific price in mind at which they would be happy to buy or sell
that security. Limit orders can also be left open with an expiration date.

Stop Order:

A stop order is an order to buy or sell a security when its price moves  past a particular point, ensuring a
higher probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking
in a profit. Once the price crosses the predefined entry/exit point, the stop order becomes a market order.

Also referred to as a "stop" a stop order to sell that is linked to a limit order is known as a " stop-loss
order.

Investors and traders can execute their buy and sell orders using multiple order strategies to limit the
chance of loss. The basic market order fills an order at the ongoing market price of the security. A stop
order is instead placed when an investor or trader wants an order to be executed after a security reaches a
specific price. This price is known as the stop price and is usually initiated by investors leaving for
holidays, entering situations where they are unable to monitor their portfolios for extended periods of
time, or trading in volatile assets, such as crypto currencies, which could take an adverse turn overnight.

11
Traders often enter stop orders to limit losses or to capture profits on price swings. These types of orders
are very common in both stock and forex trading, where intraday swings can equal big gains for traders
but are also useful to the average investor with stock, option or forex trades. There are  two similar-
sounding order types that are slightly different. The first, a stop order, triggers a subsequent market order
when the price reaches a designated point. A stop limit order, on the other hand, triggers a limit order
entered when a designated price point is hit.

Traders who use technical analysis will place stop orders below major moving averages, trend
lines, swing highs, swing lows or other key support or resistance levels.

Stop-Limit Order:

A stop-limit order is a conditional trade over a set timeframe that combines the features of stop with those
of a limit order and is used to mitigate risk. It is related to other order types, including limit orders (an
order to either buy or sell a specified number of shares at a given price, or better) and stop-on-quote
orders (an order to either buy or sell a security after its price has surpassed a specified point).

This type of order is an available option with nearly every online broker.

The stop-limit order will be executed at a specified price, or better, after a given stop price has been
reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy or sell at the
limit price or better.

Trailing Stop:

A trailing stop is a stop order that can be set at a defined percentage or dollar amount away from a
security's current market price. For a long position, place a trailing stop loss below the current market
price. For a short position, place the trailing stop above the current market price. A trailing stop is
designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is
moving in the investor’s favor. The order closes the trade if the price changes direction by a specified
percentage or dollar amount.

A trailing stop is typically placed at the same time the initial trade is placed, although it may be placed
after as well.

CDBL:

Central Depository Bangladesh Limited (CDBL) was incorporated as a public limited company on 20th
August 2000 to 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 an physical movement or endorsement of certificates and execution of transfer
instruments, as well as various other investor services including facilitation of the secondary market
trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank.
About BICM
The Bangladesh Institute of Capital Market (BICM) is the national institution for imparting “practical
capital market education and training”. It has been set up on Public Private Partnership as a not for profit
company limited by guarantee and not having a share capital.
Idea for setting up a securities institute in Bangladesh was mooted by Chittagong Sock Exchange Ltd. and
a study was done by it under the assistance of FIRST Initiative – a World Bank, IMF and Dutch joint
initiative.

12
Bangladesh Government has provided considerable fund for hiring BICM premises and procuring its
facilities and logistics.

The Instruments of Capital Market:

The capital market as it is known is that segment of the financial market that deals with the effective
channeling of medium to long term funds from the surplus to the deficit unit. The process of transfer
funds is done through instruments, which are documents, showing evidence of investments. The
instruments traded (media of exchange) in the capital market.

The instruments of Capital Market can be divided into three types:

1. Share
2. Debenture
3. Bond

Share:

The share is regarded as a unit of account that can represent several monetary instruments such as stock,
REITS, mutual funds, or limited partnership. The income received from shares is known as a dividend,
shareholder also known as a stockholder, is person who owns shares of certain company or organization.
The process of purchasing and selling share often involves going through a stock broker as a middle man.

Types of Share:

a) Preference Share: Preference Share is a stock which may have any combination of features not
possessed by common stock including properties of both an equity and debt instrument, and is generally
considered a hybrid instrument.
b) Equity Share: An Equity investment generally refers to the buying and holding of shares of stock on a
stock market by individuals and firms in anticipation of income from dividend and capital gains, as the
value of the stock rises.

Valuation: Share is valued according to various principles in different market. The liquidity of markets is
a major consideration as to whether a share is able to be sold at any given time. An actual sell transaction
of shares between buyer and seller is usually considered to provide the best prime fascia market indicator
as to the ‘True value’ of shares at that particular time.

Dividend: The earning that the holder of a share makes from his/ her is called the dividend are actually
part of profit of the company whose may be help respective holder. These are known reinvested profits.

Debenture:

A debenture is a document that either creates a debt or acknowledge is and it is a debt without collateral.
There are two types of debenture. Such as  Convertible Debenture  Non-Convertible

13
  Convertible: Which are convertible bonds or bonds that can be converted into equity shares of
the issuing company after a predetermined period of time.

 Non-Convertible: Which are simply regular debentures cannot be converted into equity shares at
the liable company. They are debentures without the convertibility feature attached to them. As a
result they usually carry higher interest rates than their convertible counterparts.

Bond:

Bond is an interest financial asset which is fixed and issued by governments, public, utilities, companies,
banks, and other large entities bonds are used to pay the bearers fixed amounts at specified dates.in
business bond is written as well as signed promise to pay certain sum of money before or on a certain
date. Bond markets play an important role in mobilization of capital. The investments are very necessary
for economic development of a country. A good market will help promote economic growth and reduce
the risk of financial crises. It is a debt security in which authorized issuer owes the holders a debt
depending on the terms of the bond. A bond is a formal contact to repay borrowed money with interest at
fixed intervals

Types of bonds:

Corporate Bond:
A corporate bond is a bond issue by a corporation. It is a bond that a corporation issues to raise money
effectively in order to expand its business. The term is usually applied to longer-term debt instruments,
generally with a maturity date falling at least a year after their issue date. (The term "commercial paper"
is sometimes used for instruments with a shorter maturity.)

Government Bond:
A government bond is a bond issued by a national government, generally promising to pay a certain
amount (the face value) on a certain date, as well as periodic interest payments. Government bonds are
usually denominated in the country's own currency. Bonds issued by national governments in foreign
currencies are normally referred to as sovereign bonds, although the term "sovereign bond" may also refer
to bonds issued in a country's own currency.

Secured bonds:
Secured bonds have specific assets of the issuer pledged as collateral for the bonds. A bond can be
secured by real estate or other assets.

Unsecured bonds:
Unsecured bonds are issued against the general credit of the borrower; they are also called debenture
bonds.

Term bonds: that mature at a single specified future date are called term bonds. Serial bonds that mature
in installments are called serial bonds.

Registered bonds are issued in the name of the owner and have interest payments made by cheque to
bondholders of record. Bearer or coupon bonds are not registered; thus bondholders must send in coupons
to receive interest payments. Convertible bonds permit bondholders to convert the bonds into common

14
shares at their option. Redeemable (callable) bonds are subject to call and retirement at a stated dollar
amount prior to maturity at the option of the issuer. Retractable bonds are subject to redemption prior to
maturity at the option of the holder.

Zero-Coupon Bonds
• Do not pay interest
• Sold at deep discount from par value
• Value increases over time
• Subject to tremendous price volatility as interest rates fluctuate
• Interest must be reported as it is accrued for tax purposes, even though no interest is actually received.
• Treasury strips are zero-coupon bonds created from U.S. Treasury securities

Junk Bonds
 Highly speculative, usually subordinated debentures
 Have low, sub-investment grade ratings
 Typically offer very high yields
 Prices tend to behave more like stocks than bonds

Stock Markets in Bangladesh:

 Dhaka Stock Exchange(DSE)

 Chittagong Stock Exchange(CSE)

Dhaka Stock Exchange (DSE): Dhaka Stock Exchange (Generally known as DSE) is the main stock
exchange of Bangladesh. It is located in Motijheel at the heart of the Dhaka city. It was incorporated in
1954. Dhaka stock exchange is the first stock exchange of the country. As of 31 December 2007, the
Dhaka Stock Exchange had 350 listed companies with a combined market capitalization of $26.1 billion.

Chittagong Stock Exchange (CSE): The Chittagong Stock Exchange (CSE) began its journey in 10th
October of 1995 from Chittagong City through the cry-out trading system with the promise to create a
state-of-the art bourse in the country. Founder members of the proposed Chittagong Stock Exchange
approached the Bangladesh Government in January 1995 and obtained the permission of the Securities
and Exchange Commission on February 12, 1995 for establishing the country’s second stock exchange.
The Exchange comprised of twelve Board members, presided by Mr. Amir Khosru Mahmud Chowdhury
(MP) and run by an independent secretariat from the very first day of its inception’s was formally opened
by then Honorable Prime Minister of Bangladesh on November 4, 1995.

Regulations of DSE & CSE:

DHAKA STOCK EXCHANGE (LISTING) REGULATIONS, 2015 NOTIFICATION Dated, the

30th June, 2015.
In exercise of the powers conferred by section 34 of the Securities and Exchange Ordinance, 1969
(Ordinance No. XVII of 1969), read with section 23 of the Exchanges Demutualization Law (XIII, 2013),

15
Dhaka Stock Exchange Limited makes, with prior approval of the Bangladesh Securities and Exchange
Commission, the following regulations, namely:

1. Short Title and Application:

(1) These Regulations shall be called the Dhaka Stock Exchange (Listing) Regulations, 2015;
(2) These Regulations shall have immediate effect;
(3) These Regulations shall apply to all companies, entities and securities including units of the mutual
funds or collective investment schemes (CIS) applying for listing and those listed with the Exchange.

2.Words and expressions used herein and not defined but defined in the Securities and Exchange
Ordinance, 1969 (XVII of 1969), or the Securities and Exchange Commission Act, 1993 (XV of 1993),
shall have the same meanings as are respectively assigned to them in the said Ordinance or Act.

3. Trading Day:
The trading shall be open on all days except bank holidays as declared under the Negotiable Instruments
Act, 1881 (XXVI of 1881).
4. Trading period:
Unless otherwise decided by the Council, the trading period shall be from 10-30 AM to 2-30 PM on all
trading days.
5. Qualification for trading:
(1) A member shall qualify himself for trading if he –
(a) Obtains a registration certificate from the Commission issued under regulation 5(4) of the Securities
and Exchange Commission (Stock-Dealer, Stock-Broker and Authorized Representative) Regulations,
1994;
(b) becomes a member of the DSE Clearing House;
(c) Is not otherwise barred by DSE or SEC under any law, rule or regulations for the time being in force
for trading.
(2) The DSE shall notify the name and other necessary particulars of a member whenever he incurs a
disqualification for trading or becomes otherwise ineligible for trading.

6. Functions of trading sessions:

The functions of trading sessions shall be as under, namely:-
(a) Pre-opening session. - This is the session during which members are allowed only to enter
orders and indicate their willingness for buying and selling of various securities. Orders made
during this session are held in the system and not forwarded to the execution engine. The
previous day’s closing price and index of di......... securities shall be made available in this
session to the members for trading.

 Opening session. - The opening price of securities is calculated in this session. The
calculation is made on the basis of orders entered in the system during the Pre-opening
session. The opening price of securities is established in this session. Where there is no
trading of securities, the last closing price of that security shall be its opening price. No
entry order shall be allowed or permitted in this session.

 Continuous or Regular trading session - Entry of orders, deletion and modification of

orders can be made in this session. Orders are executed in this session and where any order
or part of any order is not or cannot be executed; such order or part thereof will be stored
separately to be carried forward in the next following such session.

16
  Continuous or Regular trading session - Entry of orders, deletion and modification of
orders can be made in this session. Orders are executed in this session and where any order
or part of any order is not or cannot be executed; such order or part thereof will be stored
separately to be carried forward in the next following such session. (d) Closing session. -
During this session the system stops receiving orders. The closing price for a security shall
be determined as per the weighted average price of all the trades in the last 30 (thirty)
minutes before the closing session. If there is no trade during the above specified time, the
weighted average price of maximum 20 (twenty) number of trades preceding the above 30
(thirty) minutes shall be taken for determination of closing price. If there has been no trade
in the security during the continuous trading session the opening price of the security shall
be treated as the closing price. Pending orders executable at closing price and orders
‘match at closing price’ shall be executed in this session. Al other pending orders shall be
carried forward to the Post-closing Session. (e) Post-closing session.- This session allows
traders to execute their remaining orders and the fresh orders entered during this session.
However, the trading engine accepts orders at closing price only during this session. All
trades are executed at the closing price. No quotes are accepted during this session. 7. -
During this session the system stops receiving orders. The closing price for a security shall
be determined as per the weighted average price of all the trades in the last 30 (thirty)
minutes before the closing session. If there is no trade during the above specified time, the
weighted average price of maximum 20 (twenty) number of trades preceding the above 30
(thirty) minutes shall be taken for determination of closing price. If there has been no trade
in the security during the continuous trading session the opening price of the security shall
be treated as the closing price. Pending orders executable at closing price and orders
‘match at closing price’ shall be executed in this session. Al other pending orders shall be
carried forward to the Post-closing Session.
 Post-closing session - This session allows traders to execute their remaining orders and the
fresh orders entered during this session. However, the trading engine accepts orders at
closing price only during this session. All trades are executed at the closing price. No
quotes are accepted during this session.

7. Trade confirmation - For every successful match, a trade with a unique contract number is created
and the counter parties to the trade are notified by means of a trade confirmation. The security, the trade
quantity, the howl type and price at which the trade occurred shall broadcast to all trading workstations
which can be seen on the market ticker. The trade confirmation shall be seen on the trade ticker on the
trading workstations of both the counter parties to the trade. The traders can view the trade details in the
trade view and also have it printed.

8. Disclosed and Undisclosed volume –

(1) An order may specify the total and lesser volume of securities for disclosure to the market. The
disclosed volume shall not exceed the total volume.
(2) Total and disclosed volume of an order must be of a market lost.
(3) An increase in disclosed volume shall change in the queue priority but a decrease in disclosed
volume shall not change in queue priority.

SWOT Analysis of Stock Market Strength:

Strength, weakness, opportunity, and threats (SWOT) of Bangladesh Stock Market are given below:
Strengths:
 The first and for most thing of strength of Bangladesh stock market is its ability to Provide high
return.

17
  Regulatory body of Bangladesh stock market that protects the interest of the investors.
 Large number of securities which provides medium for investment.
 Large number of Brokers who plays a role of facilitator for investment.
Weaknesses:
 The weak point of Bangladesh stock market is its volatility (i.e., high risk).
 It is a kind of gambling where no guarantee of return and some time it depends on luck also.
Opportunities:
 Stock market provides an opportunity to money lender and money seeker to invest and use
money for their plan.
 It provides an opportunity to the investor to be the owner of the company and contribute in the
business decision of the company.
 Stock market is a kind of indicator of the economic growth of the country where it provides an
opportunity to gain according to the inflation of the country or more than that.
Threats:
 There are many competitors of stock market such as post office savings, public provident fund,
company fixed deposits, fixed deposits with bank etc. which provides fixed and assured returns.
 Changing of economic condition.
 Capital market instrument is highly risky then money market.
 Changing of government rules and regulations.
 Speed of growth in Capital Market not complemented by the controlling agency.

Some Recommendation to development Share Market in Bangladesh:

The capital market is not strong in Bangladesh. Stock exchanges are not functioning well due to many
constraints. Some recommendations to improve capital market in Bangladesh are given below:

 Creating awareness among society so that people are encouraged to invest in the stock market on
the basis of the company merit.
 Providing loan convenient for the general people.
 The management of stock exchanges should be more efficient and effective.
 Developing and following strict rules and regulations of SEC.
 Using recent technologies to ease transactions.
 Increasing institutional investors.
 Enlarging number of members.
 Monitoring and regulating ensiles so that they follow the rules and regulations.
 Policy formulating and taking decisions speedily and implementation.
 Declaring the income from share market as tax-free.
 Attracting foreign investments by taking necessary actions.
 Automation in the transaction and keeping records of transactions.
 Emphasizing on privatization.
 Arranging adequate training for both investors and companies.

18
  Minimizing restrictions to increase the number of registered companies.
 Protecting fraudulence and speculation.
 Solving the problems of stock exchange efficiently and effectively.
 Inspiring and pressuring the foreign companies to issue shares in our stock exchange.
 Issuing shares of govt. companies with special attention.
 Providing loan for jobbers and brokers.
 Maintaining transparency of transactions.
 Protecting leakage of secret information.
 Introducing lock-in system so that they cannot withdraw their investment before the certain
period.
 Broken should be restrained from the management of companies.
 Developing functions of SEC.
 Reducing govt. intervention.
 Exchanging views with companies and investors.
 Establishing new stock exchange.
 Liberal fiscal policy.

If the above recommendations are followed strictly, it is likely to improve the poor condition of our stock
mine thereby developing industrialization to utilize our resources properly.

19