Regulatory Bodies

Prof. Dr. Md. Abu Sina

 Meaning
• “exchange” means a stock exchange established
under the Securities and Exchange Ordinance,
1969 (XVII of 1969)
• “Commission” means the Bangladesh Securities
and Exchange Commission (or in short ‘BSEC’)
established by wmwKDwiwUR I G·‡PÄ Kwgkb AvBb,
1993 (1993 m‡bi 15 bs AvBb)

• “stock-dealer/stock-broker” means a stock-dealer or

stock-broker of an exchange who is registered with
the Bangladesh Securities and Exchange
Commission under wmwKDwiwUR I G·‡PÄ Kwgkb (÷K
wWjvi, ÷K †eªvKvi Aby‡gvw`Z cÖwZwbwa) wewagvjv,
2000
 Why an Investor will invest in Equity Shares of
a Listed Company ?
1. Shares fetch good return for their owner’s; they
also offer you possibility of capital growth. Most
growing concerns issue Right and Bonus shares.
2. Shares give you easy facility for loans. Bankers
always grant loans against listed securities.
3. Shares give you easy liquidity. Only at a moment’s
notice you can convert a listed security into cash.
All that you need is only to advise your broker.
4. Shares offer you easy portability of your
investments. You can carry them from one end of
the world to the other.
5. You get a fair price for your investment when you
sell them. Prices on the Stock Exchange are
determined by two-way bids under the operation of
the law of supply and demand.
6. Investment in shares gives you no trouble at the
time of tax assessments. The Tax Department
accepts the market value of shares for purposes
of assessment.
7. By investing in shares you help the nation in its
production. When you buy shares you become a
part-owner of the nation’s productive apparatus.
8. Investment in shares offers you low cost of
acquisition. Not only the brokerage is small as
compared to the brokerage on land investment,
but the Stamp Duty payable for transfer is also
lower.
9. Your money in shares is safe. A duplicate is
available in case of loss of scrip by fire, theft, etc.
10. Investment in shares acts as a hedge against
inflation.
11. No amount is too small for investment in shares
while no amount is too big either.
 Financial Market

Capital Insurance
Primary
Money market Mkt Inst market cos
NIS
Commercial Primary
banks Credit
unions market Second
Stock ary
Firms raise exch market
Short term capital ange
Investors
instruments debt
trade
equity securities
issued in
Public primary
Private
market
placement
 Instruments
Most popular investing
• Equities instruments
Stocks and shares
Bonus issues
Rights issues
Corporate
• Bonds Government
• Intermediaries
• Brokerage houses
• Stock brokers Hand in Hand
• Advisors Beharry stockbrokers
Trust company
 The Regulator
• SEC authority presides over the capital
markets
• With mission to promote and maintain
Fair, efficient , secure and transparent
market and to facilitate the orderly
development of the stock exchange
 Function of the stock exchange
1. Raising capital for businesses: The Stock
Exchange provides companies with the facility to
raise capital for expansion through selling shares to
the investing public.
2.Mobilizing saving for investment: When people
draw their savings and invest in shares, it leads to a
more rational allocation of resources because
funds, which could have been consumed, or kept in
idle deposits with banks, are mobilized and
redirected to promote business activity with benefits
for several economic sectors such as agriculture,
commerce and industry, resulting in a stronger
economic growth and higher productivity levels and
firms.
3. Facilitating company growth: Companies try to
expand product lines, increase distribution channels,
hedge against volatility, increase its market share, or
acquire other necessary business assets. A
takeover bid or a merger agreement through the
stock market is one of the simplest and most
common ways for a company to grow by acquisition
or fusion.
4. Redistribution of wealth: Stocks exchanges do not
exist to redistribute wealth. However, both casual
and professional stock investors, through dividends
and stock price increases that may result in capital
gains, will share in the wealth of profitable
businesses.
5. Corporate governance: By having a wide and
varied scope of owners, companies generally tend
to improve on their management standards and
efficiency in order to satisfy the demands of these
shareholders and the more stringent rules for public
corporations imposed by public stock exchanges
and the government. Consequently, it is alleged
that public companies (companies that are owned
by shareholders who are members of the general
public and trade shares on public exchanges) tend
to have better management records than privately-
held companies (those companies where shares
are not publicly traded, often owned by the
company founders and/or their families and heirs,
or otherwise by a small group of investors).
6.Creating investment opportunity of small
investor: As opposed to other businesses that
require huge capital outlay, investing in shares is
open to both the large and small stock investors
because a person buys the number of shares they
can afford. Therefore the Stock Exchange provides
the opportunity for small investors to own shares of
the same companies as large investors.
7.Govt. capital- raising for development project:
Governments at various levels may decide to
borrow money in order to finance infrastructure
projects such as sewage and water treatment
works or housing estates by selling another
category of securities known as bonds. These
bonds can be raised through the Stock Exchange
whereby members of the public buy them, thus
loaning money to the government.
The issuance of such bonds can obviate the need to
directly tax the citizens in order to finance
development, although by securing such bonds with
the full faith and credit of the government instead of
with collateral, the result is that the government
must tax the citizens or otherwise raise additional
funds to make any regular coupon payments and
refund the principal when the bonds mature.
8. Barometer of the economy: At the stock
exchange, share prices rise and fall depending,
largely, on market forces. Share prices tend to rise
or remain stable when companies and the economy
in general show signs of stability and growth. An
economic recession, depression, or financial crisis
could eventually lead to a stock market crash.
Therefore the movement of share prices and in
general of the stock indexes can be an indicator of
the general trend in the economy.
 Regulatory of Role and Functions of
a Stock Exchange
1. Established for the purpose of assisting,
regulating and controlling business of
buying, selling and dealing in securities.
2. Provides a market for the trading of
securities to individuals and organizations
seeking to invest their saving or excess
funds through the purchase of securities.
3. Provides a physical location for buying and
selling securities that have been listed for
trading on that exchange
4. Establishes rules for fair trading
practices and regulates the trading
activities of its members according to
those rules.
5. The exchange itself does not buy or
sell the securities, nor does it set
prices for them.
6. The exchange assures that no investor
will have an undue advantage over
other market participants.
 Regulatory Improvement
Transparency and Corporate Governance

Protection to
minority Strong
Shareholders industry
Enhance regulator
Corporate market
Governance confidence

Disclosure
 Stock Exchange Terms
What are Allotment Letters ?
Documents issue evidencing allotment or distribution of
shares in response to applications for them or in
pursuance of contracts entered into in that connection.

What is Arbitrage ?
The business of buying or selling a share commonly listed
on more than one Stock Exchange is one share market
with the intention of reversing the very same transaction
in another share market in order to profit from the
difference in prices for the shares between the two share
markets. The simultaneous buying of the same security in
one market and selling it in another market at a price
advantage. The buying of a security convertible into
another one at a price advantage when the first is selling
for less than its converted equivalent.
What is Bad Delivery ?
A delivery of shares in pursuance of a transaction is
considered "bad" when there is any defect in share
certificate or transfer deed.
What is Bear ?
An operator who first sells and then buys shares in the
expectation of a fall in share prices.
What are Bearer Securities ?
Securities which do not require registration of the owner’s
name in the Company’s books.
What is Bid ?
An offer of a price to buy or sell as in auction. Business
on the Stock Exchange is done by bids.
What are Blue Chips ?
Stocks of high investment quality usually of well-reputed
companies.
What are Bonus Shares ?
When a company distributes shares to its share
holders free of cost by capitalization of resources,
such shares are called "bonus shares".
What is Book Closing ?
The closure of the books of a company to take a
record of the shareholders who are entitled to
dividends or rights etc. No transfer is registered
during the book-closing period.
What is Break-up Value of Shares ?
Net assets as shown in a company’s Balance-Sheet
divided by the number of shares.
What is Boom ?
Boom denotes increased activity in a market arising
out of greater demand.
What is Bull ?
An operator who first buys, and then sells shares in
the expectation of a rise in share prices.
What is Buying-in ?
When a seller fails to deliver shares to a buyer on the
stipulated date, the buyer can enforce delivery by
"buying in" against the seller.
What is Backwardation ?
The payment of money charges made by a bear on
the shares which he borrows to deliver against his
sale. Their charges usually become payable only
when there are more sellers who are not in a
position to deliver the documents to the buyers who
demand delivery.
What are Bargains ?
Bargain means a transaction in securities, a
concluded deal between two members or a member
and a constituent.
What is Book Value ?
Share Capital, Reserve and Surplus, divided by the
number of equity shares issued. Where preference
shares also exist, they must be deducted from the
total of Equity Capital, Reserve and Surplus and
then the figure will be divided by its number of
equity shares.
What is Brokerage ?
Commission payable to the Stock-broker for
arranging the sale or purchase of
shares/debentures/securities. Scale of brokerage is
officially fixed under the Stock Exchange Bye-laws
and Regulations and approved by the Government.
Brokerage scales fixed are the maximum
chargeable commission.
What is Call ?
The installment of the capital of a company, which a
share-holder is called upon to pay.
What is Clearing ?
Settlement of clearance of accounts in a Stock
Exchange.
What is Contributory ?
The person - who is required to contribute to the
uncalled part of the shares of a company in the
event of winding-up.
What is Convertible ?
Securities which are capable of being converted into
another category (frequently into ordinary shares)
in accordance with the terms of the issue.
What are Coupons ?
Tokens for payment interest attached to bearer securities.
What is Cover ?
Buying of security previously sold short.
What is Cum-Dividend ?
Cum-Dividend implies that the buyer gets the current
dividend.
What is Contango ?
The badly charges i.e. rate of interest paid by a bull i.e.,
purchaser of shares on money borrowed with which he
pays for the shares bought by him. The money is
borrowed from one account day to the next account
day i.e. for the period of one settlement. The contango
charges depend on the ruling rate of market interests
and the quantum of purchase position in the shares
sought to be carried over from one settlement to the
other.
What is Contract ? A note issued by a broker to his
constituent setting out the number of shares bought or sold
rate or price and date of conclusion and type of contract for
purposes of completion by delivery and payment.
What if Constituent ?
A customer-investor who deals with a member of the Stock
Exchange.
What are Cum-Rights ?
Cum-Rights are "With Rights" attached to the shares. Implies
shares bought on "C.R." basis are entitled to subscribe to
any additional shares either as rights or bonus shares
currently offered by the company to the existing share-
holders.
What is Closing Out ? Where a party to a contract does not
fulfill delivery against sale or payment against delivery of
documents, the other party can close-out the transaction
against the defaulting party, the gain or loss arising from
the closing-out being borne by the defaulter. Closing-out
done against failure to give delivery of documents is called
buying-in. Closing-out done against failure to take, delivery
of documents is called selling-out.
 Securities and Exchange
Commission (Bangladesh)
The Securities and Exchange Commission (SEC) is the
regulator of the capital market of Bangladesh, comprising
Dhaka Stock Exchange and Chittagong Stock
Exchange.
The Commission is a statutory body and attached to the
Ministry of Finance.
Background
SEC was established on 8 June, 1993 under the Securities
and Exchange Commission Act, 1993. The Chairman and
Members of the Commission are appointed by the
government and have overall responsibility to administer
securities legislation. The Commission, at present has three
full time members, excluding the Chairman. The
Commission is a statutory body and attached to the Ministry
of Finance.
 Mission
1. Protect the interests of securities investors
2. Develop and maintain fair, transparent
and efficient securities markets
3. Ensure proper issuance of securities and
compliance with securities laws
 Functions of SEC
1. Regulating the business of the Stock Exchanges or
any other securities market.
2. 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.
3. Registering, monitoring and regulating of collective
investment scheme including all forms of mutual
funds.
4. Monitoring and regulating all authorized self
regulatory organizations in the securities market.
5. Prohibiting fraudulent and unfair trade practices
relating to securities trading in any securities
market.
6. Promoting investors’ education and providing
training for intermediaries of the securities
market.
7. Prohibiting insider trading in securities.
8. Regulating the substantial acquisition of shares
and take-over of companies.
9. 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.
10. Conducting research and publishing
information.
 Dhaka Stock Exchange
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 18 August 2010, the Dhaka
Stock Exchange had over 750 listed
companies with a combined market
capitalization of $50.28 billion.
 History
First incorporated as East Pakistan Stock Exchange
Association Ltd in 28 April 1954 and started formal trading in
1956. It was renamed as East Pakistan Stock Exchange Ltd
in 23 June 1962. Again renamed as Dacca Stock Exchange
Ltd in 13 May 1964. After the liberation war in 1971 the
trading was discontinued for five years. In 1976 trading
restarted in Bangladesh, on 16 September 1986 DSE was
started. The formula for calculating DSE all share price index
was changed according to IFC on 1 November 1993. The
automated trading was initiated in 10 August 1998 and
started on 1 January 2001. Central Depository System was
initiated in 24 January 2004. As of November 16, 2009, the
benchmark index of the Dhaka Stock Exchange (DSE)
crossed 4000 points for the first time, setting another new
high at 4148 points. In 2010, the index crossed 8500 points
and finally crashed in the first quarter of 2011. Millions of
investors lost their money and came out onto the street
blaming the speculators and regulators for the bubble that
finally burst.
 Formation
Dhaka Stock Exchange (DSE) is a public limited
company. It is formed and managed under
Company Act 1994, Security and Exchange
Commission Act 1993, Security and Exchange
Commission Regulation 1994, and Security
Exchange (Inside Trading) regulation 1994. The
issued capital of this company is Tk. 500,000 which
is divided up to 250 shares each pricing Tk. 2000.
No individual or firm can buy more than one share.
According to stock market rule only members can
participate in the floor and can buy shares for
himself or his clients. At present it has 238
members. Market capitalization of the Dhaka Stock
Exchange reached nearly $9 billion in September
2007 and $27.4 billion on Dec 9, 2009.
 Management
• The management and operation of Dhaka Stock Exchange
is entrusted on a 25 members Board of Director. Among
them 12 are elected from DSE members, another 12 are
selected from different trade bodies and relevant
organizations. The CEO is the 25th ex-officio member of the
board. The following organizations are currently holding
positions in DSE Board:
• Bangladesh Bank
• ICB
• President of Institute of Chartered Accountants of
Bangladesh
• President of Federation of Bangladesh Chambers of
Commerce and Industries
• President of Metropolitan Chambers of Commerce and
Industries
• Professor of Finance Department of Dhaka University
• President of DCCI (Dhaka Chamber of Commerce and
Industry)
 Trading
The Dhaka Stock Exchange is open for trading
Sunday through Thursday between 10:30am
– 2:30pm BST, with the exception of holidays
declared by the Exchange in advance. In the
month of Ramadan, the exchange is open for
trading between 10:30am - 1:30pm BST.
2010-11 crash
The bullish market turned bearish during 2010, with
the exchange losing 1,800 points between
December 2010 and January 2011.[3] Millions of
investors have been rendered bankrupt as a result
of the market crash. The crash is believed to be
caused artificially to benefit a handful of players at
the expense of the big players
 Chittagong Stock Exchange
Chittagong Stock Exchange is a stock exchange
located in the port city of Chittagong in
southeastern Bangladesh. It was established in
1995 as the second stock exchange of the country.
The exchange is located in the Agrabad
commercial area of the city. It's a very small
exchange which trade volume is less than many
brokerage houses in Bangladesh.
Timeline
• 1 April 1995 CSE incorporated as a company.
• 10 October Floor trading started in cry out system.
• 4 November 1995 formally opened by then former
Prime Minister Begum Khaleda Zia.
• 30 May 2004 Internet based Trading system
opened.
Trading hours
• Market opens at 11 am local time.
• Market closes at 3 pm local time.
2010-11 crash
The bullish market turned bearish during 2010,
with the exchange losing 1,800 points
between December 2010 and January
2011.[1] Millions of investors have been
rendered bankrupt as a result of the market
crash. The crash is believed to be caused
artificially to benefit a handful of players at the
expense of the big players.
Thanks for Patience
Hearing