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Assignment

Stamford University, Dhanmondi Campus, Dhaka.


Topic: Role of DSE for the development of Capital Market in Bangladesh Subject: Security Analysis and Portfolio Management Subject code: Submitted To: Professor Shahadat Hosan Course Teacher Stamford University, Dhanmondi Campus, Dhaka. Submitted by: Farhana Khatun Students of Business Administration Department Section: MBA (40th Batch) SID: 04011086 Submission Date: 15/07/2011

Letter Of transmission

July 15, 2011, To, Mr. Professor Shahadat Hosan Course Conductor Security Analysis and Portfolio Management, Stamford University, Dhaka, Bangladesh. Subject: Submission of Role of DSE for the development of Capital Market in Bangladesh . Dear Sir, With respect I would like to submit the report on the above mentioned topic which is an assignment for the requirement of the course. It is a great and worthwhile experience for me to work for such a challenging and interesting subject. The assigned work has given me an overall idea about the topic. I am very glad to have this assignment. If you need any assistance in understanding this report please inform me. I am always at your service and oblige thereby. Sincerely yours, Farhana Khatun MBA Batch-40 SID: 04011086 Stamford University, Dhaka, Bangladesh

Introduction: The arrival of share market business is not an old concept in Bangladesh which has created lots of buzz in the country. The main reason for its overwhelming popularity or success is mainly credited to the work done by Dhaka Stock Exchange. Capital market started in USA at Wall Street in 1653. 1t came to Mumbai, the commercial capital of India around 1890. However, investment in shares boomed in late 1970s. It took many years to come to the land, now comprising Bangladesh. The origin of stock market in Bangladesh goes back to April 28, 1954 when a stock exchange was formed under the name East Pakistan Stock Exchange Association at Narayanganj. Trading started in 1956. It was renamed East Pakistan Stock Exchange Ltd. Transferred to Dhaka in 1958 and again renamed Dhaka Stock Exchange Ltd in 1964. Trading remained suspended during the Liberation War in 1971. The Dhaka Stock Exchange resumed operation in 1976 with nine listed companies as against 452 today. Capital market in Bangladesh got momentum with the establishment of Securities and Exchange Commission in 1994. A big wing was added to the capital market with the incorporation of Chittagong Stock Exchange on April 1, 1995. Operation of CSE started on October 10, 1995. However, there was a market crash in November 1996. Thousands of investors lost their capital and ran away from the capital market. At that time there was trading floor at both the stock exchanges. Trades were conducted through cry-out system. A high powered enquiry committee was constituted to investigate the cause of the market crash, to suggest remedial actions to avoid such crash in future. Cry-out system of trading was replaced by automated trading system under LAN. Virtually capital market facilities are now expandable to all big cities. The CSE has offered internet trading facility to get excess even from outside the country. The DSE will operate the service soon. The Asian Development Bank granted aid to strength the SEC capacity to become a pro-active regulator and facilitator. Now, we are institutionally better equipped to become a vibrant capital market. My assignment will focuses on the role played by DSE to extend the
popularity of share market business in Bangladesh.

Role of DSE: Players of capital market: a) Investors, b) PLCs, C) Stock Exchanges, d) Brokers and Dealers, e) Merchant banks, f) Securities and Exchange Commission, g) CDBL. Operation of capital market: Each and every step of capital market operation is regulated. Regulations may come from SEC, Stock Exchanges and CDBL under Securities Act. Parameters used to measure size of capital market: a) Number of listed companies, b) Number of securities, C) Size of market capitalisation, d) Index, e) Daily trade volume, f) GSP ratio to market capitalization, Efficiency indicators of capital market: a) PE multiple, b) Dividend yield, c) Liquidity, d) Visible presence of regulators, e) Exit route regulation for sick PLC.

1. The primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a platform for the trading of securities. This fund raising is regulated by the performance of the stock and bond markets within the capital market. Capital Market of Bangladesh Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia region. It has two full-fledged automated stock exchanges namely - Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange(CSE). It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capita market 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. DSE can introduce automate monitoring systems that may control price manipulation, malpractices and inside trading. It can make sure all the listed companies publish their annual reports with actual and proper information that can ensure the interest of the investors. To force the listed companies to declare and pay regular dividends through conducting Annual General Meeting. To make arrangement to set up merchant banks, investment banks and floatation of more mutual funds particularly in the private sectors. More banks, insurance companies and other financial institutions should be encouraged to deal in share business directly The management of DSE should be vested with professionals and should not in any way be linked with the ownership of stock exchange and other firms. To train the investors about fundamentals to deal in share transactions. To punish the member brokers for breaching of contract. FUNCTION OF DSE Listing of Companies Providing the screen based automated trading of listed Securities Settlement of trading Granting approval to the transaction Market Administration & Control Market Surveillance . Publication of Monthly Review Monitoring the activities of listed companies Investors grievance Cell Investors Protection Fund Announcement of Price sensitive or other information about listed companies through online. PROBLEMS AND LIMITATIONS OF DSE Price Manipulation It has been observed that the share values of some profitable companies have been increased fictitiously some times that hampers the smooth operation of DSE. Delays of settlement Financing procedures and delivery of securities sometimes take an unusual long time for which the money is blocked for nothing. Irregular payment dividends Some companies do not hold Annual General Meeting and eventually declare dividends that do not reflect the real or actual financial positions of the company and ultimately shareholders become confused.. Selection of membership Some members being the directors of listed companies of DSE look for their own interest using the internal information of share market. Improper Financial Statement Many companies of DSE do not focus real position of the company as some audit firms involve in corruption while preparing financial statements. As a result the shareholders

as well as investors do not have any idea about position of the company. Technical problems and political infighting The concept of centralization of securities market has not been implemented that arises technical problems and political infighting 1. PROBLEMS AND LIMITATIONS (continued) Lack of skilled manpower in DSE as well as financial and non financial institutions involved in the securities market. The lack of proper policy Absence on framework that provides incentives and protection to investors. 2. SUGGESTIONS TO IMPROVE THE ACTIVITIES OF DSE To force the listed companies to publish their annual reports with actual and proper information that can ensure the interests of investors. To introduce automated monitoring system that may control price manipulation, malpractices and inside trading. To introduce full computerized system for settlement of transactions. 3. SUGGESTIONS TO IMPROVE THE ACTIVITIES OF DSE To force the listed companies to declare and pay regular dividends through conducting Annual General Meeting. To take remedial action against the issues of fake certificates. Banks, insurance companies and other financial institutions should be encouraged deal in share business directly. To punish the member brokers for breaching of contract. 4. Capital Market Development Program in Bangladesh Strengthening market regulation and supervision Developing the capital market infrastructure Modernizing capital market support facilities Increasing the limited supply of securities in the market Developing institutional sources of demand for securities in the market and Improving policy coordination. 5. 2010 AS A BRIGHT YEAR IF WE CAN ENSURE To ensure an adequate supply of quality shares of telecommunications, energy and pharmaceutical firms, which are attractive sectors for foreign funds. Surrounding easy access to information and coordination among regulatory bodies that needed attention. Better coordination among the government and relevant agencies. Efforts among policy-makers and regulators like the central bank, tax authority, stock market watchdog and investment board which is needed to sustain the present inflow of portfolio investment in the country's stock market. Thank You All The End