Dhaka Stock Exchange Limited

Exclusive summery:

This report is prepared on the basis of my three months practical experience at Royal Securities Limited at Narayanganj Branch.

This project will cover the complete knowledge about the main working of stock exchange. Financial markets first came to prominence during the 17th century at the start of the industrial revolution. The first financial markets came about in London.

The whole report on Dhaka Stock Exchange Ltd is divided in to seven chapter started with Introduction, An Overview of stock exchange, Dhaka stock exchange at a glance, Function of DSE, SWOT Analysis of DSE, Findings & Recommendation, Conclusion  respectively of  Dhaka Stock Exchange Limited.

Now a day’s stock market plays an important role in economic development. The main function of stock exchanges is to promote tile movement of capital across the Region, to increase investment opportunities and encourage optimum financing for firms irrespective of where the entity resides.

This report describes the main terms that use in Dhaka Stock Exchange. This project will describe the working of the stock exchange and will mainly emphasize on the guidelines for investors for trading in stock exchange. This report also gives an idea what impact that Dhaka Stock Exchange create in entire economy of Bangladesh.

Introduction

Dhaka Stock Exchange Limited was incorporated under the company’s act.1913 named as the East Pakistan stock exchange association ltd on 28.04.1954. As public company on 23.06.1962 the name was revised to East Pakistan stock exchange ltd. Again on 14.05.1964 the name of East Pakistan stock exchange limited was changed to “Dhaka stock exchange ltd.”

Although incorporated in 1954, the formal trading was started in 1956 at Narayanganj after obtaining the certificates of commencement of business. But in 1958 it was shifted to Dhaka and started functioning at the Narayanganj chamber building in Motijheel C/A.

On 1.10.1957 the stock exchange purchase a land measuring 8.75 kattah at 9/F Motijheel C/A from the government and shifted the stock exchange to its own location in 1959.

Dhaka Stock Exchange Limited is situated in Motijheel, heart of capital city of Bangladesh Dhaka. Its head office situated at Stock Exchange Building, 9/F Motijheel C/A Dhaka – 1000. It has four branch offices at Rajshahi, Sylhet, Chittagong, and Khulna also.

Since establishment, till now Dhaka Stock Exchange plays an important role to improve Bangladesh economy.

 Mission of DSE

“To create value for our investors and listed companies through dynamic market operations, fair and transparent business practices and effective management.”

Origin of the Report

This report has been prepared as a partial requirement and fulfillment of MBA Program, Southeast University. The basic purpose of this report is to expose students to the real business situation. This exposure is very helpful in considering for one self the norms and practices of report writing and communicating in a professional manner.

 Objective of the Report

With the help of this report, I will be able to acquire in knowledge on DSE.

 Methodology of the Report

 All the information incorporated in this report has been collected both from the Primary and the Secondary sources.

 Report on Dhaka Stock Exchange Ltd.

 Primary Data

Primary sources included direct formal and informal interviews of the employees of brokerage house; it was face to face communication. I asked different question about DSE. Some people are very cordial to respond me.

 Secondary Data

Review of literature, different published articles, journals, brochures, and organization’s web site.

 Limitation of the Study

 I face some limitation to accomplish this report. I did not get much information from the DSE due to their limitation as well.

• Most of the data are Primary Data that are difficult to collect.
• Data sources are so limited.
• Large-scale research was not possible due to time constrictions.
• The data collection process is time consuming.

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An Overview of Stock Exchange

 What is Stock Exchange?

The stock exchange provides a market place where shares can be bought and sold. The stock exchange performs various functions simultaneously for the growth and development of economy. It also depicts the economy as an instrument and helps to analyze the economic condition of the country. Without strong position of stock exchanges the economy cannot be predicted that it will be healthy in future.

Role of Stock Exchange

The stock exchange admits companies for trading at their securities.

• It provides a market for raising capital by companies.
• It provides a market place for shares of listed public companies to be bought and sold, by bringing companies and investors together at one place.
• The exchange’s role is to monitor the market to ensure that it is working efficiently, fairly and transparently.

 Strategy to Minimize Risk

It is better strategy for investment that the investor should aware of company, which he wants to purchase the shares. In stock exchange most of the investors prefer to invest in blue chips. It is because they considered that through trading in blue chips, their investment will be secured and they can protect them from big losses. There are some strategies to invest for maximum gain, Investment should make in different sectors and in different companies. The market trend and policies of company should be analyzed before the investment. Before the investment, it will be better that the investor should check the reports of companies whether quarterly, semiannually or annually. The other method is taking the long position. In this method the investor expect that the prices of shares will go up as compared to now. But he should conscious the situation with logic and complete information about the future trend of market.

Most investors can take short position for trading of shares in the market. The short position is usually taken for one day. It will better for investor to take position after opening some time in market and observing high and low price in the specific day at which he is taking position in a specific day.

Stock Exchange in Bangladesh

There are only two stock markets in Bangladesh

1. Dhaka Stock Exchange Limited (DSE)
2. Chittagong Stock Exchange Limited (CSE)

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 Dhaka Stock Exchange at a Glance

 History of DSE

The necessity of establishing a stock exchange in the then East Pakistan was first decided by the Government when, early in 1952.it was learnt that the Calcutta Stock Exchange had prohibited the transactions in Pakistani shares and securities. The provincial industrial advisory council soon thereafter set up an organizing committee for the formation of a Stock Exchange in East Pakistan. A decisive step was taken the second meeting of the organizing committee held on the 13th march, 1953. In the cabinet room, Eden Building, under the chairmanship of Mr. A.Khaleeli, secretary government of East Bengal, Commerce, labor and industries department at which various aspects of the issue were discussed in detail. The then central governments proposal regarding the Karachi Stock Exchange opening a branch at Dhaka. , did not find favor with the meeting who felt that East Pakistan should have an independent stock exchange. It was suggested that Dhaka Narayanganj chamber of commerce & industry should approach its members for purchase of membership cards at Rs.2000 each for the proposed stock exchange. The location of the exchange it was thought should be either Dhaka Narayanganj or Chittagong. An organizing committee was appointed consisting of leading commercial and industrial personalities of the province with Mr. Mehdi Ispahani as the convener in order to organize the exchange.

The necessity of establishing a stock exchange in the then East Pakistan was first decided by the Government when, early in 1952.it was learnt that the Calcutta Stock Exchange had prohibited the transactions in Pakistani shares and securities. The provincial industrial advisory council soon thereafter set up an organizing committee for the formation of a Stock Exchange in East Pakistan. A decisive step was taken the second meeting of the organizing committee held on the 13th march, 1953. In the cabinet room, Eden Building, under the chairmanship of Mr. A.Khaleeli, secretary government of East Bengal, Commerce, labor and industries department at which various aspects of the issue were discussed in detail. The then central governments proposal regarding the Karachi Stock Exchange opening a branch at Dhaka. , did not find favor with the meeting who felt that East Pakistan should have an independent stock exchange. It was suggested that Dhaka Narayanganj chamber of commerce & industry should approach its members for purchase

of membership cards at Rs.2000 each for the proposed stock exchange. The location of the exchange it was thought should be either Dhaka Narayanganj or Chittagong. An organizing committee was appointed consisting of leading commercial and industrial personalities of the province with Mr. Mehdi Ispahani as the convener in order to organize the exchange.

It was also decided that membership fee was to be RS 2000 and subscription rate at 15 per month. The exchange was to consist of not more than 150 members. A meeting of the promoters was held at the chamber on 03.09.1953 when it was decided to appoint Orr Dignam & co, solicitors to draw up the memorandum and articles of association of the

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stock exchange based on the rules of stock exchange existing in other countries and taking into account local conditions.

The 8 promoters incorporated the formation as the East Pakistan stock exchange association ltd. On 28.04.1954. As public company on 23.06.1962 the name was revised to East Pakistan stock exchange ltd. Again on 14.05.1964 the name of East Pakistan stock exchange limited was changed to “Dhaka stock exchange ltd.”

At the time of incorporation the authorized capital of the exchange was RS. 300000 divided into 150 shares of RS. 2000 each and by an extra ordinary general meeting adopted at the extra ordinary general meeting held on 22.02.1964 the authorized capital of the exchange was increased to Tk. 500000 divided into 250 shares of Tk. 2000 each. The paid up capital of the exchange now stood at tk.460000 dividend into 230 shares of Tk. 2000 each. However 35 shares out of 230 shares were issued at Tk. 80, 00,000 only per share of Tk. 2000 with a premium of Tk. 79, 98,000.

Although incorporated in 1954, the formal trading was started in 1956 at Narayanganj after obtaining the certificates of commencement of business. But in 1958 it was shifted to Dhaka and started functioning at the Narayanganj chamber building in Motijheel C/A.

On 1.10.1957 the stock exchange purchase a land measuring 8.75 kattah at 9f Motijheel C/A from the government and shifted the stock exchange to its own location in 1959.

Who Can Invest in DSE

Anyone can invest in Dhaka stock exchange, be they are Bangladeshi residents or NRB n investors. They can access the market by contacting their stockbroker who will act on their behalf. Trading the Dhaka stock exchange is effected by a correspondent broker in the host country who acts as agent for the client broker in the home market the home broker is located in the country where the order originated, while the host broker is located in the country where the trade is executed. There is no income qualification required for participating in the market.

Many people would like to invest in the stock market to try and improve their financial fortunes. In recent years, a number of average people have made a lot of money by investing in the stock market There are a number of mythology that work to keep newcomers from the market, Such as the belief that investing in stocks is an extremely risky business, or that you have to be rich and well educated to invest in stock and bonds.

Vision of DSE 2013

• To increase market capitalization from US $13 billion to US $30 billion.
• Introducing of Financial Derivatives.
• Introducing of internet trading.

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• Market Capitalization to GDP ratio shall increase to 35% from its % contribution 19.74%
• Daily trade volume to increase from Tk 300 core to Tk 2000 core.
• Trading facilities to expand across the country.
• Introducing of Book Building Method.
• Fixed income investment market to be activates.
• 3 million families to integrate with the trading.

Objectives of Dhaka Stock Exchange

Objectives of the Dhaka stock exchange have been identified as:

• To promote the movement of capital across the Region
• To increase investment opportunities;
• To encourage optimum financing for firms irrespective of where the entity resides.
• To increase the attractiveness of the Region as an area for investment, both by regional and non-regional investors.

 Numbers of Listed Company: 439

Numbers of Listed Company: 439

Corporate Governance Guideline

Whereas, the Securities and Exchange Commission deems it fit that the consent already accorded by the Commission, or deemed to have been accorded by it, or to be accorded by it in future, to the issue of capital by the companies listed with any stock exchange in Bangladesh, should be subject to certain further conditions, on ‘comply or explain’ basis, in order to enhance corporate governance in the interest of investors and the capital market.

Now, therefore, in exercise of the power conferred by section 2CC of the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Commission hereby supersedes its earlier Order No. SEC/CMRRCD/2006-158/Admin/02-06 dated the 9th January, 2006 and imposes the following further conditions to the consent already accorded by it, or deemed to have been accorded by it, or to be accorded by it in future, to the issue of capital by the companies listed with any stock exchange in Bangladesh:

Provided, however, that these conditions are imposed on ‘comply or explain’ basis

The Conditions:

  Board of Directors

 Board’s Size

The number of the board members of the company should not be less than 5 (five) and more than 20 (twenty).

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Provided, however, that in the case of banks and non-bank financial institutions, insurance companies and statutory bodies for which separate primary regulators like Bangladesh Bank, Department of Insurance etc. exist, the Board of those companies should be constituted as may be prescribed by such primary regulators in so far as those prescriptions are not inconsistent with the aforesaid condition.

Independent Director

All companies should encourage effective representation of independent directors on their Board of Directors so that the Board, as a group, includes core competencies considered relevant in the context of each company. For this purpose, the companies should comply with the following:-

(1) At least one tenth (1/10) of the total number of the company’s board of directors, subject to a minimum of one, should be independent directors.

Explanation

For the purpose of this clause “independent director” means a director who does not hold any share in the company or who holds less than one percent (1%) shares of the total paid-up shares of the company, who is not connected with the company’s promoters or directors or shareholder who holds one percent (1%) or more than one percent (1%) shares of the total paid-up shares of the company on the basis of family relationship; who does not have any other relationship, whether pecuniary or otherwise, with the company or its subsidiary/associated companies, who is not a member, director or officer of any stock exchange, and who is not a shareholder, director or officer of any member of stock exchange or an intermediary of the capital market. The independent director(s) should be appointed by the elected directors.

 Chairman of the Board and Chief Executive

The positions of the Chairman of the Board and the Chief Executive Officer of the companies should preferably be filled by different individuals. The Chairman of the company should be elected from among the directors of the company. The Board of Directors should clearly define respective roles and responsibilities of the Chairman and the Chief Executive Officer.

 The Director’s Report to Shareholders

The directors of the companies should include following additional statements in the Directors’ Report prepared under section 184 of the Companies Act, 1994:-

(a) The financial statements prepared by the management of the issuer company present fairly its state of affairs, the result of its operations, cash flows and changes in equity.

(b) Proper books of account of the issuer company have been maintained.

(c) Appropriate accounting policies have been consistently applied in preparation of the financial statements and that the accounting estimates are based on reasonable and prudent judgment.

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 (d) International Accounting Standards, as applicable in Bangladesh, have been followed in preparation of the financial statements and any departure there from has been adequately disclosed.

 (e) The system of internal control is sound in design and has been effectively implemented and monitored.

 (f) There are no significant doubts upon the issuer company’s ability to continue as a going concern. If the issuer company is not considered to be a going concern, the fact along with reasons thereof should be disclosed.

(g) Significant deviations from last year in operating results of the issuer company should be highlighted and reasons thereof should be explained.

 (h) Key operating and financial data of at least preceding three years should be summarized.

 (i) If the issuer company has not declared dividend (cash or stock) for the year, the reasons thereof should be given.

 (j) The number of Board meetings held during the year and attendance by each director should be disclosed.

 (k) The pattern of shareholding should be reported to disclose the aggregate number of shares (along with name wise details where stated below) held by:

 (i) Parent/Subsidiary/Associated companies and other related parties (name wise details);

(ii) Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer, Head of Internal Audit and their spouses and minor children (name wise details);

(iii) Executives; and

(iv) Shareholders holding ten percent (10%) or more voting interest in the company (name wise details).

 Explanation

For the purpose of this clause, the expression “executive” means top five salaried employees of the company, other than the Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer and Head of Internal Audit.

Chief Financial Officer (CFO), Head of Internal Audit, and Company Secretary.

 Appointment

The company should appoint a Chief Financial Officer (CFO), a Head of Internal Audit and a Company Secretary. The Board of Directors should clearly define respective roles, responsibilities and duties of the CFO, the Head of Internal Audit and the Company Secretary.

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 Requirement to Attend Board Meetings

The CFO and the Company Secretary of the companies should attend meetings of the Board of Directors, provided that the CFO and/or the Company Secretary should not attend such part of a meeting of the Board of Directors which involves consideration of an agenda item relating to the CFO and/or the Company Secretary.

Audit Committee

The company should have an Audit Committee as a sub-committee of the Board of Directors.

 The Audit Committee should assist the Board of Directors in ensuring that the financial statements reflect true and fair view of the state of affairs of the company and in ensuring a good monitoring system within the business.

 The Audit Committee shall be responsible to the Board of Directors. The duties of the Audit Committee should be clearly set forth in writing.

Constitution of the Audit Committee

(i) The Board of Directors should select 1 (one) member of the Audit Committee to be Chairman of the Audit Committee.

(ii) The Chairman of the audit committee should have a professional qualification or knowledge, understanding and experience in accounting or finance.

(iii) When the term of service of the Committee members expires or there is any circumstance causing any Committee member to be unable to hold office until expiration of the term of service, thus making the number of the Committee members to be lower than the prescribed number of 3 (three) persons, the Board of Directors should appoint the new Committee member(s) to fill up the vacancy immediately or not later than 1 (one) month from the date of vacancy in the Committee to ensure continuity of the performance of work of the Audit Committee.

Chairman of the Audit Committee

(i) The Board of Directors should select 1 (one) member of the Audit Committee to be Chairman of the Audit Committee.

(ii) The Chairman of the audit committee should have a professional qualification or knowledge, understanding and experience in accounting or finance.

 Reporting of the Audit Committee

 Reporting to the Board of Directors

(i) The Audit Committee should report on its activities to the Board of Directors.

(ii) The Audit Committee should immediately report to the Board of Directors on the following findings, if any:

(a) Report on conflicts of interests.

(b) Suspected or presumed fraud or irregularity or material defect in the internal control system.

(c) Suspected infringement of laws, including securities related laws, rules and      regulations and

(d) Any other matter which should be disclosed to the Board of Directors immediately.

 Reporting to the Authorities

If the Audit Committee has reported to the Board of Directors about anything which has material impact on the financial condition and results of operation and has discussed with the Board of Directors and the management that any rectification is necessary and if the Audit Committee finds that such rectification has been unreasonably ignored, the Audit Committee should report such finding to the Commission, upon reporting of such matters to the Board of Directors for three times or completion of a period of 9 (nine) months from the date of first reporting to the Board of Directors, whichever is earlier.

Reporting to the Shareholders and General Investors

Report on activities carried out by the Audit Committee, including any report made to the Board of Directors under condition 3.3.1 (ii) above during the year, should be signed by the Chairman of the Audit Committee and disclosed in the annual report of the issuer company.

 External / Statutory Auditors

The issuer company should not engage its external/statutory auditors to perform the following services of the company namely:

 (i) Appraisal or valuation services or fairness opinions.

(ii) Financial information systems design and implementation.

(iii) Book-keeping or other services related to the accounting records or financial statements.

(iv) Broker-dealer services.

(v) Actuarial services.

(vi) Internal audit services and

(vii) Any other service that the Audit Committee determines.

 Reporting the Compliance in the Directors Report

The directors of the company shall state, in accordance with the annexure attached, in the directors’ report whether the company has complied with these conditions.     

Definition

1. In these regulations unless there is anything repugnant in the subject or context;

(a) “Board” means the Board of Trustee of the Fund.

(b) “Council” means the Council of DSE.

(c) “Commission” or “SEC “means the Securities and Exchange Commission.

(d) “Chairman” means the Chairman of the Council of DSE.

(e) “Defaulting member” means a member of DSE who has been adjudicated as insolvent or has, as the case may be , wounded up voluntarily or otherwise, or who has failed to settle his customers’ dues in terms of money or security.

(f) “Dhaka Stock Exchange” or “DSE” means the Dhaka Stock Exchange Limited.

(g) “Fund” means the Dhaka Stock Exchange Investors’ Protection Fund established by Dhaka Stock Exchange Ltd. under these regulations.

(h) “Investor” means a customer of a member of the DSE placing funds or securities with the member for carrying out buy or sale transaction in security listed with DSE, and shall also include the money or security due to be paid or delivered to the customer by member; but shall not include the member or any of the directors or partners.

(i) “Member” means a member of the DSE.

(j) “Trustees” means a member of the Board.

(k) “Year” means the financial year ending on 30th June each year.

(2) Words and expressions used but not defined shall have the same meanings as are assigned thereto in the Companies Act, 1994, the Securities and Exchange Ordinance, 1969, the Securities and Exchange Commission Act, 1993, the Trust Act, 1882.

 (3) Words importing the masculine gender shall, unless a contrary intention appears, be taken to include the feminine; and Words importing the plural number shall, unless a contrary intention appears, be taken to include the singular.

 Recognition of Fund

(1) On the commencement of these regulations, there shall be established a fund to be called the Dhaka Stock Exchange Investors’ Protection Fund.

(2) The Fund shall be in evocable.

Constitution of the Board of Trustees for the Fund

(1) The Fund shall be vested in and managed by the Board of Trustees.

(2) The Board of Trustees shall consist of:

(i) a Chairman to be nominated by the commission from among distinguished person who are not in any way associated with any Stock Exchange.

(ii) One member councilor to be nominated by the Councilor.

(iii) One non-member councilor to be nominated by the Councilor.

(iv) One member to be nominated by SEC from among the investors.

(v) The Chief Executive Officer of DSE.

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(3) The SEC shall nominate the Chairman and a Trustee within the first month of each year.

 (4) The Council shall nominate the member councilor and non – member councilor Trustee in the first council meeting of each year; Provided that the first Board shall be constituted within one month of coming into force of these regulations.

  Power and Functions of the Board

(1) The Board shall have the entire control over the administration and management of the Fund and shall be vested with all powers authorities and discretion necessary or expedient for that purpose in addition to any express powers conferred by these regulations.

 (2) The Board shall meet at least three times during the year and not more than six months shall elapse between any two meetings.

 (3) Three Trustees present shall constitute a quorum for such meeting.

 (4) The Chairman shall preside over all meetings of the Board and in his absence a Trustees elected at the meeting shall preside.

 (5) Each Trustee shall have one vote and the decision of the majority shall prevail, and in case of equality of votes, the Chairman shall have a casting vote.

Accounts of the Fund

The Board shall be maintaining proper accounts of the Fund and these shall be prepared and maintained in accordance with these regulations.

Audit

(1) The Board shall, within three months of closing of each year, get the accounts of the Fund audited by the practicing chartered accountant appointed annually.

(2) Any vacancy arising in the office of the auditor shall be filled in by the Board by appointing another qualified auditor.

 (3) The Board shall submit a copy of the audited report and statement of the accounts to the SEC and the council within two weeks of receiving of the report.

 (4) The auditor’s report and the accounts of the Fund shall l be available f to the members, through the Council.

 Member’s Participation of the Fund

Participant to the Fund compulsorily for each member of DSE and shall cease to be a member of DSE for any reason whatsoever.

The Fund

(1) The Fund shall consist of contributions of DSE and its members, value of securities or amounts collected by the Board on account of the customers of or a defaulting member, accumulations thereof, interest or profits received by the Board in respect of such contributions, accumulations of investment in securities with such contributions, securities or amounts lapsed or forfeited, and of any capital gains arising from the transfer of the capital assets of the Fund and any other amounts as may be vested in or accrued to the Fund from time to time.

(2) All moneys forming part of the Fund shall deposit into a bank account opened with any scheduled bank in the name of Dhaka Stock Exchange Investors’ Protection Fund.

(3) All investments and banking accounts of the fund shall be operated jointly by at least any two of the Trustees as decided by the Board.

(4) The Fund shall be used to satisfy the claims of the investors and expenses under these regulations.

Contribution of the Fund

(1) The DSE shall pay Taka 10 (ten) lack as initial contribution to the Fund immediately after coming into force of these regulations.

(2) DSE shall also contribute on a quarterly basis to the Fund as its contribution (apart from other voluntary initial or specific contributions made to the Fund as the Council may at its discretion deem fit to contribute from time to time) the amount representing 0.50 %) (Point five zero per cent) of the listing fee received by the DSE during the immediately preceding quarter which shall be placed in the Fund immediately after closure of each quarter.

(3) The Council reserves to itself the right to alter, vary, discontinue at any time the contribution to the Fund without reference to the Board or the members of the Fund, but no such alteration, variation, discontinuance shall be made without prior consent from the SEC and be retrospective in nature.

(4) Every member shall contribute quarterly at the rate of 50 (fifty) paisa for every Taka 10 (ten) lack or part thereof of his gross cumulative turnover (buy + sale) to the Fund. Immediately after closure of each quarter.

(5) DSE shall be entitled to deduct from or adjust against the settlement accounts or any other accounts of the member the amount of the member’s contribution and shall place the amount in the Fund within three working days of closure of each quarter.

Contingency Fund from DSE

(1) If at any time the Fund becomes insufficient to satisfy the liabilities that are then ascertained of the Fund, the Board may request the Council for such amount of         contingency Fund as the Board thinks it fit to satisfy such liabilities of the fund.

(2) The amount of such contingency Fund shall be paid by DSE to the Fund within such time and such terms as may be determined by the Council to be reasonable in relation to any particular case or situation.

(3) The contributions, other than the contingency Fund, made to the Fund by DSE and its members shall be non-refundable and shall not be considered as a debt due by the Fund to DSE or to nay member.

Investment of the Fund

The Board shall invest all moneys of the Fund in such manner as may be authorized by law for the time being in force for investment of public charitable trust funds. All investments and banking accounts of the Fund may be kept by the Trustees with any scheduled bank in the name of the Fund under the control of at least any two of the Trustees with power to operate the banking accounts, and to sell, transfer, vary and transpose such investments.

Loss

Any loss in or diminution in value of the investments of the Fund from whatever cause arising, not being due to the gross neglect or willful default or fraud of the Trustees, shall be borne by the Fund and the Trustees shall incur no responsibility or liability by reason or on account thereof.

Lodging of Claims and Payment against Claims

(A) Claims of the customers may generally fall into the following categories:

(i) Claims arising out of payments made to a member for securities which have been received from DSE but not delivered by the member.

(ii) Claims arising out of securities delivered to the member by the customer but in respect of which the sale proceeds have not been received.

(iii) Claims arising out of money in the hand of the member pending utilization for buying securities or money in the hand of the member which has been improperly dealt with.

(iv) Claims arising out of securities in the hand of the member which have been improperly dealt with.

 (B) Claims to be considered for Payment

The Trustees shall consider the claims of customers of a member who has become a defaulter in respect of any of the following:

i) Winding up

ii) Insolvent

(C) Certain Claims to be disallowed

The fund shall not be available for claims in respect of repayment of deposits or loans placed with or given to a defaulting member by any person or for any other transaction not connected with the purchase and/or sale of listed securities.

(D) Time Limit for Lodging Claims

Customers of a defaulting member shall lodge a claim with the Trustees of the Fund within a period of six months from the date of declaration of such member as a defaulter in accordance with these regulations. The Trustees may not entertain any claim lodged after the expiry of the aforesaid time limit. The Trustees may also not entertain such claim if the defaulting member gets himself readmitted as a member.

 (E) Determination of Nature of Claims and Payments

The Trustees shall have an absolute discretion as regards the mode and method of assessing the nature of the claims including their genuineness and shall likewise at their discretion accept, reject or partially grant or allow claims and make payments there at subject to the limits herein mentioned, as they may deem fit and proper.

 (F) Compensation Not to Exceed Maximum Limit

The compensation paid in respect of any single customer claimant shall not exceed a sum of Tk.25,000/- (twenty-five thousand) only. The Trustees may however at any time in consultation with the Council increase the maximum limit of compensation payable as aforesaid.

Dhaka Stock Exchange

A customer shall be entitled to apply to the Trustees for reconsideration of the decision of the Trustees to reject or partially grant or allow any claim and the decision of the Trustees shall be final and binding and the Trustees shall act accordingly.

 (H) Claim Not to Affect Legal Proceedings

The rejection or partial acceptance of any claim by the Trustees or as the case

may be, or the grant of any compensation to a customer claimant shall not preclude or debar such customer to pursue his claim for dues against the defaulting member in any court of law or otherwise howsoever or other legal action on other grounds or causes of action of whatsoever nature, subject, however, that the net claim of any such customer claimant against a defaulting member shall stand reduced to the extent of the compensation received by him from the Fund.

 Discretionary Nature of Fund

The Fund shall be discretionary Fund and the Trustees shall be under no legal obligation to collect the debts of a defaulter member and/or to make payments from the Fund as mentioned hereinabove.

 Bar on Assignment

The contribution of a member shall not be a debt due from the Fund and no member shall be entitled to transfer or assign in any manner his contribution to the Fund.

Alternation of Regulations

(1) The Trustees, with the written consent of the Council may, in their discretion, alter, modify or repeal any of these regulations as they consider necessary but no such addition, alteration, modification or repeal shall have retrospective effect.

(2) If there is any repugnance between these regulations and DSE rules, bye-laws or regulations, such repugnance, to that extent, shall be ineffective and the Trustees shall, if so required by the Council, remove such repugnance.

(3) Any such alteration in or removal from these regulations shall be made and become effective subject to the compliance of the relevant provisions of the Securities and Exchange Ordinance, 1969.

Expenses of the Fund

The Trustees shall not be entitled to any remuneration but shall be entitled to charge to the Fund all expenses of management and administration of the Fund including fees of auditors, legal advisers or other professional advisers, and staff salaries, wages and all related costs, charges and expenses to which the Trustees shall be put to in connection with the Fund or any legal claim thereon by any reason whatsoever.

Declaration

Every member shall sign a Declaration in the form prescribed by the Trustees signifying his assent to the Fund and to abiding by and observing the regulations for the time being in force including the decision of the Trustees.

Reporting to SEC and DSE

The Trustees shall furnish a quarterly report on the Fund and affairs of the Trustees to SEC and DSE within one month of the end of each quarter.

Winding-up

(1) The Trust shall be wound up, dissolved or liquidated only in the event of the dissolution of Dhaka Stock Exchange Ltd.

(2) For the purpose of winding up the Trustees shall first realize the assets of the Fund and after meeting all debts/liabilities and claims the amounts/assets so realized shall be and form a part of the property of Dhaka Stock Exchange and shall be appropriated or utilized accordingly.

Margin Rules

Definitions

(1) In these rules, unless the context otherwise requires:

(a) “Average net capital” means the average of net capital of the three months preceding the previous month.

(b) “Exchange” means the recognized stock exchange.

(c) “Member” means a member of the exchange who is registered as the stock-dealer/stock-broker by the Securities and Exchange Commission under the Securities and Exchange Commission (Stock-dealer, Stockbroker and Authorized Representative) Regulations, 1994.

(2) Words and expressions used herein and not defined, but defined in the Securities and Exchange Ordinance. 1969 (XVII of 1969), the Securities and Exchange Commission Act, 1993 (XV of 1993), the Rules and Regulations made under the said Ordinance and Act, and the Companies Act, 1994 (XVIII of 1994) shall have the same meanings respectively assigned to them in the said Ordinance, Acts, Rules and Regulations.

Margin Account

(1) A member may extend credit facilities to his approved client for securities transactions subject to the margin account requirements of these rules.

(2)  Margin account arrangements must be evidenced in the form of a written agreement executed between the member and the client.

 (3)  A client who operates a margin account with a member shall authorize the member to mortgage, pledge or hypothecate the client’s securities or property for a sum not exceeding the debit balance in the margin account and without obligation to retain in his possession or control securities of like character.

(4) The margin deposited by client with the member shall be in the form of cash, securities issued by the Government or its agencies, margin able securities and such other instruments as the Commission may from time to time prescribe. The initial margin must be deposited with the member not later than seven days from the first date of securities transaction and shall be such amount that would result in the equity being not less than 150% of the debit balance in the margin account.

(5) Whenever the equity in a client’s margin account falls below 150% of the debit balance, the member shall request the client to provide additional margin to bring the equity to not less than 150%. Such additional margin must be satisfied by deposit of cash or margin able securities within three days from date of notice. The member shall not permit any new transactions in the margin account unless the resulting equity in the account would be not less than 150% of the debit balance.

(6) A member shall not permit the equity in a client’s margin account to fall in any way below 125% of the debit balance. Once the equity falls below this level, the member shall have absolute discretion and without notice to the client to liquidate the margin account including the margin able securities deposited to bring the equity to not less than 150% of the debit balance.

 (7) The Member shall cause daily review to be made of all margin accounts to ensure that credit is not over-extended beyond the approved facility and that the margin requirements prescribed above are met at all times. For the purpose of computing margin requirements in a margin account, the last traded price of the security on the preceding market day shall be used. All transactions traded on the same day shall be combined on a transaction date basis and the total cost of purchase or the net proceeds of sale including any commission charged and other expenses shall be taken into account for computing margin requirements.

 (8) The member shall require substantial additional margin as the exchange with the prior approval of the Commission may from time to time prescribe in an account where the securities carried are subject to unusually rapid or violent changes in value, or do not have an active market or have been suspended from trading on the exchange for more than seven days or where the quantity carried is such that it cannot be liquidated promptly.

(9) A client may withdraw cash or securities from his account provided that the equity in his account does not fall below 150% of the debit balance.

(10) The exchange shall have with the prior approval of the Commission the discretion to vary the margin requirements stipulated in sub-rules (4), (5) and (6) above.

(11) All securities transactions in a margin account shall be on a ready basis. The margin account shall not be used to subscribe for new issues of securities.

(12) For the purpose of these sub-rules:

(a) “Debit balance” means the cash amount owed by a client in his margin account before deducting cash deposited by him as margin.

(b) “Equity” means the sum of margin and current market value of securities bought or carried in a client’s margin account.

(c) “Margin” means the aggregate amount of cash and market value of securities deposited by a client into his margin account, but shall not include securities which are bought and carried in the margin account.

(d) “Margin able securities” means securities permitted by the exchange to be bought and carried in margin accounts.

 Discretionary Account

(1) Discretionary account means an account in which the client gives a member discretion which may be complete or within specific limits as to the purchase and sale of securities including selection, timing and price to be paid or received.  

(2) No member shall exercise any discretionary authority with respect to a discretionary account unless:

(a) The client has given prior written authorization to the member to exercise discretion on the account.

(b) The member has accepted the discretionary account. Acceptance of a discretionary account must be evidenced by a document in writing which shall be available for examination and signed on behalf of a member by authorized person of the member. The authorization given to the member shall specify the investment objectives of the client with respect to the particular discretionary account. Each authorization or acceptance may be terminated by notice in writing by member or the client, as the case may be.

Exposure to a Single Client

(1) No member shall permit deficit arising from transactions by a single client to exceed 25% of its average net capital.

(2) In sub-rule (1) above, “deficit” means:

(a) The excess of amount owed by the single client in his cash account over the market value of all his securities held by the member as collateral.

(b) The amount of margin deficiency in the single client’s margin account as determined by minimum margin requirement permitted under rule 3 (6) and

(c) The amount of unsecured interest charged on amounts owed by the single client.

Exposure to a Single Security

(1) No member shall permit his exposure to a single security to exceed:

(a) 100% of his average net capital if the security is quoted on the exchange.

(b) 100% of his average net capital if the security is unquoted, but such security shall not include the member’s interest in subsidiary and associated companies and any company which the exchange may approve from time to time.

(2) In sub-rule (1) above, “exposure to a single security” means:

(a) The book value of the single security carried in the member’s own account.

(b) The contract value of the single security underlying clients’ cash accounts to the extent that they have not been paid for and

(c) The amount of credit extended to clients for the purchase of the single security on margin.

Contravention

Contravention of any of the provisions of these rules shall be punishable under the provisions of the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Securities and Exchange Commission Act, 1993 (XV of 1993), the Rules and Regulations made there under, and the bye-laws of the stock exchange as well.

Performance of DSE

1. Listing of Companies. (As per Listing Regulations).
2. Listing of securities and ensuring compliance by the issuers.
3. Providing the screen based automated trading of listed Securities.
4. Trading provisions for listed securities through efficient trading platform.
5. Settlement of trading. (As per Settlement of Transaction Regulations)
6. Gifting of share / granting approval to the transaction/transfer of share outside the trading  system of the exchange (As per Listing Regulations 42)
7. Market Administration & Control.
8. Settlement and Clearance of executed trades.
9. Publication of Monthly Review.
10. Monitoring the activities of listed companies. (As per Listing Regulations).
11. Investor’s grievance Cell (Disposal of complaint bye laws 1997).
12. Investors Protection Fund (As per investor protection fund Regulations 1999)
13. Announcement of Price sensitive or other information about listed companies through online.
14. Updating existing Regulation and promulgating new rules and regulation.

Automated Trading Function

 Globally the developments in information & communication technologies (ICT) have created a new instance in the securities market operations. Stock Exchanges all over the world have realized the potentiality of ICT and inclined to the electronic trading systems. It was understood by DSE that technology would ensure transparency, timeliness and satisfaction in customer service. Considering those DSE introduced Automated Trading System on 10th August 1998.Considering market growth the Automated Trading System was upgraded two times. The recently Upgraded Trading System was started from 21st December, 2008.

Trading Day

The trading shall be open on all days except bank holidays as declared under the Negotiable Instruments Act, 1881 4.

Provided that where the Council, in consideration of any exigencies, considers it  expedient may declare that there shall not be any trading on any other day as may be specified in the resolution under immediate intimation to SEC:

Provided further that the Council may, from time to time, refax the trading days in the interest of the Stock Exchange under immediate intimation to SEC.

Trading Period

Unless otherwise decided by the Council, the trading period shall be between10-30 AM to 2-30 PM on all trading days.

Provided that the Council may, in consideration of any particular circumstance or situation, extend, curtail or change the trading period, including session timings of any particular trading day under immediate intimation to SEC:

Provided further that the power under the first proviso may also be exercised by the Management Team of DSE comprised of the CEO, the Secretary and the heads of relevant departments of DSE, if, in their opinion, convening of Council meeting is not convenient or expedient in consideration of the circumstances or situation concerned.

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.

Availability of Workstation

(1) Depending on the availability, the DSE shall make available the system to the members by providing trading workstation connections.

(2) The number of trading workstations for each member shall be such as may be decided by the Council.

(3) The CEO may shutdown trading in the event the system becomes inoperative or inaccessible to all or part of the trading workstations under immediate intimation to SEC.

Types of Markets: There shall be the following four markets in the system, namely:

(a) Public Market

Matching in this market is automatic based on the touchline prices which follow normal settlement procedure.

(b) Spot Market

Matching in this market is also automatic, settlement of which follows procedure for spot transactions. The Management Team may put an instrument on compulsory spot to curb volatility in prices of the instrument.

(c) Block Market

This is the market for bulk selling and buying on automatic matching with equal quantity and best price (all or none condition) basis.

(d) Odd Lot Market

Odd lot shares are traded in this market on automatic matching with equal quantity and best price (all or none condition) basis.

Trading Sessions (1) There shall be five sessions of trading period, namely:

(a) Pre-opening session.

(b) Opening session.

(c) Continuous or Regular trading session.

(d) Closing session and

(e) Post-closing session.

(2) Each session shall be of such hours of operation as may be determined by the Council.

(3) The hours of operation mentioned in sub-regulation (1) may be changed by the Council under immediate intimation to SEC.

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 securities shall be made available in this session to the members for trading.

(b) 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.

(c) 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 can not 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.

Types of Transactions:

(1) Orders may be grouped or categorized based on the following, namely:

(a) Price

(b) Volume and

(c) Validity

(2) Based on price, orders may be of the following categories, namely:

(a) Limit order – Limit order must have a price limit which ensures that the order shall be traded at the price equal to or better than the limit price.

(b) Market order – Market order is the order to be executed at the touchline price. A market order is matched immediately on arrival in to the trading engine at the touchline price. To avoid the possibility of the market order being matched at ridiculous rate, this is protected by a price protection percentage as determined by the Council. If there is no touchline price then the market order shall be rejected.

(3) Based on volume, orders may be of the following categories, namely:

(a) Partial fill – A partial fill (PF) order signifies that as much possible of the order quantity shall be executed as soon as the order is submitted to the trading engine. If the order is not fully executed the remaining order quantity shall be stored which shall be visible to the market.

(b) Partial fill and kill – A partial fill and kill (PFAK) order signifies that as much as possible of the order quantity shall be executed as soon as the order is submitted and the remaining order quantity shall be returned to the trader who entered the order.

(c) Full fill or kill – A full-fill or kill (FOK) order signifies that either all of the orders quantity shall be executed as soon as the order is submitted to the trading engine or the entire order shall be rejected and returned to the trader.

(4) Based on validity, orders may be of the following categories, namely:

(a) Good till day – By default, all orders shall be valid till the end of the current trading day.

(b) Good till date – The trader can specify the date till which the order should remain active in the market. The order validity date can be a date which is up to a maximum of thirty days from the current trading day.

Matching of Orders

(1) All orders with price equal to or better than the opening price will match automatically.

(2) Orders which are at the most favorable price, that is, at the lowest selling or highest buying price, shall be executed first. If two or more orders are listed in the order book at the same price, the oldest order shall be executed first.

Queue Priority

(1) Orders that cannot immediately be executed shall be queued for future execution in a specific order of priority mainly based on price and time of entry.

(2) In case an order is executed partly, the remaining part of such order shall not lose its priority.

(3) The queue priority shall be determined by the system through an interactive process and the order of priority displayed by the system of conclusive.

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.

Order Modification

Orders submitted to the system can be modified anytime before execution. Only the price, quantity and validity date of an order active in the system can be modified. Modification of price and quantity results in requiring the order. If only the validity date is modified then the order’s position in the queue shall not be disturbed.

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.

Crossing Report

Crossings are traders in which the buy side member is the same as the sell side member. A situation may arise in a member where one of the customers of the member wants to buy a quantity of a certain security and at the same time another customer of the member wants to sell a certain quantity of the same security. In such cases, the member can use the crossing reporting facility to match the two orders and report the trade to the DSE. The price of execution for cross deal is the touchline price of buy or sells side in the public order book based on the demand and supply situation. If the total buy quantity (i.e. demand) is greater than the total sell quantity (i.e. supply) then the buy side touchline price shall be taken as the price at which the crossing is transacted and if the total buy quantity (i.e. demand) is less than the total sell quantity (i.e. supply) then the sell side touchline price is taken as the price at which the crossing is transacted. These trades shall be executed through the system as part of normal trading activities which shall be excluded from calculating index, opening, closing or average price of the concerned security.

Market Control Parameters

The Council from time to time as it think fit, shall regulate the market control parameters, such as tick size (smallest increment of the currency for specifying the price for an order), market lot (smallest tradable unit for security except in the odd lot market), minimum block  size (minimum  quantity  allowed  for  block  orders  expressed  in lots), maximum block size (maximum quantity allowed for block orders expressed in lots), minimum order size (minimum quantity for a public order or a spot order expressed in lots), closing price minutes (closing price will be calculated taking into account the trades which occurred during this time before the closing time), closing price trades (the number of trades which shall be taken into account for calculating the closing price), circuit breaker (the maximum permissible deviation of the price from the circuit breaker base price for that security), circuit filter (the maximum permissible deviation of the price of an aggressor order from the last trade price), market protection percentage (a fixed percentage of the touchline price to avoid the possibility of market orders being matched, during continuous trading, at ridiculous rates), index calculating frequency (interval at which index shall be calculated), etc. under immediate intimation to SEC. Provided that the system shall automatically enforce the price limit regulations/orders which shall reject any order beyond the price limit set under the price limit regulations/orders.

Exposure Limit

(1) DSE shall regulate the net limit for a member. If a member exceeds the limit at any point of time such member shall be automatically suspended by the system under immediate intimation to SEC.

(2) DSE shall, from time to time, determine the size of every security as limits for a single buy or sell order under immediate intimation to SEC. Any order breaching these limits shall be automatically rejected by the system.

Settlement

The settlement of all trading shall be made in accordance with the provisions of the rules or regulations made in this behalf by DSE for the time being in force.

Order Withdrawal

The trader can withdraw his orders anytime before execution.

General

(1) A member shall be responsible for all orders entered from his trading workstation.

(2) Transaction fee(s) shall be charged and realized by DSE from the members concerned upon execution of order(s) as specified by DSE.

(3) The Council may issue guidelines and clarifications from time to time for removal of any difficulty in the execution or operation of these regulations under immediate intimation to SEC.

(4) The terms and phrases used herein without a specific definition shall have the meaning in accordance with the other relevant rules, regulations and current trade practices in these behalf.

(5) Any determination made by the system through an interactive process shall be conclusive.

Removal of Difficulties

If any difficulty arises in giving effect to the provisions of these regulations,   the   CEO  may,  with  the  prior  approval  of   the  Council,  by  order,  take Appropriate measures necessary for the purpose or removing the difficulty under immediate intimation in writing to SEC.

Matters Not Covered

In matters not covered by these regulations the decision of the Council in the concerned matter shall be applicable:

Provided that notwithstanding anything contained in these regulations the trading in the DSE shall not follow any system which contradicts to any other securities law, rules or regulations made in this behalf for the time being in force.

 Hardware

DSE Automated Trading System (HP Nonstop S7806) is running on fault tolerant, high available, scalable and maintainable Mainframe Server. Previously DSE established the TANDEM Nonstop K204 System on September 1998 and on August 2005 it was replaced with highly scaleable HP Nonstop S7802.

DSE upgraded the Trading System again on 21st December, 2008. The existing HP Nonstop S7806 Server is highly fault tolerant to the fact that no single component failure will halt the system. Its constituent parts are hot swappable and upward compatible; components can be added or removed while the system is running and any compatible new upgraded will work with the system.

All disk drives are mirrored so, if any of the disk crashes the exact copy of the data is available at online. Moreover the connecting path for every disk whether it is primary or mirror is also redundant. In every case, minimum two peripheral devices exist. All the components are working active – active load balancing procedure. To ensure better power quality we have ensured high end UPS’s with long durable backup capability, two instant backup generations and other electrical devices.

Network (LAN / WAN)

The entire Member (238 members) Server Applications (MSA) are connected with Nonstop HP S-Series Server through either DSE LAN or WAN connectivity. Each member has one or more Trader Work Station (TWS). The TWSs are being connected to the Trading Server via respective MSA through LAN and WAN connection.
DSE outsourced Metro Net Ltd., DNS Ltd., X-Net Ltd., Dhaka Com Ltd., Ranks ITT, Link-3, Royal Green Online Ltd. etc Network Service Providers (NSP under WAN Expansion Project). Now a day’s member can establish a main office or branch offices to their remote location and can trade smoothly by using different media ADSL, Optical fiber and Radio Link from Dhaka and other important cities such as Gazipur, Narayanganj, Comilla, Hobiganj, Chittagong, Sylhet, Khulna, Barisal, Rajshahi, and Bogra at the same time. Three DSE branch offices located at Chittagong, Sylhet and Khulna are connected via BTTB’s DDN link. We also used connectivity for redundancy for the DDN link. We have a plan to reach the DSE branches in same way.

 DSE LAN/WAN Expansion within Dhaka City:

In case of trade interruption due to serious hardware, software, network failure or telecommunication disruption at the Brokerage houses, there is a provision to allow traders to trade at DSE Contingency Trading floor.

DSE LAN/WAN Expansion Outside of Dhaka City:

System Software

The system software is HP Proprietary Nonstop KERNEL and includes the database as part of the operating system thereby eliminating the layer typically found in most Database Management Systems (DBMS). The Database functionalities are handled by NONSTOP SQL, which is simply a different operational session for the operating system. The proprietary nature of the system software arguably enhances system security. Operating system is HP’s proprietary Nonstop Kernel DBMS handled by Nonstop SQL. The system software treats all its hardware resources as objects and is thus entirely message driven. This then allows application software to be deployed using client / server architecture providing shared data processing between the central server and the user workstation. The central trading system resides in the Stock Exchange premises, which is running 24 hrs in a day & 365 days in a year.

Application Software

The application, which runs in DSE for trading, is called TESA (The Electronic Securities Architecture). TESA has two parts: MSA (Member’s Server Application) & TWS (Trader workstation). MSA is the “Gateway” between the traders and the Stock Exchange, which manages all the transactions and database operations between the traders and the Trading Engine. TWS is the Front-end Application closer to investors, where they can submit Buy/Sell orders for their desired securities.

TESA (The Electronics Securities Architecture) is the Trading software (Based on HP proprietary O/S & DBMS) It has developed in view of Distributed Database system In the client site it is being using SQL as local Database  Trading Software is MSA & TWS . In STSD (Signal trader Single Database) system both MSA & TWS are running on a Windows 2k Professional /XP Professional workstation and for MTSD (Multiple trader Single Database) MSA install in a Windows 2k Server & the TWSs are in different Windows 2k Professional /XP Professional workstation-using members in house LAN

TESA Architecture

TESA software is built for the global securities markets. It uses fault tolerant computers, intelligent workstations and client / server design techniques. This provides co-operative processing, high message integrity, continuous operation and fully automatic recovery. This co-operative mechanism enables very high speed processing which is essential for today’s electronic markets.

TESA’s Application Programmatic Interface (API) is the gateway to the TESA system from the outside world. All external devices connect through the API. The API provides the translation between external devices and internal processes. This means that a new process does not need to be written to support each new device, only the API needs to be modified.

Solution Benefits

The TESA application suite derives significant advantages from being implemented on the HP Nonstop platform. The HP Nonstop customers have benefited from these advantages.

Fault Tolerance

One of the most important automation requirements for any stock exchange system is continuous system availability. With most systems Fault Tolerance is created at the application level. Fault Tolerance is a fundamental design feature of the HP Nonstop architecture.

Data Integrity

Data integrity is an integral feature of HP architecture. TESA employs standard HP tools to achieve exceptional data integrity.

Scalability

The ability of an exchange to accommodate extraordinary increases in transaction volumes without loss of its Capital investment in automation is very important. The HP Nonstop Server is massively scalable due to Parallel processors.

An overview of the TESA Functional Model

Client / Server

TESA’s Client / Server architecture enables an efficient allocation of computing resources and provides easily modified user-friendly interfaces. TESA workstations operate under Windows 2K/ XP professional and can function either as servers on a broker’s network or as workstation. These are used to perform trading and settlement activity by the brokers.

Principal function of TESA

Market Information

Supplying all market information needed to formulate the buy and sell decisions.

Order Management

Accept, validate and store orders and quotes from broker workstations and / or systems.

Trade Reporting

Trade execution reports are provided to each trade participant, to the settlement system and / or the depository and to the market.

Order Execution

Automatically executes orders when buy and sell prices match.

Index Calculation

Calculates and publishes market indices (DSE General Index & Weighted Average Index.)

Market Access

Provide exchange members with efficient affordable GUI-based tools for accessing the market.

Clearing and Settlement Function

The Clearing and Settlement function provides the management of trade from the point of entry into the Settlement Pool trade database until it has been delivered, settled and removed from the Settlement Pool. It consists of three major business processes.

Clearing

Participant trade reporting, affirmation, billing and assigning settlement instructions.

Settlement

The process of overseeing that delivery of all instruments to the buyer and payment of all moneys to the seller has occurred before removing the trade from the settlement pool.

A Group

Number of Instruments are 338 (150 + 8D + 26M + 158TB+2B), Here D for Debentures, M for Mutual funds & TB for Treasury Bonds (Trading in Public, Block & Odd-lot Market with trade for trade settlement facility for scrip only through DSE Clearing House on T+1, T+3 basis). “A” and “DA” are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading Software.

B Group

Number of Instruments are 44(Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). “B” and “DB” are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

G Group

Number of Instrument is 0 (Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). “G” and “DG” are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

N Group

Number of Instrument is 11(Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). “N” and “DN” are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

Z Group

Number of Instruments are 34(Trading in Public, Block & Odd-lot Market with trade for trade settlement facility through DSE Clearing House on T+1, T+9 basis). “Z” and “DZ” are marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

The above cycle in valid for A, B, G, & N category instruments traded in Public Block & Odd-lot market.

This above cycle is valid only for Z group instruments traded in Public, Block & Odd-lot market.

The above cycle is valid for A, B, G, N & Z category instruments traded in spot market.

Instruments of Foreign Trades (DVP) Of All Groups:

The above cycle is valid for A, B, G, N & Z category instruments of foreign trade.

Surveillance Function

The main objective of the Surveillance function of the Exchange is to promote market integrity in two ways –

By monitoring price and volume movements (volatility) as well as by detecting potential market abuses at a nascent stage, with a view to minimizing the ability of the market participants to influence the price of the scrip in the absence of any meaningful information.

Market Abuse is a broad term which includes abnormal price/volume movement, artificial transactions, false or misleading impressions, insider trading, etc. In order to detect aberrant behavior/ movement, it is necessary to know the normal market behavior. The department carries out investigation, if necessary, based on the preliminary examination/analysis and suitable actions are taken against members involved based on the investigation. Surveillance activities at the Exchange are divided broadly into two major segments:

Position Monitoring

The position monitoring relates mainly to abnormal positions of members, etc. in order to manage default risk.

 Price Monitoring

Price monitoring is manly related to the price movement/ abnormal fluctuation in prices or volumes etc.

The functioning of the Price Monitoring is broadly divided into following activities:

On-Line Surveillance

One of the most important tools of the Surveillance is the On-line Real Time Surveillance system with main objectives of detecting potential market abuses at a nascent stage reduce the ability of the market participants to unduly influence the price and volumes of the scrip’s traded at the Exchange, improve the risk management system and strengthen the self regulatory mechanism at the Exchange. The system provides facility to access trades and orders of members.

Off-Line Surveillance

The Off-Line Surveillance system comprises of the various reports based on different parameters and scrutiny thereof:

High/ Low Difference in prices

• % change in prices over a week/ fortnight/ month.
• Top N scrip’s by Turnover over a week/ fortnight/ month.
• Top N scrip’s by Volume over a week/ fortnight/ month.
• Trading in infrequently traded scrip’s.
• Scrip’s hitting New High / Low etc.

The Surveillance actions or investigations are initiated in the scripts identified from the above-stated reports.

Investigations

Conducting in-depth investigations based on preliminary enquiries/analysis made into trading of the scrip. In case of irregularities observed, necessary actions are initiated or investigation case forwarded to SEC, if necessary through the CEO.

Surveillance Actions

Warning to Members: The department may issue verbal/ written warning to member/s when market irregularities in the scrip are suspected.

Imposition of penalty/ suspension: The department, through the CEO, imposes penalty or suspend the member/s who are involved in market irregularities, based on the input/ evidence available from investigation report.

 Rumor Verification

Liaising with Compliance Officers of companies to obtain comments of the company on various price sensitive corporate news items appearing in selected News Papers. Comments received from the companies are disseminated to the market by way of online news bulletin. Investigations based on rumor verifications are carried out, if required, to detect cases of suspected insider trading.

Online Monitoring of Brokers Position

Surveillance closely monitors broker’s gross turnover exposure for ensuring margin calls in time.

Position Monitoring

The Surveillance Department closely monitors outstanding exposure of members on a daily basis. For this purpose, it observes various off-line and on-line market monitoring reports. The reports are scrutinized to ascertain whether there is excessive purchase or sale position build up compared to the normal business of the member, whether there are concentrated purchases or sales, whether the purchases have been made by inactive or financially weak members and even the quality of scripts is considered to assess the quality of exposure. The following key areas are examined to assess the market risk involved.

B/S Statement of Trading Members

Scrutinizing the statement on daily basis. It is for keeping a watch on the exposure of the members & ascertains the quality of exposures. A detailed report on the net outstanding positions of top purchasers and top sellers in individual scrip’s, is prepared, if considered necessary.

Concentrated B/S

It is considered a risky issue.  In case, such a situation is noticed, fundamentals of the scrip’s, their daily turnover, their nature of transactions are ascertained. Thereafter, based on the market risk perception appropriate surveillance actions are taken.

B/S of Scripts Having Thin Trading

It is closely scrutinized as comparatively high market risk is involved in trading in such scripts. Details of trades in such scripts, if necessary, are called from members to assess the market risk involved & decide on the appropriate surveillance action.

Verification of Institutional Trade

The institutional trades executed by the trading members are verified to ascertain the genuineness of trades.

Verification of Foreign Trade

The foreign trades executed by the trading members are verified to ascertain the genuineness of trades.

Verification of Cross Reporting Trade

The report crossing trades executed by the trading members are verified to ascertain the genuineness of trades.

Verification of Dealers Own Trades

Trades executed by the trading members (Dealers) are verified to ascertain the genuineness of trades.

Verification of Sponsor’s Trade

The Sponsors trades executed by the trading members are verified to ascertain the genuineness of trades.

Snap Investigation

To carry out, wherever considered necessary, preliminary investigation of certain dealings to verify irregularities. Further actions, viz., referring the case for detailed investigation, referring the case to the Sec, depending on the findings of preliminary investigation.

Market Intelligence

The rumors floating in the market are verified with the data available with DSE, Newspapers, Television news channels & Reuters to ascertain the national & global factors affecting the market sentiments. This enables the Exchange to avert market problems before it causes a serious damage.

Review Block Trades

To determine:

Whether the block was executed at a price, even if at a discount or premium which was in line with other trading of the stock. Whether there was any news on the company which caused the price increase or decrease subsequent to the block transaction.

Verify Company Accounts

To scrutinize company announcements, company reports, auditors qualifications & other notes of special interests in the published accounts of such company.

Review Media Information

To scrutinize press articles or other media on the daily basis, the news relevant to the share prices of companies.

Monitoring on Newly Listed Stock

To review all activities of a newly listed stock for the first 1 / 2 weeks to identify any abnormal deal.

 Develop Good Liaison

To develop & maintain good liaison with staff members of SEC & listed companies & member firms as well.

Develop market contacts & to pick up Intelligence.

• Strong brand name.

• The widest network of  branches in major cities in Bangladsh.

• Ability to provide a one stop service offering at all its branches.

• Exceptional quality and professionalism in its service offering to clients.

• Well trained and dedicated management team.

• DSE has a solid trading infrastructure like spacious trading floor and multiple VIP trading booths.

• DSE consistently providing their customer with expert advice, executing their customers order promptly and accurately. Provide support, as required, to assure total satisfaction.

• Well trained and dedicated management team.

• Good hardware infustructure and software application for automated trading.

• Standard clearing and sattalement process.

W – Weeknesses of DSE

• Fundamantal weekness in IPO pricing method. So retail investors are getting more gain than the entrepreneous (sponsors).

• Lack of strong serveillance over share price. As a result sometimes it goes up very high and than collapes.

• Need to improve guideline process for the investors when market cullapes.

• Need to decentralize management committee decition making power.

• Need to improve internal audit control system.      

O – Opportunities of DSE

• Plans are also underway to introduce brokerage houses in all the district level towns in Bangladesh.

• Steps are also underway to introduce On-line trading so that investors can have access to securities trading from across the world, which will also help the expansion of capital market in a broader dimension.

• DSE has also decided to open Media and Call Centre to cater to the need for information, which will be disseminated among the investors and relevant stakeholders time to time.

• DSE has planned to arrange investors’ awareness programmed in every district of the country.

• Stock Exchanges of different countries have been being visited and experiences are utilized properly to the development of Bangladesh Capital Market.

• With the objective of reducing time period of transaction settlement and to ensure more transparency and accountability DSE has been trying to establish Independent Settlement and Clearing Company.

• Steps have also been underway to bring equalization in face value of securities.

T – Threats of DSE

• There is an imbalance between the demand and supply in capital market through increasing the supply of good shares. DSE authority has been trying to pursue the government to off-load shares it has in different companies and overcome from this situation.

• Now a days there is a huge electricity, gas, shortage towards the country, as a result investors are de motivated to establish new investment so the national economy is hampered. As a result DSE failed to expansion its market.

• SEC has serious manpower shortage. With the present number of manpower the market regulator is not able to do its activities with growing volume of activities in the country’s capital market.

Findings

The positive and negative aspects of Stock Exchange according to my point view are:

Positive Aspects

The positive aspects of Stock Exchange are:

• Net capital balance requirement redefined and enhanced 10 times

• Capital Adequacy introduced exposure of brokers not to exceed 25 times net capital balance

• Introduction of T+3 system

• Margin requirements strengthened

• BODs of Stock Exchanges restructured to include 50% independent directors

• Independent, professional Managing Directors appointed and removed with SEC approval

• Size of BOD reduced from 18 to 10 members. Chairman to be appointed by the BOD

Negative Aspects

The negative aspects of stock exchange according to my point of view are:

• Require improve risk management at the exchanges

• Develop a regulatory framework for online trading

• There is need for demutualization of stock exchanges

• There is need for further strengthen audit practices and enforce International Accounting Standards.

Future Prospects

Dhaka Stock Exchange is committed to becoming a world class Stock Exchange with unique investment opportunities for local as well as foreign investors in a fast developing market. Unfortunately the unstable political situation & the law & order problem are the main hurdles but the management is optimistic that the Stock Market would grow and the number of companies listed at DSE would increase and reach a reasonable figure with in a short span of time.

Recommendations

Although DSE is adequately equipped with facilities required for foreign investors yet a couple of facilities mentioned above are required to make available for them. The following measures, if taken, can help attract the attention of foreign investors to the Dhaka Stock Exchange.

NIT, ICB and State Life may route some of their trade through DSE which would help the inventory building process.

DSE may ask its inactive Corporate Members to activate them and target foreign investors for business.

Conclusion

The overall management of DSE is better performing but in some areas there is need to improve for further improvement in future. All employees are hard worker and loyal to their organization.

The economic indicators in the economy show a good trend in 2008-2009. This will provide an opportunity the management of stock exchange to avail maximum opportunities through policies that will help to grow in future.

The turnover for chairman seat is for short span of time, which is for 1 year. This will not provide in policymaking experience. The decision by SEC to reduce board of directors will help to take the quick decision.

The management of DSE is too much dependent on SCE. The transparency in functions is very good sign for DSE whole management.  Moreover the coordination in work and continuous struggle to bring change can help to show more progress.