Study on Dhaka Stock Exchange

EXECUTIVE SUMMARY

In today’s situation, the security exchange sector is one of the fastest growing sectors and a lot of funds are invested in SEC. Also today’s security system is becoming more complex. So, we thought of evaluating the performance of the security. There are so many models of evaluating the performance of the security, but we have chosen the Dhaka Stock Exchange to evaluate the performance of the security. We have read a lot of books and found it the best model because it measures the performance of the security.

After choosing the security, I select Dhaka stock exchange from two security exchange and this is very special for the organization consulting.

Dhaka stock exchange Limited

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.

Origin of the Report

This report has been prepared as a partial requirement and fulfillment of BBA 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.

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.

An Overview of Security Exchange

What is Security Exchange
Role of Security Exchange
Strategy to Minimize the Risk
Security Exchange in Bangladesh

What is Security 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.

Role of Security 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..

Security Exchange in Bangladesh

There are only two stock markets in Bangladesh

Dhaka Stock Exchange Limited (DSE)
Chittagong Stock Exchange Limited (CSE)

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 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.”

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.

Vision of DSE 2013

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

Numbers of Listed Company: 439

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.

(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

(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.

(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.

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 any 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

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.

(G) Appeal

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

he 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.

Function of DSE

General Function
Automated Trading Function
Clearing and Settlement Function
Surveillance Function

General Function of DSE

Listing of Companies. (As per Listing Regulations).
Listing of securities and ensuring compliance by the issuers.
Providing the screen based automated trading of listed Securities.
Trading provisions for listed securities through efficient trading platform.
Settlement of trading. (As per Settlement of Transaction Regulations)
Gifting of share / granting approval to the transaction/transfer of share outside the trading system of the exchange (As per Listing Regulations 42)
Market Administration & Control.
Settlement and Clearance of executed trades.
Publication of Monthly Review.
Monitoring the activities of listed companies. (As per Listing Regulations).
Investor’s grievance Cell (Disposal of complaint bye laws 1997).
Investors Protection Fund (As per investor protection fund Regulations 1999)
Announcement of Price sensitive or other information about listed companies through online.
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:

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:

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.

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:

Public Market

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

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.

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.

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.

(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:

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.

Opening Session

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

Continuous or Regular Trading Session

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

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) (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

(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.

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

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.

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.

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 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.

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.

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.

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.

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 and 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.

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.

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 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.

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 Trade

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.

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.

Performance of stock market

The stock performance in recent

Definition of stock Crash.

Reasons of stock crash

How does a market come out of crash?

Probe of stock crash.

Difference between Bangladesh and Cairo.

Should more Professional.

The stock market performance

Bangladesh’s stock market performance, measured in terms of the stock price index, has been one of the best globally for a number of years. Its upward surge defied Global and regional market developments. When almost all markets across the globe collapsed during the global economic crisis, DGEN was perhaps one of the very few which defied the global trend and maintained its upward progression fueled by local developments/conditions.

When it started its upward trend in 2007, the market was certainly undervalued, and there were fundamental economic reasons for it to go up. At that time the average Price/Earning (P/E) ratio was in single digit and the market capitalization was less than 10 per cent of gross domestic product (GDP). The sustained upward surge, however, went beyond what could be justified by economic fundamentals by early 2010.

Since mid-2010, as the index crossed the 5000 mark, the market has clearly been driven by speculative forces. During the last two-month period leading up to the peak, the index increased by more than 2000 points before crossing the 8900 level on December 5. To put it in proper perspective, the index level was at about 1500 until this recent surge started in 2007. Daily market turnover increased 30 fold about Tk. 1.0 billion to Tk. 33 billion over the three-year period. Clearly, economic fundamentals cannot support this level of valuation gain and turnover, and the market is bound to correct itself once it runs out of steam.

The recent drop in the stock market index needs to be evaluated in this context. Even after a more than 2500 point decline, the index is still well above its mid-2010 levels. The corrections and volatility in the price index that we have experienced in recent days is nothing uncommon, and fully in line with what has been observed in many other important, and much larger

Stock markets across the world. For the market to start consolidating, it needs to shed itself of speculative elements, and that can only happen once market valuations come back to their fundamental levels.

From January 3 to December 30, the benchmark index of Dhaka Stock Exchange went up by 3,754 points, or 82 percent, to 8,290. The listing of record number of 25 new securities and a continuous rise in prices led the jump in the index.

The total turnover shot up by 172 percent to Tk. 400,991 crore, while the transactions went up by 113 percent to 1,697 crore shares and mutual fund units.

Market capitalization reached Tk. 350,000 crore — registering an 84 percent rise. The market capitalization to GDP ratio stood at 51 percent at the end of 2010.

Evidence of Inflation Driven Markets crash

Here is more proof that stock markets around the world have been mainly propped up by inflation (bank credit expansion)

If you recall, we earlier noted that the stock market of Bangladesh (Dhaka Index) posted as the second best performer in the world in 2010 gaining nearly 83%.

Chart from Bloomberg

Yesterday fortunes seem to have reversed, as the Dhaka index suffered a record crash. This provoked street riots and prompted for the forced closure of the exchange.

Picture from Market watch

Stock exchanges in Bangladesh were forced to close down for the day Monday after share prices registered their biggest fall ever and investors took to the streets.

Angry investors vandalized some vehicles and set fire to tires as they demonstrated in Motijheel area in the heart of the national capital.

People have been lured by easy money where “over three million people – many of them small-scale individual investors” had been affected by the crash, according to a BBC report. A crash reportedly brought upon by a “series of measures” implemented by authorities to restrain “overvaluation”.

Here is a short BBC report…

The series of measures involved the raising of the cash reserve requirements for banks…

From AFP

On December 15, the Bangladesh Bank had raised the cash reserve requirement (CRR) by 50 basis points, tightening money supply in a bid to rein in soaring inflation.

Analysts, protesters and the SEC say this is what triggered the collapse as some banks, which had invested heavily in the market, tried to offload their shares quickly in an attempt to meet the new requirements.

From Sify news

The limit for giving loans by the banks to their subsidiary companies was set at 15 percent of their total capital, but many banks invested more than the threshold only to increase their stakes in the capital market. BB had earlier directed the banks that invested more than the ceiling to adjust the excess amount by December 31.

Also, the central bank set January 15 as the deadline for the banks to recover loans taken by borrowers as industrial credit but were diverted into the share market.

Stock market crash definition

A stock market crash is a sudden and precipitous drop in the stock market averages.

Expanded Definition the key words are sudden and precipitous. In stock market history, there are many short periods of time where the market averages fell precipitously in 2010-2011

Ten Reasons for an Imminent Stock Market Crash:

1. An Oversupply of paper

Insiders have been quick to recognize that the market is hungry for paper. Thus, they are selling shares, and issuing debt and/or equity at an alarming rate. Investment bankers, who were very recently idle, now have a backlog of paper ready to go to market which will eventually flood the market and offset the fragile balance of supply and demand.

2. Bullish Sentiment and Market Psychology

At present date, market consensus is short-term bullish and long-term bearish as a result of the aforementioned buying frenzy. Everyone wants to buy the markets and exit before the bubble pops. Guess what? If you want to participate in this bubble—it’s too late. The time to buy the markets was when everyone was bearish, everybody fully invested, and Wall Street shops paper like there is no tomorrow.

3. Money Supply and Credit Contraction

The money supply and credit is contracting at an alarming rate. No matter how you spin this it can only lead to bad news for the economy. If credit continues to contract as a result of banks reducing their lending and/or consumers not borrowing, it can reach levels that can disrupt normal day-to-day commerce. Once this happens, the economy hits a brick wall and collapses—i.e. what happened with Lehman Brothers a year ago.

4. Market Complacency

Expanding on the issue addressed above, the market seems to be very complacent. The VIX and all the “fear” indices are at 12-month lows and the market is no longer paying for “protection.” Basically, the market is assuming the system is “risk free” as it was during 2003-2007 when maximum risk taking was rewarded and encouraged. Black swan events were impossible back then.

Basic reasons of stock market crash

1. Weakness of security exchange commission

2. Gambler

3. Government

4. Adverse relation among Bangladesh Bank& Security Exchange C omission

5. New pricing structure emerging in a market where price-to-earnings P/E ratio had exceeded averages

6. Institutions trying to correct injudicious use of margin debt and leverage which violated existing or reformed regulations.

7. Panic selling and abrupt, dramatic price declines

8. No $$$$$ in Bank

9. Bank Fail

10. Businesses can’t borrow money.

11. People freak out and take all their money out of bank

12. Business cut production

How does a market come out of this?

The first knee jerk reaction is always the ‘trading curb’, also called a ‘circuit breaker’
to adopt steps to attract buyers back into the market
Companies could choose to declare special or bonus dividends
, make rights issues at very attractive prices or even give bonus shares so that investors hold on their shares
buy them for ‘dividend shopping’ or ‘bonus shopping’
Adoption of a policy of economic expansionism that uses public funds to boost sale

What should do investor?

All Investor should to be more careful and consider couple of think when he/she invest money in market

1. Never sell your valuable property only to invest in share market

2. If you are not well educated about share market than only invest in primary share of reputed companies and don’t take risk anyway.

3. Try to attend in seminars which are conducted by stock exchanges to teach investors about the current condition and investment policy of share market.

4. Discuss with educated and experienced people to learn about share market and Read newspapers, books, etc to learn yourself about share market

5. Invest in Secondary market very meticulously when you have confident that you know well about the secondary market

6. Never and Never invest only hear the fake information about the condition of various companies. Many evil people make rumor to plunder the hard earned money of small investors. And always keep it mind that invest in share market is like invest in other risky business.

Dhaka, Jan 25 (IANS) The Bangladesh government Tuesday formed a three-member committee to probe into the causes behind the collapse of its stock markets twice in this month.

The committee headed by Khondkar Ibrahim Khaled, chairman of the Bangladesh Krishi Bank and former deputy governor of the Bangladesh Bank, was announced by Finance Minister A.M.A. Muhith.

Names of the other two members and terms of reference of the committee will be announced Wednesday, The Daily Star reported.

‘The committee was formed hurriedly on Tuesday with the approval of the prime minister as she will leave the country in the evening for a five-day visit to Britain,’ said Muhith.

Sheikh Hasina left for London on a six-day visit earlier in the day.

The two stock market crashes, that brought investors to the streets, fighting pitched battles with the police, are widely believed to be the caused by individual operators and firms with links with the opposition, a speculation that has been denied by the government.

The Securities and Exchange Commission (SEC) suspended six parties last week, and the High Court Tuesday upheld the SEC’s action.

Web Log – February, 2011

Findings & Recommendations

Positive aspects
Negative aspects
Future prospects
Recommendations

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.

The End