Capital market in Bangladesh: Concept and formation
Md Noor Solaiman (Jewel)
Capital market is a mechanism to flow fund from the hands of small savers (individuals and institutions) at low costs to those entrepreneurs who do need fund to start business or to business. In the other words, capital market mechanism gives a part ownership of big companies/corporations to small savers like you and me. In simple term, it is a globally accepted scheme to share ownership of economic development with general public.
History of capital market: Capital market started in USA at Wall Street in 1653. 1t came to Mumbai, the commercial capital of India around 1890. However, investment in shares boomed in late 1970s. It took many years to come to the land, now comprising Bangladesh. The origin of stock market in Bangladesh goes back to April 28, 1954 when a stock exchange was formed under the name East Pakistan Stock Exchange Association at Narayanganj. Trading started in 1956. It was renamed East Pakistan Stock Exchange Ltd. Transferred to Dhaka in 1958 and again renamed Dhaka Stock Exchange Ltd in 1964.
Trading remained suspended during the Liberation War in 1971. The Dhaka Stock Exchange resumed operation in 1976 with nine listed companies as against 452 today. Capital market in Bangladesh got momentum with the establishment of Securities and Exchange Commission in 1994. A big wing was added to the capital market with the incorporation of Chittagong Stock Exchange on April 1, 1995. Operation of CSE started on October 10, 1995. However, there was a market crash in November 1996. Thousands of investors lost their capital and ran away from the capital market. At that time there was trading floor at both the stock exchanges.
Trades were conducted through cry-out system. A high powered enquiry committee was constituted to investigate the cause of the market crash, to suggest remedial actions to avoid such crash in future. Cry-out system of trading was replaced by automated trading system under LAN. Virtually capital market facilities are now expandable to all big cities. The CSE has offered internet trading facility to get excess even from outside the country. The DSE will operate the service soon. The Asian Development Bank granted aid to strength the SEC capacity to become a pro-active regulator and facilitator. Now, we are institutionally better equipped to become a vibrant capital market.
Product of capital market: a) Shares, b) Debentures, c) Mutual funds, d) Bonds, e) Derivatives, f) Future and options.
Players of capital market: a) Investors, b) PLCs, C) Stock Exchanges, d) Brokers and Dealers, e) Merchant banks, f) Securities and Exchange Commission, g) CDBL.
Operation of capital market: Each and every step of capital market operation is regulated. Regulations may come from SEC, Stock Exchanges and CDBL under Securities Act.
Parameters used to measure size of capital market: a) Number of listed companies, b) Number of securities, C) Size of market capitalisation, d) Index, e) Daily trade volume, f) GSP ratio to market capitalisation,
Efficiency indicators of capital market: a) PE multiple, b) Dividend yield, c) Liquidity, d) Visible presence of regulators, e) Exit route regulation for sick PLC.
CSE role in Bangladesh capital market development: Automation, On-line trading, SAFE, Securities Institute, International Seminar, Investors training etc.
Future action plan for vibrant capital market in Bangladesh: a) Strengthen SEC, b) Capital Market Education: at school, college and university levels, c) Training of Directors of PLC, Regulator and Broker house officials etc, d) Certification system for certain level of officials, e) Introduction of new Products, f) Incentives for listing with Stock Exchange, g) New pricing mechanism for IPO, h) Appropriate fiscal measures, i) Fully automated settlement system, j) Separate bench at High Court.
The Economist Intelligence Unit: The Economist Intelligence Unit is the world's foremost provider of country, industry and management analysis. Founded in 1946 the Economist Intelligence Unit of The Economist magazine is now a leading research and advisory firm with more than 40 offices worldwide. For nearly 60 years, the Economist Intelligence Unit has delivered vital business intelligence to influential decision-makers around the world.
The Economist's international reach and unfettered independence make it the most trusted and valuable resource for international companies, financial institutions, universities and government agencies.
Its mission is to provide executives with authoritative analysis and forecasts to make informed global decisions.
Institutional investor: Institutional Investor is a leading international business-to-business publisher, focused primarily on international finance. It publishes magazines, newsletters and journals as well as research, directories, books and maps. It also runs conferences, seminars and training courses and, is a provider of electronic business information through its capital market databases and emerging markets information service.
The DIFC: The Dubai International Financial Centre (DIFC) is an onshore hub for global finance. It bridges the time gap between the financial centres of Hong Kong and London and services a region with the largest untapped emerging market for financial services.
In just under two years, over 400 firms have registered with the DIFC which operates in an open environment complemented with world-class regulations and standards. The DIFC offers its member institutions incentives such as 100 per cent foreign ownership, zero tax on income and profits and no restrictions on foreign exchange.
A brief overview of the Tokyo Stock Exchange: The Tokyo Stock Exchange (TES), located in Tokyo, Japan, is the second largest Stock Exchange in the world based on money volume just behind the New York Stock Exchange. The TSE provides a market for Securities and Exchange. The major function of the Exchange is to provide a market place, monitor trading and supervise trading participants.
The Exchange was established May 15, 1878. By 1920s when Japan experienced rampant growth in its economy, trading stock over bonds, gold and silver currencies become the norm.
The Exchange was shut down in 1945 and reopened 1949 under the guidance of the Americans after World War II. The TSE accounts 90.6 per cent of all securities transaction in Japan dwarfing its rivals, the Osaka Stock Exchange 4.2 per cent and Nagoya Stock Exchange 0.1 per cent.
Stock listed on the Exchange is divided into three sections. The first section, for large companies; the second section for mid-sized companies and the mother section, for high growth start up companies. Proclaimed as the fairest, most liquid, and fasted growing market in Japan.
Stock Market in India: Indian stock markets are one of the most dynamic and efficient stock markets in Asia. In terms of the makeup and overall dynamics, the Indian stock markets are at par with international standards. The two national exchanges operating in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). These exchanges are well equipped with electronic trading platforms and handle large volume of transactions on a daily basis.
Company Security Profiles: The information provided here will help investors and traders of Indian stocks, bonds and debentures. This section will provide useful information on the large, mid-sized and small capitalisation companies which are listed under the BSE and NSE.
Conclusion: In today's world, if you rely on fundamental analysis, brokers advise, share price information, newspaper articles or business channels for your investing or trading decisions, you are asking for a painful experience in the markets.
Whether you are a first time investor, a seasoned pro, an "in and out" day trader or a long term investor the Dhaka Stock Exchange Ltd, Chittagong Stock Exchange Ltd, StockBangladesh.com and Securities and Exchange Commission will provide you with the necessary information you need for maximum profits and success in today's dynamic markets.
The methods used to analyse securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analysing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Technicians (sometimes called chartists) are only interested in the price movements in the market.
Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better investor.
The writer is a Senior Executive Officer (Brokerage Division) The Premier Bank Ltd. O.R. Nizam Road Branch, Chittagong
Capital market in Bangladesh: Concept and formation
