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Report On contains the problem of DSE and the perspective of DSE

1.0 Introduction Dhaka Stock Exchange Limited is very important & reputed organization in the financial sector in Bangladesh. The Dhaka Stock Exchange was established as East Pakistan Stock Exchange Association Ltd. On April 28, 1954& formal trade began in 1956. It was renamed as East Pakistan Stock Exchange Ltd. on July 23, 1962. The name of the Stock Exchange was once again changed to Dacca Stock Exchange Ltd. On May 13, 1964. The service on the Dhaka Stock Exchange continued uninterrupted until 1971. The trading was suspended during the liberation war. Trading on DSE resumed in 1976 with change in economic policy of the government. Since then the Stock Exchange continued its journey & development activities continued. Since then the bourse did not look & continued its journey & development activities continued. Since then the bourse did not look & continued its journey contributing to the development activities of the nation. 1.1 Origin of the Report This report has been made as the course requirement of Internship in BBA course. The topic for this report has been chosen by my both supervisors, organization’s supervisor Mr. Khandaker Asad Ullah (Depute General Manager) of DSE, MIC dpt., and institutional supervisor Mr. Habib Anwar Pasha, Lecturer, Faculty of Business Administration. This report contains the problem of DSE and the perspective of DSE 1.2 Problem Statement and Justification The problems and prospects of DSE are unknown. As we do not know the problems of DSE, it would be difficult to draw strategies for its improvement. Because there are so many brokers, shares and that arise so many types of problems.


2.0 Bangladesh Capital Market Bangladesh capital market consist different type of long-term capital market instruments and it helps to facilitate the long-term flow of fund. It is a developing country. Bangladesh capital market has been experiencing an unprecedented situation since last few years. IPO market is overflowed by subscribers while secondary market is facing liquidity shortage. Experts opinioned to develop a safe and sound secondary market in Bangladesh. The govt., DSE, CSE and SEC and other financial market institutions should act positively. 2.1 The participants in Bangladesh Capital Market

Participants        

Bank Insurance company Govt. Mutual fund agency Stock market Credit union Leasing company Individual etc.

2.2 Role and importance of capital market in the economy of Bangladesh: Economy of Bangladesh is a developing and capital market has great significance in our economy. Importance of capital market in Bangladesh is followings:

1. Means of capital formation 2. Easy means of acquiring long term loans


3. Easy means for small investors 4. Efficacy of monetary policy 5. Helps to enhance the real wealth and income 6. Helps to efficient allocation of resources 7. Reform measures undertaken for development of capital market

R •

ecently, Business association and government of Bangladesh has intended for the development of capital market. As a result, following steps have been taken to bring dynamism in the activities of stock exchanges: -

Automated transactions have been started in DSE and CSE. At first CSE started real time automated transaction in Dhaka, Chittagong and Sylhet at a time. Then DSE started it only in Dhaka.

Central Depository System (CDS) Company has been established for script less transaction and transferring facility.

The income from Mutual Fund has been made tax free.

As a controlling institution of capital market, the organizational structure of SEC has been improved and its supervision power has been increased.

By the financial support of ADB huge reconstruction activities have been taken under ‘Capital Market Development Programmer Loan’ to increase investors’ confidence.

The tax of stock exchange listed companies has been reduced so that non-listed companies become inspire to trade their shares in stock exchange.

The rule of foreign currency transaction has been made flexible in order to exchange foreign investors to enter into share market.

Information enriched profile has been published covering the information of foreign investment of share market.

Recommendations for the development of capital market

2.3 Stock Exchange In our country there are two stock exchanges – Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). The former one is established earlier and it is situated at Motijheel, the heart of the capital. And the latter, the new one, is at Agrabad of Chittagong. Nature of Dhaka Stock Exchange:

[A] Establishment of Dhaka Stock Exchange


In early 1952, five years after the independence of Pakistan, the Calcutta Stock Exchange prohibited transactions in Pakistani stocks. This necessitated the formation of a stock exchange in East Pakistan and the East Pakistan Stock Exchange Association Ltd. was incorporated on 28 April 1954. It changed its name to East Pakistan Stock Exchange Ltd on 23 June 1962 and finally to Dhaka Stock Exchange (DSE) on 14 May, 1964. Although incorporated in 1954, Formal trading started in 1956 in Narayanganj. In 1958, the stock exchange was shifted to Narayanganj Chamber Building. DSE purchased its own land, and moved to its own premises at 9/F Motijheel C/A in 1959. Prior to independence in 1971, the number of listed companies in DSE was 196 with a total paid up capital of Tk 4 billion. The daily average transaction during that period was about 20,000 shares.

A

fter the Independence, the government of Bangladesh took charge of the abandoned industrial units and pursued a policy, under which large industrial units were nationalized. The trading activities of DSE remained suspended till 1975 and following change in the economic policy of the government, DSE resumed its

activities in 1976 with only 9 listed companies, having a total paid up capital of Tk 137.52 million. The actual growth of the stock exchange in Bangladesh (the DSE) started since 1983, when the market capitalization was Tk 812 million. The year 1987 experienced a relatively steep rise in the market with 92 listed companies. With the liberalization of policies in the 1990's the stock market gradually started to prosper. [B] Function of DSE The major functions are: •

Listing of Companies. (As per Listing Regulations).

Providing the screen based automated trading of listed Securities.

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.

Market Surveillance.

Publication of Monthly Review.

Monitoring the activities of listed companies. (As per Listing Regulations).

Investors’ grievance Cell (Disposal of complaint by laws 1997).

Investors Protection Fund (As per investor protection fund Regulations 1999

Announcement of Price sensitive or other information about listed companies through online.


[C] Management of DSE

T

he management of DSE is vested on a 24-member council having a chairman, one senior vice chairman and one vice chairman. Among the 24 council members, 12 are elected and nominated by DSE members. The other members are representatives from the Bangladesh Bank, finance ministry, law ministry and ministry of industries,

presidents of the CA institute, FBCCI, MCCI, DCCI, Supreme Court Bar Association and bankers/insurance corporations associations and the chairman of the Department of Finance and Banking/Economics of the University of Dhaka. The operational management of the DSE is headed by a CEO, who works as an independent entity under the general policy framework set by the council. Any individual of sound mind and over 21 years of age can apply to become a member of the stock exchange by purchasing a share of DSE and after obtaining dealer/broker license from the Securities and Exchange Commission (SEC). [D] Departments of DSE The departments of Dhaka Stock Exchange Ltd are given below: Information & Communication Technology Division •

ICT Division

System & Market Administration Department

Network Department

Web Development Department

MIS & Development Department

Backoffice Development

Hardware Support Department

Application Support Department

Administration Division •

Membership Affairs Department

Board & Company Affairs

HRM, Admin & Training Affairs

Logistic, Maintenance & Protocol

Research, Development & Information

Publications & Media Monitoring Department

Public Relations Department


Legal Affairs

Security

DSE Training Academy

Personal Officer to CEO

Operation Division •

Monitoring, Investigation & Compliance

Surveillance Department

Listing Affairs

Market Operation

Internal Audit & Compliance

OTC Market

Finance Division •

Finance Division

General Accounts Department

Clearing Accounts Department

DSE FSDP

Clearing House (share)

Regional Office •

DSE Sylhet Office

DSE Chittagong Office

DSE Khulna Office

DSE Rajshahi Office (on process)

DSE Tower Project, Nikunja


[E] Market Sectors of DSE The market sectors of Dhaka Stock Exchange can be explained by the following Graph

#

Name of the Industry

Quantity

1

Bank

30

2

Cement

7

3

Ceramics Sector

5

4

Corporate Bond

2

5

Debenture

8

6

Engineering

22

7

Financial Institutions

21

8

Food & Allied

23

9

Fuel & Power

11

10

Insurance

44

11

IT Sector

5

12

Jute

3

13

Miscellaneous

11

14

Mutual Funds

26

15

Paper & Printing

2

16

Pharmaceuticals & Chemicals

21

17

Services & Real Estate

4

18

Tannery Industries

5

19

Telecommunication

1

20

Textile

28


21 22

Travel & Leisure

3

Treasury Bond 179

[F] Transaction of DSE Since the incorporation of DSE, a typical cry out system, where each security is generally called only once for a trading day was followed. This cry out system was abolished and a fully automated computerized system was installed on August 10, 1998. The trading is now in continuous session from 10:00 am to 2:00 pm. The session is divided in 5 parts: pre-opening session, opening session, continuous or regular trading session, closing session, and post-closing session. All transactions of brokers are settled and cleared through the 3rd and 5th working day respectively, calculated from the date of contract (hawla) and the procedure followed is presented in chart I. Chart I

The clearing house operates manually. Working hours of the clearing house are from 9:00am to 5:00pm. The Stock exchange remains open from Sunday to Thursday and remains closed on Friday and Saturday. An overview of DSE is given belowTotal No. of traded securities: 272 Companies: 244 Mutual Funds: 26 Corporate Bond: 02 Category wise: A – 185, B - 18, G - 0, N - 8, Z – 61


 Government T. Bond (Gilt) : 171 (US$ 5.68 BN)  Debenture : 08 (US$ 2.00 MN) Total ISSUED CAPITAL of all listed securities - US $ 8.79 bn. MARKET CAPITALIZATION of all listed securities US $ 39.78 bn.

Indicators of Growth Indicators

2005

2006

2007

2008

2009

2010

No. of Securities

286

310

350

412

415

460

No. of Listed Companies

247

255

266

276

236

245

No. of outstanding Securities (mn)

1405.9

1708.2

2081

2759

4596

8832

M. Cap (in bnUS$)

3.45

4.56

10.82

15.37

27.52

42.10

General Index

1677.4

1609.5

3017.2

2795.34

4535.53

6575.59

Annual Turnover (in bnUS$)

0.98

0.94

4.71

9.69

21.33

29.81

Market P/E

13.85

14.51

23.58

18.42

25.65

25.43

Issued capital of all listed securities (in bnUS$)

1.06

1.71

3.13

5.40

7.54

8.97

No of IPOs

17

7

14

12

18

9

Direct Listing

-

2

2

3

1

2

Right & Bonus (in mnUS$)

80.35

101.71

118.36

239.76

300.21

489.87

[G] About TESA •

TESA-The Electronic Securities Architecture.

Provides Screen Based Trading facilities.

Built using Client Server Architecture.

Provides 7 x 24 operations.

Benefits of TESA •

Automated Trading Orders.


Trading in Public, spot, Block, Odd lot orders.

Obtain up-to-date market information.

Screen Based Trading

The system will have four basic sessions: Pre- opening: Only Limit order entry is permitted. No order will be executed in this session. Brokers will see only the previous day's closing price and index.

Opening: System will not be available for use during this session that will last for a few minutes only. The system will work alone to calculate the opening price for the day based on the orders input during the previous sessions.

Continuous Trading Hour: This is for normal trading and will last for normal business hour. All types of orders will be accepted by the system during this period.

Closing Session: The system will stop receiving orders and will calculate the closing prices for each security. Pending orders “trade at closing price " will be matched during this session. After the closing session the system will provide access to the trading members to make inquiry, verify and down load the daily relevant transaction details. Investors’ Confidence:

A

lie repeated and unanswered becomes the truth soon. Investors lost their confidence in the stock market mechanism in 1996. But now there is a challenge to prove it to be wrong.

Of course there is a peculiar thing. It is more or less universal that the primary market follows the secondary market. But the investors’ confidence in the primary market in Bangladesh is leading the confidence in the secondary market, nullified all the bookish theories. The primary market investors have to come to the secondary market today or tomorrow. There is no confidence in the market mechanism is a false statement. If there is question of confidence, it is the governmental machinery that lacks it. Government’s confidence:


The key organization that would reflect government policy, if there is any, is the Securities and Exchange Commission.

Market capitalization of Bangladesh Stock Market is about One Billion US Dollar.

Market capitalization of DSE 1.88 and that of CSE is 1.53 percent of national GDP.

Market capitalization of the Mumbai Stock Exchange is 41 percent of Indian GDP. This is 11.98 percent in Karachi and 9.93 percent in Colombo. In Malaysia and Singapore it is 100 percent.

[H] THE CAPITAL MARKET’S REVVING UP The conditions of capital market of Bangladesh at present are to say the least. Ever since the bubble in the capital market of the country burst in 1996, it has remained largely bearish though many things were said and done to improve it. The investors’ confidence in the market is the basic thing for its revival; otherwise its turnaround will be difficult. The capital market should be the main engine of growth for the economy to mobilize the funds to the investors. The share market is speculative; investors lack confidence; lack of capital to invest in securities; inadequate tax facilities for listed companies; unchartered manipulators of the stock market; transparency and accountability are not ensured; non holding of AGM; insufficient disclosure of financial statement; poor enforcement of existing laws. The following measures have been taken so far too active the market: Credit rating has been made mandatory for public limited companies before they launch IPOs and half yearly financial statements must be audited. The gap in tax rate between listed and non-listed companies has been widened. The companies, which have disputed tax, have been restricted to go for IPO. If any company fails to declare at least 10% or fails to distribute the declared dividend within 60 days of its declaration it shall pay tax @ 37.5% instead of 30%. Investment in shares of listed companies during July 03 to June 31, 2005 is accepted without explanation by the tax department. Despite adequate divisible profits if the companies fail to declare or issue at least 15% dividend or bonus share they will be liable to pay additional tax at the rate of 5% on undistributed profit. The bonus shares neither in the hands of the issuer nor in the hands of the shareholders are taxable. The companies who fail to declare dividend, at least 60% of their past dividends should be kept outside the netted settlement system till the date of holding their next AGM.


Public limited companies with capital of 30 million or more were given opportunity to directly list in the stock exchange. The SEC accorded conditional registration to the Central Depository Bangladesh Limited (CDBL). A listed company while considering/ adopting any audited financial statement should also fix the date of relevant AGM and take decisions with regard to dividend as well as entitlement of the shareholders to get dividend. But the above-mentioned measures have not led to a healthy growth of the market. Generally, the market remain bearish which means that the investors are not coming forward in sufficient number to invigorate it whereas automation and controls have not put an end to manipulation which is a precondition for the market’s development.

For further improvement of the market the following additional measures are needed to be taken:

I

mmediate operation of the central depository system to remove the fear of existence of fake shares in the market.

Availability of institutional funds in the market. Availability of shares of govt. owned companies like Titas, Bakhrabad, Padma Oil, Jamuna Oil, Meghna Oil, Biman, Jamuna Bridge Authority etc. Investors’ protection funds may be established to boost up the confidence of the investors; implementation of provisions of IAS and ISA to be strengthened for fair financial reporting training and education relating to share market investment to be promoted; steps to be taken to announce corporate audit policy, especially for the listed companies; IAS shall be applied by the all listed companies and deviants must be punished by ICAB, SEC and other regulatory agency; separate cell should be established by ICAB and SEC to monitor that IAS are complied with by the listed companies; and, more chartered accountants should be employed in SEC, DSE, CSE and in all listed companies and the finance director or chief accountant must be a chartered accountant. The SEC has imposed automation of the stock exchanges but it has not done to increase the participation of the real investors in the markets. So far, mainly the issues connected to the regulation of the market seem to have been addressed whereas the main issues on which depend the developments of the market continue to be unaddressed. Investors’ confidence is one of the vital factors for capital market operation and development. Investors’ confidence can be revived by ensuring quality information of listed companies through appropriate disclosures to various users and by incorporating in the said disclosures interpretation and application of sound accounting principle and appropriate accounting standards. 3.0 Introduction


As we already know that Dhaka Stock Exchange Limited is very important & reputed organization in the financial sector in Bangladesh. The Dhaka Stock Exchange was established as East Pakistan Stock Exchange Association Ltd. On April 28, 1954& formal trade began in 1956.It was renamed as East Pakistan Stock Exchange Ltd. on July 23, 1962. The name of the Stock Exchange was once again changed to Dacca Stock Exchange Ltd. On May 13, 1964. The service on the Dhaka Stock Exchange continued uninterrupted until 1971. The trading was suspended during the liberation war. Trading on DSE resumed in 1976 with change in economic policy of the government. Since then the Stock Exchange continued its journey & development activities continued. Since then the bourse did not look & continued its journey & development activities continued. Since then the bourse did not look & continued its journey contributing to the development activities of the nation. 3.1 Problem Statement The problems and prospects of Dhaka Stock Exchange are unknown. 3.2 Justification The problems and prospects of Dhaka Stock Exchange are unknown because we do not know the problems of DSE, it would be difficult to draw strategies for its improvement. There are so many brokers, shares and that arise so many type of problems. 3.3 Objective Broad Objective The broad objective of this study is to find out the problems and prospect of Dhaka Stock Exchange Ltd. Specific Objective The objectives of the study are •

To identify the major marketing problems of Dhaka Stock Exchange Ltd.

•

To identify prospects of Dhaka Stock Exchange Ltd.

3.4Methodology For achieving the objectives of this study, data were gathered from secondary sources and also primary Sources. Primary sources


Depth interview with the employees of DSE.

Observation of activities of various dpt. of DSE.

Secondary sources •

Annual report of the different company,

Website of Dhaka Stock Exchange Ltd.

DSE Research and Development department & Publications and Media monitoring department

Newsletters of Dhaka Stock Exchange Ltd.

Annual Reports of Dhaka Stock Exchange Ltd

Journals and Monthly reviews of Dhaka Stock Exchange Ltd

Different publication regarding Stock Exchange

3.5 Limitation Several drawbacks appeared at the time of preparing the report and hindered the total work process. These are given below

Confidentiality of data is another important barrier that was faced during the conduct

of this study. Every organization has their own secrecy that is not revealed to others. While collecting data on Dhaka Stock Exchange Limited personnel did not disclose enough information for the sake of confidentiality of the organization.

Rush hours and business is another reason that acts as an obstacle while gathering

data. 3.6Reasons behind the underdevelopment Access to high quality and credible corporate information remains a major problem in the market. While a handful of institutional investors may enjoy certain benefits since they have an investment unit manned with qualified officers, nothing exists for retail investors. And, in the absence of independent research houses, retail investors primarily focus on advice given by their brokers, which often consists of market rumors. This is not acceptable, and it often leads to enormous losses for small investors who are vital for a low-income and emerging market like Bangladesh. Filtering of


information among different types of investors may leave scope for manipulation; this assumption had been proved right in the 1996 market meltdown at the cost of many individuals and households. The market does not have an adequate number of fundamentally sound scrips. The authorities should not force major corporations to come into the market, without creating an enabling environment. The focus should be on the privatization of state owned enterprises through public

offerings in the bourses. The market has to reach such a stage of development that companies will take it as a serious alternative to bank financing. The government has reduced the interest rates on savings instruments, however this particular market is still limited to the commercial banks, and individual investors do not have access to these instruments. These savings instruments are considered risk-free, and since they are not present in the capital market, the overall risk of investment for an investor remains very high. A portfolio investor does not have the option of reducing his average portfolio risk by adding the risk-free opportunities. An estimate suggests that the ratio of institutionalto-retail investors is still low in Bangladesh, even relative to other emerging markets. Institutional investors bring long-term commitment and a greater focus on fundamentals and, hence, stability in the market. The presence of institutional investors is also expected to ensure better valuation levels due to their specialized analytical skills. While we do have public sector as well as private sector institutional investors in the economy, proprietary investment from these institutions is not significant -- other than the Investment Corporation of Bangladesh that was created in 1976 and currently manages several mutual funds. Corporate governance of international standard is still lacking. Multinational corporations and institutions operating in Bangladesh often adhere to a very high international standard compliance regime. Parent companies of most of these corporations and institutions have their scrips listed in developed markets. Unless the local market adheres to, and effectively enforces, a standard corporate governance system, there will not be a level-playing ground for international business houses vis-a-vis local operators. An important aspect for capital market is reflection of fair value of scrips. This is not adequately present in the current scenario, and due to this reason the market is not receiving the attention of an important segment of investors, both foreign and


local. Investors are perhaps depending more on speculative analysis, resulting in volatility in the market, as opposed to fundamental analysis, which could attract more stable long-term investors who are sure about their investment tenure and expectations. 1996 and now The bull-run that took place in 1996 has left a number of positives for the market. A lot of investmentfriendly regulatory reforms have been implemented by the SEC. We now have stronger surveillance and improved rules relating to public issue, rights issue, acquisition, mergers and so on. All these fundamental developments, which were well overdue, followed the1996 bull-run. It was a learning experience for Bangladesh, and the desired level of changes was initiated by the market watchdog subsequently. In the secondary market, surveillance is more active and particular than before. These developments, that are widely appreciated, are actually the fundamental requirements that are in place today resulting from the continuous efforts of the government and multilateral agencies. Trading has now become automated, led by the Chittagong Stock Exchange through the central depository. In the present automated trading environment, bids/offers, depth, and required broker. Particulars are all recorded and can be retrieved for future reference. The Central Depository Bangladesh Limited (CDBL) was created in August 2000 to operate and maintain the Central Depository System (CDS) of Electronic Book Entry, recording and maintaining securities accounts and registering transfers of securities; changing the ownership without any physical movement or endorsement of certificates and execution of transfer instruments, as well as various other investor services including providing a platform for the secondary market trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank. The stock market surveillance mechanics in place at present has no resemblance to that of 1996.There are strict rules and guidelines, trading circuit breakers and international standard surveillance to protect investor rights and ensure fair play. The disclosure requirements and its timing for both listed scrips and IPOs as devised by the SEC are now more reflective of international practices. The SEC is also adopting new valuation methods that result in fair pricing of new issues. While there is still a lack of credible research organizations, a few firms like Asset and Investment Management Services of Bangladesh Ltd. (Aims) have come up, and they are investing in research and building up stock market related credentials. The recent surge in the stock market The Dhaka Stock Exchange Index was at a 10-year high in the 2007 year end (up 66 percent),which made it Asia's top performer after China. The steady investment atmosphere prevailing throughout 2007 is considered to be one of the main reasons behind this surge. Good return prospects, stable market growth, and uninterrupted trading as a result of political stability attracted foreign investors to local securities. In 2007, foreign investors bought shares worth$205.7 million, while the amount of selling was $78.6 million, according to a DSE statistic. According to the DSE, in 2007, net foreign or


portfolio investment on the Dhaka Stock Exchange surged 8.3x to $129 million. The banking sector, followed by the power, pharmaceutical and cement sectors, received the most foreign investment. The caretaker government has also attracted investors by pledging to sell state enterprises. The stateowned companies -- Jamuna Oil Company Ltd. and Meghna Petroleum Ltd. -- debuted in the bourses early this month. Some analysts think that the market had been undervalued before the surge, and the uphill trend, therefore, played the role of an upward correction of the market. The P/E ratio now stands at 20x as compared to 14.1x for emerging markets. It seems sustainable if the planned big IPOs of a few SOEs and the top telecom companies take place. More such large issues are required, which can emerge out of the energy, infrastructure and public sectors. 3.7Problems of Stock Markets in Bangladesh: The unexpected rise and fall in share prices mostly followed from the general confidence of the investors about political stability, euphoria of investment in shares, prospect of quick capital gains, a vacuum in respect of institutional presence in the share market, monopolistic dominance of member brokers, inefficiency of the SECS to cape with the developments, existence to Kerb m a r k e t , a b s e n c e o f p r o p e r a p p l i c a t i o n o f c i r c u i t b r e a k e r e t c . D e l i v e r y v e r s u s p a y m e n t mechanism was used as one of the main vehicles of manipulation. Kerb market gave birth fake and forge d share certificates. Although there are increasing trends in all the indicators, DSE, CSE are not free from problems, the problems of DSE, may be summarized as under. Price manipulation It has been observed that the share values of some profitable companies has been increased fictitiously some items that hampers the smooth operation of Stock market. Delays in Settlement: Financing procedures and delivery of securities sometimes take an unusual long time for which the money is blocked from nothing. Irregulations in Dividends: Some companies do not hold Annual General Meeting (AGM) and eventually declare dividends that confused the shareholders about the financial positions of the company Selection of Membership: Some members being the directors of listed companies of DSE, CSE look for their own interest using their internal information of share market.


Improper financial statement: Many companies do not focus real position of the company as some audit firms involve incorruption while preparing financial statements. As a result the shareholders as well as investors do not have any idea about position of that company. Technical problems and political infighting The concept of centralization of securities market has not been implemented that arises technical problems and political infighting. Lack of monitoring activity DSE does not regularly monitor the concerned houses, rather when dispute arises between the house and investor then it makes auditing activity. More over DSE tries to settle the dispute after any miss doing has been occurred. If DSE would have maintained strong monitoring activity then the level of dispute should have been minimum. Again when a house involves itself in excessive transaction then DSE looks for Tessa report from the concerned house. From my point of view I think if DSE would restrict the maximum amount of transaction for a concerned house for a particular day in order to give the capital market a good shape then such over documentation and complexity would have been minimum. Lack of accountability The concerning house has minimum accountability in real sĂŠance all most have no accountability toward DSE. Having grave this chance the authorize traders (of concern house) can easily cheat with investors. We can find the example of such activity when we look toward the activity of compliance dpt. of DSE (which deals with the complain of investors). Here we find the existence of lots of complain of investors concerning the shortage BO account. If DSE would have ensured proper accountability system of authorize traders then such kind phenomena (shortage account) would have no existence. Inefficient human resource (membership concerning) Most of the case we find the presence of minimum educated people working in the houses. Consequently they have lack of knowledge about concerning law, for this law dis abiding tendency is tremendous. Necessity of over documentation in case of dispute settlement


DSE looks for various kind of documentation while making settlement of a dispute. This is time consuming and a complex process. Lack of human resource in internal organogram of DSE The required number of employees is lower than the existing number of employees. So that employees are to face tremendous pressure in working arena. Communication gap with other concern parties DSE has lower level of communication with other monitoring agencies like ICB, SEC, etc OTHERS

The concept of centralization of the securities market has not been implemented that arise technical problems and political infighting.

The intrinsic values for securities traded are sometimes estimated without considering the current market prices of the securities.

The absence of comprehensive legal and supervisory framework.

Lack of skilled manpower as well as financial and non-financial institutions involved in the securities market.

The lack of proper policy framework that provides incentives and protection to investors.

The dominance of bigger public sector and borrowing of public sector as well asgovernment form the institutional sources rather than the market

3.8Prospects of DSE The capital markets in Asia are getting more and more focus with the growing corporatization of the Asian economies. Eastern Asia has progressed a lot with respect to attracting western companies to get listed in Asian bourses as well as supporting innovative instruments, and Southeast Asia is also coming up with India leading the way. Comparing the local market scenario with that of the rest of the region, Bangladesh is in pretty good shape as we have most of the infrastructure in place. Our market capitalization is relatively smaller and it currently stands at $9.3 billion, which is just over 13 percent of GDP. Higher liquidity is skewed towards a handful of scrips, while a stagnant situation exists for few less profitable issuers. At present, the government is heavily focusing on developing a debt capital market. Such measures are certainly welcome as Bangladesh lacks a proper secondary market for bonds. The market is yet to support short-term capital requirements of corporations. Commercial Paper (CP)has not yet been tried primarily due to interest rate volatility and illiquid risk-free instruments that can be used as benchmark neither for short-term and hardly for long-term financing.


It can, therefore, be said that we have a somewhat flat yield curve in Bangladesh at the moment. Debut trading of state-owned oil companies like Jamuna Oil Company Ltd and Meghna Petroleum Limited on the local bourses in January 2008 has spurred a lot of encouragement among investors. This initiative taken by the government to list SOEs will increase market capitalization and improved liquidity.SEC is also contemplating the introduction of the book-building method in the valuation of IPOs in order to ensure a fair price within this year. This will encourage companies with sound financial health to come into the market. Regulatory pressures are mounting on telecom companies to get listed. It is estimated that the listing of the top telecom companies will attract more foreign investment, increase the market capitalization by few folds, and bring about higher standards of corporate governance. There is still huge potential in the market for securitization and other debt instruments like commercial papers and corporate bonds, and derivatives, which will help foreign investors, hedge their exposure.

NRB A Bangladesh citizen living abroad with valid status

Either As foreign Country’s permanent resident or with valid work permit

In case of foreign passport holder an endorsement either from the relevant Bangladeshi embassy or from Bangladeshi foreign ministry stating that “No visa is required” for traveling to Bangladesh – as a proof of dual citizenship.

The benefits for Investing as NRB

10% of all issued IPO are reserved for NRB-may be increased very soon for at least very large issue.

No Capital gain Tax

Minimum 60% of ICB NRB Mutual Funds are Reserved for NRB’s (Last one was ICB 3 rd NRB Mutual Fund)

Can also trade in the secondary capital market while abroad through Nominee in local currency. Availing custodian services for individuals are difficult and expensive. So investment amount should be transferred either to Nominee or brokers trading account and


then trade on secondary market either by nominee or personally by phone calls, fax, email etc. remembers, the buy sell order will have to be fax in within 24 hours in account in order personally. In the upcoming trading platform MSA Plus, brokers will have to be allowed to provide investor terminals to NRB investing to facilitate alive trading order placed. BO account BO account stands for beneficiary owners account. This is the account that holds your shares like in inbox holding all yours emails.

All share from new IPO’s and most of the secondary market shares are in electronic form and a BO account owned by the investor, hold the electronic share.

All NRB are requested to open a BO account through any one of the brokerage houses of DSE by filling required forms and submitting required document.

From where should an NRB open his account? Home or abroad! Home

It’s easiest if the NRB is in Bangladesh to open the BO account for investment. All he/she has to do is to visit a preferred brokerage house and fill some forms and get the nominee and the POA to sing.

From then the NRB can go back abroad and continue applying for IPO’s or continue trading in the secondary market.

Very soon investor will be able to place buy/sell orders so their brokers online the new trading system

Abroad

If you are abroad and intend to open the BO account then you need to following step :

Collect the relevant forms from your preferred brokerage house via mail. Fill it up and get the introduce part attested by the local Bangladeshi Embassy as a proof of the NRB status by providing to them the require documents.

Get your photos attested by the local Bangladesh Embassy as well.

Send the form back to the brokerage house with the nominee and POA part filled in. send the POA to the brokerage house.


Very soon investor will be able to place orders to their brokers online.

How to buy or sell

IPO application needs to be filled on a prescribe form. Such form can be obtain through mail, website from issuing company, or through broker etc.

Trading in secondary market is done by buy/sell order forms.

If POA is assigned then the POA need to sing the buy/sell order form need to be faxed to broker within 24 hours.

Trading will be carried out within prevailing market guidelines.

Shares will be credited or debited to the BO account accordingly

The tax rates for NRB

There are no capital gain cash.

Individual income tax assessment is similar to any other reassessment Bangladeshi. Please go to http://www.nrbbd.org/incometax.html for detail of rates. NRB can submit tax return to local Bangladeshi embassy.

10% at source of deducted by issuer in case of cash dividend

Flow

chart of investment

NRB

Broker

FC Account


BO Account

Trading Account

NITA Account

Electronic Shares

Buy

Buy/Sell

Secondary Market

Primary Market Bonus Shares

Cash Dividend

Earning

Note: If NRB is interested to avail custodian service then it is advisable to try to avail the service collectively. The custodian service provided by the local custodian in Bangladesh (HSBC Ltd., SCB Ltd., DBL, AB Bank Ltd. etc), (a list of available at the end) is done to whole sale window not retail. As such they are not comfortable to provide custodial service to individual in accost effective manner. The way to get collective custodial service is to conduct with fund manager or international global or custody service provider in your locality and conduct a custodian in Bangladesh through them. In this way you are free to individual level BO and order placement without an problem through the intermediary. This process

will easily enable you to take part in the secondary market with proper

legal channel for foreign currency in and out.

Common services provided by a custodian are:

Account service.

Registration service

Corporate action service

Escrow service


Trade settlement services

Safe keeping services

Foreign exchange services

Market expertise

The flow of investment activity may take place in the following form:

NRB

Global Custodian

Fund Manager

Local Custodian

International Broker

Local Broker

BO with CDBL

Local Stock Exchange

The NRB may take any of the [possible routes outline above to link to the local broker and custodian. Putting in more intermediaries increases cost but may provide more safety and single point communication for the foreign investor.

Foreign Investor A foreign investor is-


Any foreigners resident in Bangladesh or abroad willing to invest in Bangladesh capital markets are considered foreign investor.

Bangladesh provides a very friendly and open investment atmosphere for foreign investor.

No capital gain tax.

“Long established legislative and legal framework protects foreign investment in Bangladesh” – Bangladesh prime, market introduction by Deutsche bank.

The foreign investor may take any of the possible routes outline above to link to the local broker or custodian. Putting in more intermediaries increase cost but may provide more safety and single point communication for the foreign investor. What are the common services provided by custodians?

Account service.

Registration service

Corporate action service

Cash management services

Trade settlement services

Safe keeping services

Foreign exchange services

Market expertise

Escrow services

Trading: custodian

broker

Custodian usually receive orders via SWIFT or any other acceptable standard

Custodian carries out share and monitory transactions with the local broker

DVP (Delivery verses payment): Deliver shares from FI’s specified BO to brokers BO upon receiving payment only. DVP is applicable for sale orders.


RVP (Receive verses payment): Receive shares to FI’s BO account or any other Omnibus BO as specified by FI and make payment. RVP is applicable for buy order.

For DVP the broker sends sale confirmation to FI which is turn in communicated by FI to custodian. Then broker confirm payment amount and quantity of share involved with custodian. Then broker pays the custodian to receive the shares.

For RVP the broker sends by confirmation to FI which in turn is communicated by FI to custodian. Then broker confirm amount and shares involves with custodian for the transaction. After settlement with the exchange the broker deliver the shares to the custodian to receive payment for the shares.

FI sends buy/sale order notice to custodian and broker separately either directly or through fund manager/global custodian/international broker.

After execution of order the broker communicates with custodian to match the order.

Once the orders are match the settlement between broker and custodian take place.

BO account

BO account stands for beneficiary owners account

BO account hold share purchased or share credited due to corporate declaration.

Local investor Overview of CDBL Depository Bangladesh Limited (CDBL) was incorporated on 20 th August 2000 sponsored by the country's Nationalized Commercial Banks (NCBs), Investment Corporation of Bangladesh (ICB), Private Commercial Banks (PCBs), Foreign Banks, Merchant Banks, Publicly listed Companies, Insurance Companies and Dhaka & Chittagong Stock Exchanges with the collaboration of the Asian Development Bank (ADB). Legal basis for CDBL's operations is set out in the Depositories Act 1999, Depositories Regulations 2000, Depository (User) Regulations 2003, and the CDBL by-laws. CDBL's core services cover the efficient delivery, settlement and transfer of securities through computerized book entry system i.e. recording and maintaining securities accounts and registering transfer of securities; changing the ownership without any physical movement or endorsement of


certificates and execution of transfer instruments. The Central Depository System (CDS) operated by CDBL has proved to be a convenient and reliable means to settle securities transaction. The investor has been freed from the hassles of physical handling of certificates, errors in paper work and the risks associated with damaged, lost and forged certificates. CDBL's operations are carried out in its Main Data Centre which is linked to a remote Disaster Recovery Centre operating as a backup with data update taking place simultaneously. Network connectivity to Depository Participants, Issuers, Banks, Stock Exchanges and Bangladesh Bank is through Front End interfaces accessed by WAN link and dial-up telephone lines. Live operations of the CDS commenced with the inauguration of the Electronic Government Securities Registry (EGSR) by the Governor of Bangladesh Bank on 20thOctober 2003. The EGSR also serves as a platform for secondary market sale/purchase as well as Repo transactions of government securities to commercial banks linked online to the CDS. Equity market securities dematerialization process i.e. eliminating physical certificate as record of security ownership by substituting it as an electronic book entry record in the CDS commenced on 24th January 2004 with the entry of Square Pharmaceuticals Limited into the CDS. Since 14th February 2003 CDBL has been acting as National Numbering Agency for International Securities Identification Number (ISIN) as partner in Bangladesh of Association of National Numbering Agencies (ANNA) based in Germany. CDBL is a member of Asia Pacific CSD Group (ACG) and an associate member of South Asian Federation of Exchanges (SAFE). Investor BO account – 2,808,958 Number of Investors BO Account Gender Wise Male Female Company Total

Bo Accounts 2,084,259 715,836 8,863 2,808,958

Residency Wise Resident Non Resident Company Total

Bo Accounts 2,648,640 151,455 8,863 2,808,958


Major future prospects that will change the Stock Market:

Within 3 to 6 months 8 large profitable government enterprises are going to be listed under Direct Listing Method adding value worth another 1 billion Dollar.

The Telecom Giants in Bangladesh are finalizing their offers for IPO in the market.

Power and energy sectors demand for capital is 5 to 10 billion dollar within short time to meet the immediate needs of 5000 MW power demand.

A deep sea port requiring 1 billion dollar is going to start with a policy decision that it will also be listed.

The Pharmaceutical sector and API enjoying WTO benefit is growing sharply

Textile sector as backward linkage to thriving export oriented garments industries is booming.

Export oriented food processing industry needs huge capital and technical capacity to meet the growing standards in global market for marine food, fruits and poultry.

IT sector with our talented developers, yet to demonstrate the massive potentials of software industry of the country.

Future Programs for Further Development 1. Active market of government, municipal and corporate bonds beside the corporat e bonds to create alternative investment. 2. All securities to be brought under CDS within 2 years. 3. All major infrastructure companies, especially those in power, telecommunication and energy sector are to be listed ensure to broaden the market depth with at least US$ 15 billion market cap by 2012 having daily average turnover from current level of average of 10 to 15 million dollar to a level of 70 to 100 million dollar 2 years. 4. To strengthen merchant banks’ capacity to be more active. 5. Ensuring speedy disposal of decisions for market operation. 6. Ensuring greater degree of transparency in financial disclosure and management structure for better corporate governance. Getting opportunity to invest idol money Many investors cannot get any opportunity to where invest their idol money. Dhaka Stock Exchange gives the chance to invest idol money and get benefit for the investors.


Getting opportunity to relax on tax •

No capital gain tax

Income tax in25% for individual

Income tax in15% for institutions

10% source is deducted by issuer in case of cash dividend

Getting fixed Dividend which help to bear one’s family after retirement Fixed amount is very helpful for everyone and also help to bear one’s family after retirement. Though the investors are getting fixed Dividend from the stock market so that it is very helpful for a family after retirement. The Benefits or prospects of general investors: •

More return can be get from market rate (If market rate is 10% we can get more return from such share which provides any bond or dividend).

If market stable remains, then unemployed educated young generation can gives their labor as alternatives work.

Stock market can make significant contribution to the economy of Bangladesh. As stock market gets debt so it can be used in constitutional work. It can facilitate in electricity, bridge and other development work in Bangladesh. It helpful for nation and both to the country people.

Capital Appreciation It entails the difference between the price at which a share of a company is bought and the price at which it is sold. If for instance, investors bought the shares of a company XYZ at N2.00 per share, and after three (3) months he sold the shares for N3.50 per share, the investor is said to have made a capital appreciation of N1.50 or 75 percent. Recommendations

DSE should introduce automated monitoring system that may control price manipulation, malpractices and inside trading.

DSE should introduce full computerized system for settlement of transactions.


DSE should force the listed companies to publish their annual reports with actual and proper information that can ensure the interests of investors.

DSE should force the listed companies to declare and pay regular dividends through conducting Annual General Meeting.

DSE should take remedial action against the issues of fake certificates.

DSE should ensure proper accountability system.

DSE should maintained strong monitoring activities.

DSE should reduce communication gaps with concern parties.

DSE should recruit more efficient people.

The management of DSE should be vested with professionals and should not in any way be linked with the ownership of stock exchange and other firms.

DSE should punish the member brokers for breaching of contract.

Conclusion To expedite the market development process, it may be a good idea to decide on certain milestones and link them to the disbursement of Development Credit Support of the World Bank. The government is making good progress in other sectors, including monetary management, corporatization of public-sector banks and others through this linkage. The missing link between the SEC, Bangladesh Bank, Bangladesh Telecom Regulatory Commission and other regulatory bodies is now getting established. Individually, they were not serving each other’s interests, and there was no effective coordination among them, hence the country was deprived of great initiatives. A dedicated financial market cell at the Ministry of Finance could be formed to coordinate with these regulators as well as other ministries. In terms of creating market depth, more profitable state-owned-enterprises should be listed. The supply of securities can be increased if the SOEs are allowed to operate through the stock exchanges. Floatation of SOE scrip’s is expected to expand the market by couple of times. Corporatization of SOEs will bring in transparency as well as confidence on the government financial system. The Bangladesh capital market still has a long way to go. The recent measures taken by the transitional government have already begun to positively impact the markets. If more investorfriendly policy reforms were to be implemented, the capital market will undoubtedly play a critical role in leading Bangladesh towards being the next Asian tiger with growth comparable to India, Vietnam and the other most dynamic economies in the region.


4.0 Introduction As Dhaka stock Exchange is one of the reputed companies of Bangladesh, I am fortunate to complete my internee in such a big organization. Through my internship period I have learned so many things from the organization which I have not learned before. I was placed in Monitoring investigation and Compliance (MIC) Department. to complete my internship. A brief description is given below about my internship experience: 4.1 Duties and responsibilities within the organization As I was an intern my duties and responsibilities was little bit serious. I had to go the office five days a week like other employees. There I was not a employee but acting as a employee actually I was a helper in monitoring dpt. sometime the work pressure was so heavy and sometime I had watch the working process. 4.2 Reporting structure The guideline for preparing my report was given by the Mr. Khandaker Asad Ullah (Depute General Manager). He was my super visor for the entire internship period. 4.3 Department or division In DSE my dpt. was MIC (Monitoring, Investigation and Compliance). In this dpt. the work divided in thee part and I was placed here in monitoring sector. 4.4 Contribution to the organization As an intern I have little to contribute for the organization. My topic was Problems and prospects of DSE so I had to conduct a research which may help to identify their problems and prospects. References Website www.msn.com www.scribd.com www.dsebd.org www.csebd.com


www.secbd.org www.bangladesh-bank.com www.cdbl.com.bd/ http://www.banglapedia.org Book Fundamentals of Investments (Charls J. Corrado)


Report on contains the problem of dse and the perspective of dse