Dhaka stock exchange collapse of 2010 2011 essay

Dhaka Stock Exchange (Generally generally known as DSE) is the main stock exchange of Bangladesh. It is located in Motijheel at the heart in the Dhaka town. It was designed in 1954. Dhaka stock market is the 1st stock exchange of the country. Since 18 August 2010, the Dhaka Stock Exchange had over 750 outlined companies which has a combined market capitalization of $50. twenty eight billion. 1 . 1 Record

First included as East Pakistan Stock market Association Limited in twenty-eight April 1954 and started out formal trading in 1956. It was has been renowned as East Pakistan Stock Exchange Ltd in 23 June 1962.

Once again renamed since Dacca Stock Exchange Ltd in 13 May 1964. After the liberation conflict in 1971 the trading was discontinued pertaining to five years. In 1976 trading restarted in Bangladesh, on 18 September 1986 DSE was started. The formula to get calculating DSE all reveal price index was improved according to IFC about 1 Nov 1993. The automated trading was started in 12 August 1998 and started on you January 2001. Central Depository System was initiated in 24 January 2004. By November sixteen, 2009, the benchmark index of the Dhaka Stock Exchange (DSE) crossed 4000 points initially, setting an additional new excessive at 4148 points.

In 2010, the index crossed 8500 factors and finally damaged in the initially quarter of 2011. 1 . 2 Development

Dhaka Stock Exchange (DSE) can be described as public limited company. It really is formed and managed under Company Action 1994, Security and Exchange Commission Take action 1993, Secureness and Exchange Commission Rules 1994, and Security Exchange (Inside Trading) regulation year 1994. The released capital on this company is Tk.  500, 000 which is divided about 250 stocks each pricing Tk. 2000. No individual or organization can buy more than one share. In respect to wall street game rule only members may participate in the ground and can get shares to get himself or perhaps his customers. At present they have 238 members. Market capitalization of the Dhaka Stock Exchange come to nearly $9 billion in September 3 years ago and $27. 4 billion on Dec 9, 2009. 1 . a few Management

The management and operation of Dhaka Stock Exchange is vested on a 25 members Board of Overseer. Among them 12 are elected from DSE members, one more 12 happen to be selected coming from different trade bodies and relevant businesses. The CEO is the twenty fifth ex-officio part of the plank. The following companies are currently having positions in DSE Panel: Bangladesh Traditional bank

ICB

President of Institute of Chartered Accountancy firm of Bangladesh President of Federation of Bangladesh Compartments of Trade and Industrial sectors President of Metropolitan Chambers of Commerce and Industrial sectors Professor of Finance Division of Dhaka University

Leader of DCCI (Dhaka Step of Business and Industry)

1 . 4 Trading time

The Dhaka Stock Exchange is usually open intended for trading On the through Thursday between 15: 30am – 2: 30pm BST, with the exception of holidays announced by the Exchange in advance. Inside the month of Ramadan, the exchange is usually open to get trading between 10: 30am – you: 30pm BST. 2 . Prior major crash – Wall street game crash in 1996

The amount of BO members in mil novecentos e noventa e seis was simply 300, 500 and most of those were fresh in the market. At that time it was challenging for traders to discover the fake shares through the genuine kinds. Because throughout the crash of 1996, paper shares used to be sold in front of DSE. There were no automatic trading system, surveillance was not strong enough, and there were simply no circuit breakers as well as international protection. By 1991 towards the end of 1995, DSE General Index price obtained by 139. 3 % and reached 834 level.

But in mil novecentos e noventa e seis, the market experienced a dramatic change and pushed the purchase price index up by 337 percent. DSE General Index recorded a top growth by July and stood by 3648. six points upon 5th Nov 1996. Besides, Chittagong Stock market experienced similar change and grew by 258 percent. Chittagong Stock Exchange index increased from 409 to 1157 points in 1996 in a one year’s time. However the steps taken by the government would not work. The index dropped over 233 points in November 6th, 1996. Following your bubble rush, DGEN index dropped to its most affordable point and stood by 957 in April 1997. It stood at around the same stage, where it absolutely was 10 several weeks before and DSE General Price Index lost nearly 70 percent from its highest point in November mil novecentos e noventa e seis. Then the index continued to decrease for the next a decade until April 2004. In this long period, DGEN Index seldom crossed 1000 stage. In short this is often described through a graphical display.

Figure 1 ) Scenario of Share cost index parts of Dhaka Stock Exchange

3. Reason behind market grind in 2010-2011

The stock market damaged again in 2010-2011. The major causes happen to be as follows- 3. one particular Margin Telephone calls & Illiquidity crisis

When investors pay an integral part of future market contracting simply by cash or perhaps selected instruments in an consideration with a broker which is called Perimeter. To make sure obligations of buyer when contract expired, more Margins is necessary if worth of the contract decreases. The task is called Margin call. About “Black Monday”, price movement of foreseeable future contracts made record sum of Margin calls for businesses which were regarding 10 times the typical size. Gathered payments will be paid to investors in whose position got gained. A lot of investors misplaced their capability to enter fresh positions due to Margin telephone calls and some the need to extend credit to make the payment. As buyers were unable to pay margins, brokers located emergency margin calls with exposed options positions which are assumed being liquidated because of failure of meeting margin calls. This occurred repeatedly which quite possibly made advertising pressure on the market and market segments were not capable of handle these kinds of sell purchases.

3. 2 Program Trading

Summit Financial Experts has mentioned that many experts accused program

trading, especially stock portfolio insurance being a major basis for the crash. In this trading, computers immediately order huge stocks investments when certain market trends prevailed. Experts blamed the program trading blindly marketed stocks once prices dropped on nineteenth October.

a few. 3 Type Securities

Investors not merely invested in genuine stock market but also in index choices and futures markets. Choice and upcoming market are called derivatives while the value derives due to transform of inventory prices. The Brady Commission payment which was commissioned to examine the reasons of the crash found the failure of stock mar-kets and derivatives markets to operate in sync was key point that contributed to the seriousness of the crash.

3. some Role of market regulators and their workers

The role of SEC to regulate & monitor capital marketplace, working in prefer of manipulators, approving dishonest proposal and issuing wrong directives which will lead to unforeseen market conditions deteriorated the image of SEC. Investigation statement mentioned several names of corrupt personnel of the marketplace regulators who had been directly or indirectly responsible in the market manipulation. There is a task overlapping between SEC and exchanges. Including, DSE & SEC the two organizations possess surveillance department for the same work but there is absolutely no co-ordination. Listing committee of DSE & CSE looks at listing putting on company nevertheless SEC will not do it properly and accept it. Keeping of Mutual pay for & B�RSEGANG (�STERR.) at a cost lower than the market value has become a new way of bribery to get powerful staff of government bodies. There is one other accusation these senior level employees received placement through the use of other`s term which is really hard to identify. The report admits that SEC doesn’t have enough employees one example is; qualified accountant, financial analyst and investigator to control and monitor the marketplace. Rahman & Moazzem (2011) identified within their study that Dhaka stock exchange is becoming even more volatile nevertheless the regulators cannot defend this. They also advised increasing personnel and quality of professionals in SEC.

several. 5 Demutualization of Exchanges

You will discover both elected & nominated members in DSE and CSE. Quite simply, elected people run the administration because of less interest & relation of nominated members. Because of this, the players from the capital marketplace act as controllers. Meanwhile, remotes are non-active during dishonest activities because of conflict of interest. Inside the investigation report it was declared that different share holders of capital marketplace and detrimental society support & demand for demutualization of exchanges. The meaning of Demutualization is distancing controlling capabilities from controller’s functions, leaving you controller and taking decisions without being encouraged by the industry players. three or more. 6 Purchase of bank in the capital market

Last season & 10 banks and financial institutions spent huge amount of deposit money in the wall street game. As a result reveal prices heavens rocketed right up until December 2010. When Bangladesh Bank restricted more than 10 percent investment of deposited funds, increased CRR and SLR ratio, created liquidity turmoil and market crashed.

several. 7 Pre-IPO & B�RSEGANG (�STERR.) process

Investigation panel considered that due to Pre-IPO & GOING PUBLIC manipulation talk about prices sky rocketed that is certainly the main reason for the share market crash. Manipulators unlawfully & unethically created a Kerb market in Pre-IPO level. Without advice by the real estate committee application for B�RSEGANG (�STERR.) was approved. SEC did not examine irregular asset revaluation and a sign price. Consequently in Pre-IPO or IPO stage location process and placement trade Kerb marketplace overvalued talk about prices. This eventually produced liquidity problems in the capital market.

3. 8 Consistent face value of talk about

Through the meeting between investigation panel and different risk holders of share market, a most crucial reason for irregular climbing of index was indicated to uniform face value of share in Taka twelve. Splitting talk about does not alter revenue or asset of the company and should not impact the share price. But Little investors confirmed their highest inter-est to obtain split present to their little investment and consequently pushed the retail price up. About 62 listed companies split their stocks and shares in 2009 & 2010. So , it abnormally increased liquidity from the market and brought significant change in industry capitalization. Research report implies that MC elevated 655% of companies individuals adopted reveal uniform and MC increased only 46% of those that did not undertake. From July 2009 to December 2010 the function of total MC were 81. five per cent of corporations which adopted share homogeneous and only18. 5% those that did not adopt.

3. being unfaithful Placement transact / Kerb market

Before issuing IPO, Concern manager or perhaps Issuer Business sell shares to their nominated person that is certainly called Private placement or pre-IPO location. Private location is risky since it doesn’t have accounting discloser. In the developed countries there are some fixed rules but in Bangladesh SEC didn’t have got proper rules for it. Because of this some manipulators used it as being a tool of price manipulation. Investigation panel found that in most in the cases location was offered at less than the IPO price.

Though aim of public giving is involvement of public but placement doesn’t make sure it. 8-10 companies given convertible desire share in 2009 & twelve in which normal 69% went for placement. Therefore , participation in the public was hindered and this created location trade or Kerb market. Some firms distributed 50-90 percent with their paid up capital in private positioning. However , every time a company boosts too much paid out up capital through exclusive placement, the amount of free-floating stocks and shares decreased. That’s why the difference among demand & supply press share rates up. Moreover, non-listed corporations created fluidity crisis because huge investment was caught up up with these businesses. Placement produced new technique of trading away from the talk about market that is certainly illegal. By using chance of placement many little companies raised capital by illiterate and un-informed traders with their artificial financial reviews. 3. twelve Omnibus accounts

Investigation survey found Omnibus accounts of ICB and merchant banking institutions as another main reason behind the stock market hecatombe. Every branch of merchant traditional bank operates only one omnibus bank account. There could be 3-10 thousands BO Accounts within the omnibus accounts which are not under the security of SECURITIES AND EXCHANGE COMMISSION’S. So , data of person accounts and its particular transaction happen to be kept simply with product owner banks. Since investigation reports shows that this sort of account produced a lot of illegal transactions. It posts name of 30 big players which includes ICB for a number of suspicious transactions and says most manipulators traded through the omnibus accounts. It was also reported in least Taka 2 . 5 billion continues to be traded by hidden or perhaps omnibus accounts.

3. 11 Asset revaluation & Gossip

By using chance of fragile asset revaluation method corporations have overvalued their property. In this method dishonest auditors generated manufactured audit reports. So , establishing of NAV on overvalued asset signifies wrong sign. Some firms issued Bonus shares against unrealized gain of revalued asset price which is a faulty accounting practice. There is secret to maintain supply against “deferred tax” during asset revaluation to pay out tax at a later date, but businesses are not next it. Analysis reports aimed some firms which acquired NAV much more than 100% to 3, 472% following asset revaluation. 3. 12 Book building method

It’s a procedure of determining cost of IPO at which it is offered. The fair price is determined by the demand of a secureness from institutional investors and their indicative selling price. The main purpose of introducing this technique in Bangladesh stock market was going to attract more firms to get enlisting in the stock exchanges through fair share pricing. Yet , it was discovered as a musical instrument of manipulating market prices. Investigation statement reveals that during the price discovery/bidding stage investors manipulated share prices for placement with too much price. High price was taken care of only for the lock-in period and then shareholders offloaded their very own shares. As a result they pulled out a lot of profit within a short period and after that the discuss price would not increase. With this process dangerous Issuer and issue supervisor manipulated the retail price.

3. 13 Serial and artificial trading

Some manipulators produced artificial energetic trading environment among themselves through bulk transaction and increased share prices. Additionally serial trading and price manipulation by many buy-sell instructions through several accounts and broker properties which overheated the market.

a few. 14 Issue of Proper and preference share

Right Reveal is given at a discount value to existing shareholders. SEC took 4/5 months to take the decision of right concern proposal which can be mysterious. In the mean time companies inform the market about Right issuance and increased the talk about price. Furthermore, issuance of Right talk about increase range of share which should decrease share price however it did not hap-pen. Investing in Choice share is safe to get a which is usually of revenue. To make the talk about attractive companies keep an opportunity to convert that and in that case it truly is called Convertible Preference Talk about. Companies released preference talk about for only 2-3 weeks even for 1 month that is not common far away. The problems with convertible preference discuss were their time period (short), convertible process and private positioning. Investigation panel found that SEC would not have appropriate guidelines to get Right and Preference Discuss issuance.

3. 15 Suspicious transaction of top players

Research report reveals some names of specific and institutional investors since top sellers and buyers during abnormal increase and decrease of index in different time periods. The ventures of these buyers were suspicious and influenced the market seriously and liable for abnormal go up and fall season.

3. 16 Block location

There was clearly a lot of suspicious prevent trading of mutual funds. Some shareholders got substantial amount of placement occasionally.

3. seventeen Direct listing

Together with the approval of SEC handful of companies have already been directly listed in the stock exchange. These companies come to the market with inflated share prices. Investigation statement mentioned that indicative rates of these corporations were established even 49 times a lot more than EPS and 9 times during the NAV. Although share rates of these types of directly listed businesses have been artificially determined, but SEC or perhaps exchanges did not investigate the main reason of irregular price.

5. Impact in the crash

Bangladeshi stock market experienced through inefficient and irrational varying of DGEN Index back in 1996 and 2011. During 2010, the bullish marketplace turned bearish with the exchange losing you, 800 items between January 2010 and January 2011. DGEN Index climbed in point 8918. 51 on December 05, 2010 which was overvalued in all of the aspect. Then the market damaged at stage 4877 in November 2011.

Figure 3: Daily DGEN index of January, 2011

Figure some: Showing the Movement of DSE Standard Index from June- ’10 to May- ’11 Influences of the crash were:

As a result of the marketplace crash, countless investors have been rendered insolvent. Because of free of charge fall of share prices, Investors turned out in the street once again and started protesting against free show up of reveal prices and chanted devise against market regulators. Unique objects just like wood and papers were set on open fire in front of the DSE office in Motijheel. Traders came out in the street with processions and demonstrated against cost-free fall of Share index in the two bourses as well as suspension of trading. Shareholders from various areas of the country such as, Chittagong, Comilla, Narsingdi, Narayanganj and Jessore brought out processions and clashed with law en-forces occasionally as well. Shareholders blamed the speculators and regulators to get the bubble that finally burst. Economy faced fluid crisis. Authoritites and federal government took steps to handle the crisis. Although stock market of Bangladesh had already got the appositive of “the worst currency markets in the world”. And a continuing market hardship is still taking place.

5. Measures taken to support the wall street game

Considering that the collapse from the market in December 2010, a number of pursuits were performed by Ministry of Finance (MoF), Reliability and Exchange Commission (SEC), Bangladesh Bank, Government and Dhaka Stock Exchange (DSE)/ Chittagong Stock Exchange (CSE) to stabilize the market. a few. 1 Measures taken by government-

The government got a number of measures to inject money in the industry. This included Tk. six-hundred crore well worth of money distributed towards the state-owned financial institutions and Expenditure Corporation of Bangladesh (ICB), and development of a common fund named Bangladesh Account with a basic resource of Tk. one particular, 500 crore. Under the countrywide budget of FY2011-12, govt announced a volume of incentives to recuperate the capital market situation. A few of these were re-introduction of taxes rebate establishments, tax-free services for common funds, time extension intended for non-bank financial institutions (NBFIs) to modify their expenditure in wall street game (revised fb timeline is December 2013), and adjustment of single borrower exposure limit by the business banks (revised timeline is usually December 2013). All these financial measures include direct and indirect significance for increasing fund for the suffering capital industry. A �bung committee was developed by the government to identify the causes, people and solution regarding the problem in the stock market. The Probe Committee and the MOF came up with a summary of 36-point measures which were to get implemented in three levels (i. elizabeth. immediate, short and medium-term). 5. two Steps used by SEC-

Security & Exchange Commissions applied a lot of directives to keep the market under control in 2010. SEC changed savoir of perimeter loan proportion by elevating it from 1: 0. 5 to at least one: 1 upon 13th 12 , and later it had been again hiked to 1: 1 ) 5 & 1: a couple of because of cost-free fall of share prices. Actions were taken against persons discovered guilty because of their fraudulent actions, investigation of allegations up against the SEC officials who indulged in industry manipulation, examination of assets of some of the businesses alleged to had been involved in illegitimate trading, and initiation to probe accusations against several companies was as well done. Felony investigation against a number of firms and individuals which was said to be carried out by the Anti-Corruption Commission (ACC) was started nevertheless without much visible progress. SEC under it is new managing has also prepared a 29-point work strategy.

Of these, 8 activities had been identified as ‘top urgent’, 3 as ‘urgent’, 14 since ‘short term tasks’ and four as ‘medium term tasks’. The MoF along with SEC and other stakeholders well prepared the much-hyped Market Resurgence, , revival, stimulation Package. This 21-point deal focuses on greater participation of banks and also other financial institutions in the stock market, besides

setting up a ‘special scheme’ to provide support to tiny investors who also lost their capital. a few. 3 Methods taken by Bangladesh Bank-

Bangladesh Bank forced money in the market since liquidity support. Banks possess reportedly held buying shares despite experiencing liquidity entr�e themselves, and not selling virtually any shares.

six. Outlook for future years

To shield the share market of Bangladesh, the regulatory human body should take several effective actions. It should introduce some monitoring systems to safeguard the price manipulations of the discuss. Provisions should be made to provide all the economic data for the investors in order to get a proper idea regarding the company. The marketplace should be totally free of fake records. The government should certainly offer tax rebate around the income of share market and inspire the banking companies and not banking institutions to visit the market straight. Some offers package pertaining to the buyers like having financing by a low cost must be offered to reestablish the investors in the market. Marketplace stabilization account must be released so that it will help you to meet up with crisis situation.

As Bangladesh is definitely heading toward the producing nation, capital market can be the engine of growth due to its economy if perhaps market turns into structured and efficient. Around the world well respected stock marketplaces like – New York Stock Exchange, London Stock Exchange, Shanghai Stock Exchange, Tokyo Stock Exchange, Aussie Securities Exchange, Dubai Stock market and so on, happen to be regulated and running effectively that provides significant contribution for their individual overall economy. Because, currency markets is knowledge based game rather than a place of gambling; there should be rational win-lose situation often. But Bangladeshi stock market knowledgeable through inefficient and irrational fluctuation of DGEN Index in the year 1996 and 2011 which is similar to the place of gambling. Last but not least, from our examine, we have identified that, you will find problems just like – Big Gap involving the Demand and provide of stock, extraordinary above pricing of stock, marketplace manipulation, insufficient knowledge about the stock market device among the general investors, cost distortion, inefficient regulations, personal unrest, etc . These induced the steepest downward fall season of DGEN Index in the financial 12 months 2011.  As a result, about millions of shareholders lost all their capital which turned all of them empty inside few months. Protection and Exchange Commission (SEC) of

Bangladesh and federal government should take the short term and long term endeavours to strengthen the market. They must encourage more public limited companies to offer more reveal to meet the present demands. Tax rebate, Injections of Marketplace Stabilization Finance, Mandatory keeping certain percentage of share among the board of directors, temporary incentives plans should be brought to get back the confidence among the existing buyers. Regulatory systems of Bangladesh stock market must educate the present and potential investors about the market system and provide these people the exact information so that investors operate their stocks carefully. Until, appropiate further measures are very well formulated and implemented, Bangladeshi stock market will be facing this irrational down again in the future. 7. ARAMIT from 2010- 2013

From the chart we see that, before the crash market price was above tk 450. And the time of market crash from 12 , 2010- January’11, the price of aramit started to land and reached tk 436 at the end of January 2011. After that industry fluctuated and hit the lowest of tk 192. 6 about february 2012. The current selling price as of twenty fourth February, 2013 is tk 216.

Earnings Status:

Based on Annualized EPS of 2012 (Q3):

Basic

Current Value Earning Rate (P/E)

(Based upon Continuing operation)

12. 65

Based upon audited EPS of 2011

Current Price Getting Ratio (P/E)

(Based on Continuous Operation)

15. 12-15

Reference:

1 . http://www.cpd.org.bd/pub_attach/WP95.pdf

2 . http://publications.theseus.fi/bitstream/handle/10024/47195/saha_sangit.pdf?sequence=1 three or more. http://www.dsebd.org/displayCompany.php?name=ARAMIT

4. http://en.wikipedia.org/wiki/2011_Bangladesh_share_market_scam 5. http://en.wikipedia.org/wiki/Dhaka_Stock_Exchange

six. http://www.similarsites.com/goto/bdstock.com?pos=2&s=10

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