Share Market Collapse 2010

Report on Recent Share Market Scam: An In Depth Analysis

MBA515

-----------------------------------------------------------------------------------------------------------

IntroductionThe Dhaka Stock Exchange (DSE) started as the East Pakistan Stock Exchange in 1954, with formal trading commencing from 1956. The then East Pakistan Stock Exchange was renamed to Dhaka Stock Exchange (DSE) in 14th May, 1964. The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its activities are regulated by its Articles of Association rules & regulations and bye-laws along with the Securities and Exchange Ordinance, 1969, Companies Act 1994 & Securities & Exchange Commission Act, 1993. Prior to independence in 1971, the number of listed companies in DSE was 196 with a total paid up capital of Tk. 4 billion.

Literature reviewThe primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a platform for the trading of securities. This fund rising is regulated by the performance of the stock and bond markets within the capital market. The policies of Dhaka Stock Exchange: DSE can introduce automate monitoring systems that may control price manipulation, malpractices and inside trading. It can make sure all the listed companies publish their annual reports with actual and proper information that can ensure the interest of the investors. To force the listed companies to declare and pay regular dividends through conducting Annual General Meeting. To make arrangement to set up merchant banks, investment banks and floatation of more mutual funds particularly in the private sectors. More banks, insurance companies and other financial institutions should be encouraged to deal in share business directly 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. To train the investors about fundamentals to deal in share transactions. To punish the member brokers for breaching of contract.


1


MBA515

----------------------------------------------------------------------------------------------------------The capital market of Bangladesh at a glance: Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia region. It has two full-fledged automated stock exchanges namely - Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capita market.

Functions of Dhaka Stock Exchange: Listing of Companies Providing the screen based automated trading of listed Securities Settlement of trading Granting approval to the transaction Market Administration & Control Market Surveillance More banks, insurance companies and other financial institutions should be encouraged to deal in share business directly 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. To train the investors about fundamentals to deal in share transactions.


2


MBA515

---------------------------------------------------------------------------------------------------------- To punish the member brokers for breaching of contract. The capital market is market for securities, where companies and Governments can raise long-term funds. It is a market in which money is lent for periods longer than a year. The capital market includes the stock market and the bond market. Capital market is the group of interrelated markets, in which capital in financial form is lend or borrowed for medium and long term and, in cases such as equities, for unspecified periods.

The Primary Market: The primary market deals with newly issued securities and is responsible for generating new long-term capital. The Secondary Market: The secondary market handles the trading of previously-issued securities, and must remain highly liquid in nature because most of the securities are sold by investor


3


MBA515

-----------------------------------------------------------------------------------------------------------

Structure of Dhaka Stock Exchange: Public Market: Only trading of market lot share is done here through automatic matching. Spot Market: Spot transactions are done here through automatic matching which must be settled within 24 hours. Block Market: A place where bulk quantities of shares are traded through pick and fill basis. Odd Lot Market: Odd lot scripts are traded here based on pick and fill basis.


4


MBA515

----------------------------------------------------------------------------------------------------------The Clearing and Settlement module 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.

For A Category

For Z Category


5


MBA515

----------------------------------------------------------------------------------------------------------Here is a complete picture of the settlement system for all of our 427 Instruments in Five (5) groups in the Four (4) markets. A Group: Number of Instruments are 338 (150 + 8D + 22M + 158TB), 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. Here is the summary of Dhaka Stock Exchange Limited in a table format. We can easily have an idea about the current market scenario.


6


MBA515

----------------------------------------------------------------------------------------------------------Main Board as on February 2011Total Number of Listed Securities Total Number of Companies Total Number of Mutual Funds Total Number of Debentures Total Number of Treasury Bonds Total Number of Corporate Bonds Total number of Shares/Certificates: Total Number of Shares & Mutual Fund Certificates of All Listed Securities* Total Number of Shares of All Listed Companies Total Number of Certificates of All Listed Mutual Funds Total Number of All Listed Debentures Total Number of All Listed Gov. T-Bonds Total Numberof All Listed Corporate Bonds Total Issued Capital of : All Listed Securities All Companies Shares All Mutual Funds All Debentures All Listed Govt. T-Bonds All Listed Corporate Bonds Total Market Capitalization of: All Listed Securities All Listed Companies Shares All Listed Mutual Funds All Debentures All Listed Govt. T-Bonds All Listed Corporate Bonds Conversion Rate: BDT against USD 476 229 33 8 203 3 (No. in mn) 15,673 13,268 2,393 (No. in ' 000) 409 4,672 7,336 (Figure Tk.in mn) (FigureUS$ in mn) 719,316 220,543 23,183 140 468,113 7,336 10,105.59 3,098 326 2 6,576 103

(Figure Tk.in mn) (FigureUS$ in mn) 2,349,353 1,843,471 30,477 576 468,113 6,716 71.18 33,006 25,899 428 8 6,576 94

* Total No. of Shares/Share Capital / Market Capital includes Bonus /Right of shares.

Present condition of DSE Market is in bottom line at present. All the share prices stand at reasonable and they are attractable. If we see the price earning ratio of the companies of different sector, we can find overall PE is low enough to invest into those shares. The PE ratio is the lowest if we


7


MBA515

----------------------------------------------------------------------------------------------------------analysis last five years data of DSE. Today PE of bank sector is 14.13 which were 21.75 last year. So there occurred a huge price correction in the [rice of banking sector shares and the prices are in bottom line now. The lowest PE ratio is 9.15 for Mutual Fund sector. Some companies of mutual fund are traded below their face value. So we can easily determine the correction level of shares price last five months. Average PE of total market stands at 17.79 which were 26.66 last year.Sectoral P/E - February 2011Sector Bank Financial Institutions Mutual Funds Engineering Food & Allied Fuel & Power Jute Textile Pharmaceuticals Paper & Printing Service & Real estate Cement IT Tannery Ceramic Insurance Telecommunication Travel and Leisure Miscellaneous Sectoral Price Earnings Ratio Feb-11 14.13 31.50 9.15 32.08 18.65 14.91 26.30 30.08 25.07 67.29 23.17 20.08 38.76 14.06 57.89 33.87 11.58 47.82 14.47 Dec-10 21.75 43.35 12.54 51.13 25.46 21.16 42.72 46.66 32.83 109.15 38.68 30.36 57.31 19.08 107.15 55.04 19.64 74.64 19.68 28.85 25.65 34.43 18.42 14.43 23.58 11.05 14.51 7.83 13.85 Dec-09 16.46 32.45 29.06 36.50 17.29 17.71 27.23 32.93 27.64 27.59 45.65 56.90 60.71 15.39 39.97 31.39 84.85 Dec-08 16.33 25.26 20.37 30.24 16.93 15.83 12.15 13.85 30.96 9.36 22.66 10.26 46.52 16.43 47.80 21.81 Dec-07 25.99 15.13 20.29 28.57 23.28 35.95 7.98 12.14 21.05 6.23 8.82 12.61 15.25 15.38 29.85 15.59 Dec-06 16.24 7.88 6.13 17.34 18.69 18.87 6.74 12.01 11.76 6.62 12.62 18.53 11.12 8.00 14.88 10.24 Dec-05 18.24 33.83 6.55 14.14 9.13 22.32 12.55 10.08 10.84 4.69 8.16 16.13 10.46 10.28 17.06 20.87

Market P/E 17.79 26.66 Table: Price earning ratio for last five years

The Market Collapse So we have observed a market crash in our capital market which we many didnt expect after 1996 turmoil. The 1996 crash of share market not only depleted the market value and volume of the Dhaka Stock Exchange, it ruined many families, mainly from the middle class, who were enticed by a few manipulators. When thousands had put in their last stake, insiders made profit by selling at the pick of value before leaving the market


8


MBA515

----------------------------------------------------------------------------------------------------------and siphoned the cash outside the country. This happened while the government was in full function and regulatory bodies were active. When millions lost their cash and left with scripts of negligible value, the courts, lawyers, government bodies, human right groups and the civil society did not seem to care. Despite everything that was said, nothing happened on the ground, except those who lost remained losers. The subsequent government also dropped a few crocodile tears and shrugged off the matter. In 2010 we also experienced the same as 1996. Aggrieved investors set fire to wood and paper in front of the DSE building and blocked the road from Shapla Chattar to Ittefaq Moor. They chanted slogans against the top bosses of the premier bourse and market regulators, and demanded resignation of the central bank governor. Market insiders blamed the recent fall on the central bank's measures to control the liquidity flow in the banking system. The central bank also issued another directive asking financial institutions to adjust their stock investment exposure by December. From January, no institution will be allowed to invest more than 10 percent of its total liabilities in the stock market, and the exposure will be calculated based on market price, not cost price. The International Monetary Fund's prescription to Bangladesh Bank for addressing the overexposure of commercial banks to the stock market also propelled the unprecedented fall. The SEC's excessive initiatives to cool the market in a short time are also blamed for the crash. The measures and unexpected and unnecessary intervention of a donor agency took a big toll on the market

A strong cartel has used the primary market as a tool to fleece people by inflating share prices, says a probe committee report. The 1996 crash was in the secondary market. But this time it was created in the primary market from behind the scene by a nexus of the issuer, issue manager, valuer, chartered accountant and placement holder with the SEC's support, the report said.


9


MBA515

----------------------------------------------------------------------------------------------------------The huge price inflation due to misuse of premium, book building and placement before issuing IPO caused massive instability in the secondary or open market, the report said. Primary market deals with the issuance of new securities. In Secondary market previously issued securities and financial instruments in the primary market such as stock, bonds, options, and futures are bought and sold or traded. In 2009-10, 34 companies, eight of which were non-listed, raised capital totaling Tk 3,776 crore through private placements. Private placement is a non-public offering in which securities are usually sold to a limited number of chosen private investors. Some of them distributed primary shares equivalent to 50-90 percent of their paid-up capital. Using the placement illegally, the issuer companies or the issue managers or their representatives gave placement shares to many high civil and military officials in a bid to increase their share prices in the market, the report said. It is not possible to know their complete identity by names and addresses mentioned in the prospectuses. If extensive police or intelligence probe is launched against these people.conspirators behind the scene will be unmasked and forgery in the stock market will be stopped in future, said the report. It also disclosed a list of 100 people who received shares through placement in a big amount. The probe found that business people, stock exchange members and directors, chief executives of some merchant banks, relatives of high officials of the ICB and wives of banks officials were among those who received placement shares worth above Tk 1 crore. The probe committee also received allegations that high officials of the SEC and stock exchanges members and directors took placement shares in condition of giving listing approval.


10


MBA515

----------------------------------------------------------------------------------------------------------Eight non-listed companies raised Tk. 1,367 crore from many individual and institutional investors through private placement. But these companies are yet to be listed on the stock exchanges. As a result, the prevailing liquidity crisis in the stock market may be intensified further, as the individuals' and institutional investors' money got stuck in the companies' placement. The placement business outside the capital market has become a new system for share transaction that is totally illegal. Taking this opportunity some weak companies through fabricated financial statements raised hundreds of crores of taka from immature investors, the report said. Pubali Bank Securities Limited is one of the institutional investors that bought around Tk 13 crore worth shares of Unique Hotel and Resorts Ltd and Energy Prima Limited through placement. As the stockbroker's investment got stuck on the two companies, the bank brokerage house on March 1 sent a letter to the SEC seeking support from the regulator to get back the investment. Not only in the case of companies placement, the probe committee also found irregularities in the pre-IPO placement of mutual funds that also helped to create instability in the stock market. According to the probe committee's finding, placement holder of six to seven mutual funds pocketed around Tk 350 crore. Lack of guidelines or rules in the SEC widened the scope of the irregularities in the placement, said the report, which also suggested formulating specific rules on placement.

MethodologyThis is an exploratory research which is mainly qualitative in nature. This study involves in depth literature review and qualitative analysis.


11


MBA515

----------------------------------------------------------------------------------------------------------This study is mainly on secondary data sources with some conversational interview with some stock market broker and experienced stockholders. We also took help of different newspaper articles, feature writing, DSE circulars, DSE Archive & Unpublished report Stock Market Investigation Report 2010- by Ibrahim Khaled. Research questions: What happened in 2009-2010 during the share market collapse? What & who were the reasons for the collapse? What should be done to prevent recurrence in future?

HypothesisThe failure of the Securities and Exchange Commission (SEC) to regulate the process of placement and trading and the involvement of some insiders allowed the corrupt investors to siphon off tk. 20000 crores out of the country, at the expense of thousands of small investors. Null hypothesis: SEC was not involved in the artificial price hike that resulted in the market collapse.

Objectives*The primary objective of this study is to explore & find out what happened in 20092010 during the share market collapse. *What & who were the reasons for the collapse. And, *What should be done to prevent recurrence in future?

Analysis


12


MBA515

----------------------------------------------------------------------------------------------------------Nature of market collapse in 2010 is totally different than that of 1996. In 1996 collapse was an incident completely of secondary market. But this time it was a mixture of both primary and secondary manipulation. The misuse of premium, book building, and placement created a huge inflation in the market and the collapse was consequence of these. If SEC could prevent pre-IPO scandals, this collapse could be avoided. Pre-IPO Manipulation: A company can raise its capital through public issue, placement and right issues. An incumbent company before listing to SE can collect operational fund through private placement. SEC does not have any regulation regarding this matter. As there is no accounting discloser in placement, there remains high risk. In developed countries placement is offered to merchant banks and institutional investors. As there are no rules to issue placement here, often this misused. Distributing those among few big investors makes way to price bubble in future. In 2009-2010 total 34 companies collected capital through placement. Among which 26 were listed and other 8 was non listed companies. These companies have withdrawn more than Tk. 3,788,02,62,320 last 2 years from the market. In many cases companies collected 50-60% of their paid-up capital. Some did it 90% which is incredible. Too much placement reduces Free floating normal stocks from the market and increases share price due to shortage of stock supply. Only few institution and persons are the beneficiaries of this malpractice. List of top companies placing more than 100 crore privately... *Grameenphone Ltd *Orion pharma Ltd *Unique hotel and resorts Ltd *GMG Airlines *STS Holdings (Apollo Hospital)


13


MBA515

----------------------------------------------------------------------------------------------------------*Lanka Bangla Securities *Malek Spinning *Trust bank Ltd Book Building: This has become a system for price manipulation recently. KPCL stock face value is tk.10, and its indicative price was tk.162. On first trade day price was tk.194.25 & current price is tk.96.90. This means price declined tk.97.35 from first trade. Stock of OCL having face value tk.10 price indicated 121.40 & first traded for tk.145 current price is tk.109.10 which is tk.36.90 less than the first trade. This proves that these companies initially overpriced which is corrected over time. On the other hand RAK Ceramics having face values of tk.10 like others was priced tk.40 first traded for tk.48 & current market price is tk.108.70. This is tk. 60.70 more than the first day. To summarize: Company Name KCPL OCL RAK Ceramics Face Value (tk) 10 10 10 Indicative Price at price (tk) first trade (tk) 162 194.25 121.40 40 145 48 Current price (tk) 96.90 109.10 108.70 Price Difference (tk) -97.35 -36.90 60.70

The three examples above prove that if issuer company & issuer manager is honest, no price distortion occurs.

Effect of stock split: The denomination of a stock is shown smaller or divided by stock split. Suppose a banks Face value was 100tk/share with 50 stocks per lot. This can be split into 10tk/share with 500 stocks per lot. Thus the denominator value or face value is changed but stock value remains unchanged. Normally this should not affect the price but in our


14


MBA515

----------------------------------------------------------------------------------------------------------market this happened due to individual investors sentiment and misunderstanding also ignorance about this matter. In 2009-2010 about 62 stock splits took place starting from July 9, 2009 Change in market capital due to stock split: 02-07-09 in crore Split companies (62) 30,006 Not split companies 96,879 All companies 1,26,885 Source: Stock exchange Archive. evident that: a. Market capital of split companies increased 655% b. Where at the same time, stocks not split increased only 46% c. From July to December 2010 Market capital was comprised by about 81.5% of capital of split stocks. Illustration of Market Bubble & Manipulation: There are lots of rumors in the market always. And our illiterate investors are more prone to value those rumors. Many of the rumors went wrong. There was wrongly made speculation and manipulation too. Generally there are interactions between the players of the market. Although that NEXUS is almost impossible to prove, but can be understood. Moreover in our market there is no bar on excessive transaction in the secondary market. Here we wanted to illustrate the scenario, how the market was bubbled gradually during 2009 2010 and how the market collapsed. In the first phase the top players are presented here, who were at top position recently and at special times (at peaks and downs). From October-November of 2009 the market index increased from 2800-4500. This time is considered as trigger time to bubble creation. Top Players at this time are presented below:Report on Recent Share Market Scam: An In Depth Analysis

05-12-10 in crore 2,26,573 1,41,498 3,68371

Change Absolute Percentage 1,96,567 655 44,619 46 241,186 190

Gross Effect 81.5 18.5 100

Although change in market capital cannot be determined solely by stock split, it is clearly

15


MBA515

----------------------------------------------------------------------------------------------------------October-2009 Buyers Name Golam Mostafa ICB Omnibus (ICBL) Shahjalal Bank ICB Omnibus (SOB) A B Securities Pubali Bank Md.Rezaul Karim Sayed Sherajuddulla Md. Kholiluzzaman Yakub Ali Khandoker Suborna Mostofa Md.Fazlur Rahman ICB Omnibus (JBM) Amzad Hossain Fakir Uttara Finance and Investmnt ICB Omnibus (ICB) ICB Omnibus (RAJICML) S.M. Jillur Rahman ICB Omnibus (KHLICML) Md.Shohidulla Nahar International Trade Standard Bank (Portfolio) Md.Moksedul Islam Fazlur Rahman ,Jesmin Arju ICB Omnibus (HO) Maiduzzaman Prodhan Arifur Rahman (PFI a/c) Abdul Hafiz Standard Bank (portfolio) Sulaiman Rubel Turnoverin (Crore)

November 2009 Buyers Name AB Bank Ltd.(002) Golam Mostafa ICB Omnibus (SOB) ICB Omnibus (ICML) Md.Razaul Korim Uttara Finance and Investmnt Sayed Sherajuddulla Md. kholiluzzaman Pubali Bank Ltd. Yakub Ali Khandoker AB Bank Ltd. Md.Shohidulla Abu Sadoth md.Sayem(118) ICB Omnibus (JBM) Md. Jahid Miah Zahaggir Miah ICB Omnibus (KHLICML) Zinnath Begum Standard Bank (W9001) Shahjalal Islami Bank Momotaj Begum Abu Sadath md.Sayed (1570) ICB Omnibus (RAJICML) The City Bank (2444) Farest Islami Life Insurance Arifur Rahman (A0365) Abu Talha Islami Insurance Com. Standard Bank (12840) Kazi md.Sahadath Hossain

Turnover(in Crore)

131 128 103 96 83 78 65 61 56 52 45 44 39 39 36 36 36 36 35 34 34 33 33 32 31 30 30 30 30 29

246 140 123 95 74 72 58 54 54 52 46 43 42 36 36 34 33 33 33 32 32 30 30 29 28 28 27 27 27 27

From this table we can easily screen out that: d. Almost same parties were the top traders during these two months. e. Being an responsible institute ICB purchased big amount. f. Main players were hidden behind ICB Omnibus accounts & ICB cannot skip the liabilities. g. Persons among the top were, Yakub Ali, Golam Mustafa, Syed Sirajuddowla, Md. Kholilur Rahman, Arifur Rahman & others.Report on Recent Share Market Scam: An In Depth Analysis

16


MBA515

----------------------------------------------------------------------------------------------------------h. Top institutions were, AB Bank, Uttara finance standard bank, The city bank Ltd, Shajalal Islami Bank Ltd & Pubali bank. In the Second phase, during January & February-2010 Market index hiked from 4941 to 5612. Top players at that time are presented below: Top Buyers: January & February 2010: Serial 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Buyers Name National Bank ICB Omnibus (SOB) ICB Omnibus (ICML) Golam Mostofa Sayed Sherajuddulla Uttara Finance and Investment AB Bank Shahjalal Bank ICB Omnibus (ABMUF) Farest Islami Life Insurance Premier Bank ICB Omnibus (RAJICML) ICB Omnibus (KHLICML) Prime Bank Investment AB Bank BOA Toyub Ali Khan South East Bank Abdul Motin Standard Bank Ltd. Shahadath Hossain Yakub Ali Khandoker Md.Sohidullah Pubali Bank Ltd. Abdul Hafiz Golam Mustofa Arifur Rahman ICB Omnibus (EPFI) ICB Omnibus (PBMI) ICB Omnibus (BOGICML) Rezaul Karim Turnover (in crore) 424 368 287 168 145 144 142 136 107 106 104 96 92 91 87 85 84 82 80 77 77 76 74 70 70 67 65 64 64 63

This table show us during this push period the players topped here are same as the players topped in the previous months. So..Report on Recent Share Market Scam: An In Depth Analysis

17


MBA515

----------------------------------------------------------------------------------------------------------a. During this period ICB Purchased with 8 Omnibus account. b. Among the persons Golam Mustafa, Arifur Rahman, Yakub Ali, Syed Sirajuddowla topped again. c. Among the institutions AB bank, Uttara finance, Shahjalal Islami bank, Fareast Islamic insurance, Premier bank, Standard bank & Pubali bank. d. So, it can be inferred the same syndicate worked during the two push period. Now in the third and last phase where the market really collapsed, lets see who the top sellers were. During November-December 2010 market index war more or less 8300 points. This can be referred as unusual calm period or silence just before a storm. Top sellers at that time were like below. November-2010 Buyers Name ICB Omnibus (AGB) ICB Omnibus (ABMUF) Brac Bank Ltd. ICB Omnibus (ICML) National Bank Ltd. ICB Omnibus (SOB) Everest Capital Exim Bank Farest Islami Life Insurance Southeast Bank Uttara Finance ICB Omnibus (RAJICML) Anoara Eye Hospital Premium Bank Pubali Bank Md.Golam Kibriya Tasmiya Amborin IDLC Finance ICB Omnibus(KHLICML) ICB Omnibus(BOGICML) Md.Helal Miah Star Light Services Sayed Sherajuddulla ICB Omnibus(CTGICML) Md.Mohazzem Hossain December 2010 Buyers Name Agroni Bank Omnibus AB bank Everest Capital National Bank Brac Bank Ltd. ICB Omnibus (ABMUF) Southeast Bank ICB Omnibus (ICML) Uttara Finance Morgan Frontier Fund (Bermuda) IDLC Finance ICB Omnibus (ICB) Tasmiya Amborin Premium Bank Farest Islami Life Insurance Zara Namrin Golam Kibriya Tera BD Fund ICB Omnibus(RAJICML) ICB Omnibus(ICMF) Md.Jahanger Miah ICB Syndicate Pubali Bank Ltd. Farest Islami Life Insurance

Turnoverin (Crore)

Turnover(in Crore)

494 216 204 195 185 156 136 125 122 104 100 89 86 84 76 75 73 70 67 64 57 50 50 50 48

314 272 266 171 159 157 155 142 136 131 97 94 93 83 82 82 78 78 64 63 63 60 57 57 55 18



MBA515

----------------------------------------------------------------------------------------------------------The City Bank Ltd. 46 ICB Omnibus (UF) 49 Sorif Ahmad 42 ICB Omnibus (BUGICML) 49 Standard Bank 42 Md.Abul Basher 48 First Securities Islami Bank 41 ICB Omnibus(HO) 47 ABA Faraque Hossain 41 Amzad Hossain Fokir 46 ICB Omnibus(HO) 40 Md.Helal Miah 44 Dhaka Bank Ltd. 40 Abu Taib md. Hasan 42 From The table above, it is realized that: a. Persons & institutions who were top during the two push period (Oct-Nov-2009 & Jan-Feb-2010), also were in leading position during bursting the bubble by selling huge amount of stocks during Nov-Dec-2010. b. ICB sold about 2 thousand & 380 crore worth stock during Nov-Dec-2010 which almost equals their purchase during the push period (about 2 thousand 200 crore). So the players here too were hidden behind those Omnibus accounts of ICB. c. In both cases, Standard bank, Uttara finance, Pubali bank, First security ialami insurance company remained among the top players. d. At persons, the same names here like Amjad hossain Fakir, Arifur Rahman, Syed Sirajuddowla was top during both push & pull situation.

FindingsPrice Manipulation It has been observed that the share values of some profitable companies have been increased fictitiously some times that hampers the smooth operation of DSE.

Delays of settlement Financing procedures and delivery of securities sometimes take an unusual long time for which the money is blocked for nothing.

Irregular payment dividends


19


MBA515

---------------------------------------------------------------------------------------------------------- Some companies do not hold Annual General Meeting and eventually declare dividends that do not reflect the real or actual financial positions of the company and ultimately shareholders become confused. Selection of membership Some members being the directors of listed companies of DSE look for their own interest using the internal information of share market.

Improper Financial Statement Many companies of DSE do not focus real position of the company as some audit firms involve in corruption while preparing financial statements. As a result the shareholders as well as investors do not have any idea about position of the 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 skilled manpower In DSE as well as financial and non financial institutions involved in the securities market.

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

Recommendation Re-establishment of Security Exchange Commission is highly necessary at this moment. SEC is supposed to have honest, skilled, knowledgeable, clean imaged people. DSE is composed of 25 members board. There are 12 members of stock broker and 12 of dealers and the rest is chief executive officer. So board members are the market player and controller as well. So it is easy for them to manipulate market. So Demutualization is needed now. There should be a supportive atmosphere between Dhaka Stock Exchange Ltd (DSE) and Security Exchange Commission (SEC). Their goal should be the same to work for the betterment of the market.


20


MBA515

---------------------------------------------------------------------------------------------------------- Bangladesh bank should impose bar or circular on the investment criteria for the private banks and other financial institutions. 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. To force the listed companies to publish their annual reports with actual and proper information that can ensure the interests of investors. To introduce automated monitoring system that may control price manipulation, malpractices and inside trading. There should be a new regulation for the placement business on the eve of preIPO state. To introduce full computerized system for settlement of transactions. To force the listed companies to declare and pay regular dividends through conducting Annual General Meeting. The department may issue verbal/ written warning to member/s when market irregularities in the scrip are suspected. 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. To take remedial action against the issues of fake certificates. To punish the member brokers for breaching of contract. Strengthening market regulation and supervision Developing the capital market infrastructure Modernizing capital market support facilities Increasing the limited supply of securities in the market Developing institutional sources of demand for securities in the market and Improving policy coordination.


21


MBA515

---------------------------------------------------------------------------------------------------------- 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

7.0 Conclusion:The market is still struggling to be stable. Market is trying to recover from its bearish mood but we have observed still much confusion, lack of cooperation among the government, DSE members, and regulators. All are waiting for a stable market so that investors get confidence to put their valued money in this market. I think it is the high time government should sit with all the elements of capital market and take proper steps to stabilize the market for the greatest interest of the small investors as we know they are heart of this market.

8.0 Reference:1 2 3 4 www.dsebd.org Annual report of Dhaka Stock Exchange Ltd. Probe report led by Mr. Ibrahim Khaled Bdnews24.com


22

Documents

Share Market Collapse 2010