Chapter: 1

Introductory Aspects

1.1 Background

Capital market is a market for securities (debt or equity), where business enterprises (companies) and
governments can raise long-term funds. It is defined as a market in which money is provided for periods
longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money
market). The capital market includes the stock market (equity securities) and the bond market (debt).
Financial regulators, such as the Bangladesh Financial Services Authority or the Bangladesh Securities
and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure
that investors are protected against fraud, among other duties of the exchanges, the Bangladesh
Securities and Exchange Commission (BSEC) was established in 1993 to regulate the businesses of the
exchanges, ensure proper issuance of securities and compliance with laws and protect the interests of
securities investors.
A key division within the capital markets is between the primary markets and secondary markets. In
primary markets, new stock or bond issues are sold to investors, often via a mechanism known
as underwriting. The main entities seeking to raise long-term funds on the primary capital markets are
governments (which may be municipal, local or national) and business enterprises (companies).
Governments tend to issue only bonds, whereas companies often issue either equity or bonds. The main
entities purchasing the bonds or stock include pension funds, hedge funds, sovereign wealth funds, and
less commonly wealthy individuals and investment banks trading on their own behalf. In the secondary
markets, existing securities are sold and bought among investors or traders, usually on an
exchange, over-the-counter, or elsewhere. The existence of secondary markets increases the willingness
of investors in primary markets, as they know they are likely to be able to swiftly cash out their
investments if the need arises.[
.Stock Exchange is an autonomous body formed by shareholders/members. It can take various decisions
independently. The objective of Stock Exchange is to provide a market place along with facilities for
bringing together the buyers and sellers of securities, promote just and equitable principles of trade,
protect the interest of the investors.
Stock market is an essential part of capital market. Trading has now become automated, led by the
Dhaka 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.

1.2 objectives and scope of the study:

To identify the current situations of our capital market of Bangladesh.

To examine the structure of the existing financial sector of Bangladesh emphasizing on an
organized capital market.
To analyze limitations and examine opportunities of the capital market of Bangladesh covering
both equity and debt markets in creating a congenial investment climate.
To provide a useful basis for building a sustainable capital market with a view to creating a
healthy investment climate in Bangladesh.
The study was limited to DSE and CSE.
To show the impact of the capital market on the economy
To give suggestions for the development of the capital market in Bangladesh

1.3Methodology of the study

To prepare the report of internship, I have collected all kinds of related data from the primary and
secondary sources.
A. Primary data: Primary data is always known as survey data. This type of data is collected from the
respondent. For this personal Interview with the offices and customers have been conducted.
B. Secondary Data: Data that were published before for some other reason can be collected using
internal and external sources.
Primary data:
There are several ways to collect primary data. Among others important one is interview. For collecting
primary data I did follow interview method.
There are several types of interview method. I used only personal interview method.
Secondary data: the study also used secondary data. For this purpose we collect information from
various sources such as various publications of DSE.
1
Various publications of Dhaka stock exchange and Chittagong Stock exchange.
2
Trade journal.
3
Research reports connected with the stock exchange.
4
Different web site.

1.4 Limitations:

Some of key peoples of DSE and CSE were very much busy with their duties that they could
seldom manage time to answer the questions.

Investors are not fluently giving opinion due to some restriction

This study is mainly depended on the secondary data.

Limited primary data are also used.

A time constraint was another limitation in comparison of the vastness of the topic.

Much information was possible to gather but we cant gather with our limited knowledge .But I
have tried our level best to make this report possible.

Chapter: 2
Theoretical Aspects

Capital market can be termed as the engine of raising capital, which accelerates industrialization and the
process of privatization. In other words, capital market means the share and stock markets of the
country. It is a market for long term fund. With the emergence of the need for infrastructural
development projects, for setting up of new industries for entrepreneurial attempts-now there are more
frequent needs of funds.
The functioning of an efficient capital market may ensure smooth floatation of funds
from the savers to the investors. When banking system cannot meet up the total need for funds to the
market economy, capital market stands up to supplement. To put it in a single sentence, we can therefore
say that the increased need for funds in the business sector has created an immense need for an effective
and efficient capital market. It facilitates an efficient transfer of resources from savers to investors and
becomes conduits for channeling investment funds from investors to borrowers. The capital market is
required to meet at least two basic requirements: (a) it should support industrialization through savings
mobilization, investment fund allocation and maturity transformation and (b) it must be safe and
efficient in discharging the aforesaid function. It has two segments, namely, securities segments and
non-securities segments.

INDUSTRY ANALYSIS
Bank plays an important role in this modern world. The development of industries and business sectors
of a country mainly depends on good banking system. The industries and businessman are taking short
and long term loan from banks. In the modern world international businesses are fully depended on
banks. Without sound banking system no country can develop in international trade.
Bank constitutes an important segment of the financial infrastructure of any country. The economic
history of many countries reveals that economic development and growth of financial infrastructure go
hand in hand. Financial system of a country is the heart of a countrys economic system as it connects
suppliers of the funds and demanders of fund, which is needed to produce economic goods. It also
provides a large arena of employment opportunity. As Bangladesh is containing a bank base economy,
its economic development is largely depended on the development of banking sectors.
Merchant banks first arose in the Italian states in the middle Ages, when Italian merchant housesgenerally small, family-owned import-export and commodity trading businesses-began to use their
excess capital to finance foreign trade in return for a share of the profits. This trade generally consisted
of lengthy sea voyages. That time the investments were very high risk: war, bad weather, and piracy
were constant threats, and by their nature the voyages were long-term and illiquid.
In the eighteenth century the merchant banking center shifted from the Italian states to Amsterdam and
then to London, where immigrants from Prussia, France, Ireland, Russia, and the Italian states formed
the core of early British Merchant Banking. Before the Italian and Dutch houses British houses were
generally small, family-owned partnerships, and most of them continued to trade for their own
businesses and to finance the trading by others. At the end of the eighteenth century, however, the British
merchant houses had increased in size and sophistication and began specializing in trade, marketing, or
finance. In the nineteenth century this sector has been spread out virtually no mercantile houses
remained focused on both trade and finance.
The most widely accepted definition of a merchant bank/investment bank is - an individual or institution
which acts as an underwriter or agent for corporations issuing securities is known as investment
bank/merchant bank. However, most of these banks also maintain broker/dealer operations, maintain
markets for previously issued securities, and offer advisory services to investors. Investment
banks/Merchant banks also play a vital role like mergers and acquisitions, private equity placements and
corporate restructuring.
6

Investment banks/Merchant banks function as intermediaries in financial transactions. They provide four
primary types of services: raising capital, advising in mergers and acquisitions, executing securities sales
and trading, and performing general advisory services.
In this prospective we can say an investment bank/merchant bank can assist a firm to raise funds for
achieving a variety of objectives, such as to acquire another company, reduce its debt load, expand
existing operations, or for specific project financing. Capital can include some combination of debt,
common equity, preferred equity, and hybrid securities such as convertible debt or debt with warrants.
Although so many people are associating to raise capital by public stock offerings, a great deal of capital
is actually raised through private placements with institutions, specialized investment funds, and private
individuals. The investment bank work for the client to organize the transaction, in this way to meet the
specific objectives.
Investment banks/Merchant banks represent firms in mergers, acquisitions, and divestitures. Example
projects include the acquisition of a specific firm, the sale of a company or a subsidiary of the company,
and assistance in identifying, structuring, and executing a merger or joint venture. In each case, the
investment bank/merchant bank should provide a thorough analysis of the entity bought or sold, as well
as a valuation range and recommended structure.
Investment Banks/Merchant Banks also provide sales and trading services which are primarily relevant
to publicly traded firms, or firms which plan to go for public in the nearer future. Specific functions
include making a market in a stock, placing new offerings, and publishing research reports.
Prominently, investment banks/merchant banks carry out advisory services which include assignments
such as strategic planning, business valuations, assisting in financial restructurings, and provide an
opinion with a fairness of a proposal transaction. They also track the market in order to advice, by
offerings and insure to the investors, how the superior services are given by them for the public assets.
Some of the consultative activities investment banking firms are engaged in overlap with those of a
private brokerage, as they will often give buy-and-sell advice to the companies they represent.
Unlike traditional banks, investment banks do not accept deposits from and provide loans to individuals;
which happened to be the biggest difference between commercial banks and them. This line between
investment banking/merchant banking and other forms of banking has blurred in recent years, as
deregulation allows banking institutions to take on more and more sectors. Traditionally, banks either
engaged in commercial banking or investment banking.

Bangladesh Capital Market

Capital market is the market for securities, where companies and governments can raise long term funds.
It is a market where money is lent for periods longer than a year. Capital market includes the stock
market & the bond market. Our main regulator is Securities and Exchange Commissions (SEC) oversees
the capital markets in their designated countries to ensure that investors are protected against fraud.
Capital markets consist of the primary market and the secondary market. The primary markets are where
new stocks and bonds are issued and sold (underwriting) to investors. And the Secondary markets are
where existing securities are sold and bought from one investor or speculator to another, usually on
exchange.
At present Bangladesh have two stock exchanges:
1. Dhaka Stock Exchange.(Number of Registered Trading Members/Brokers is 195)
2. Chittagong Stock Exchange.(Number of Registered Trading Members/Brokers is 124)

Bangladesh capital market is growing day by day, now there are two exchanges with 276 companies, 17
mutual funds, 8 debentures and 112 bonds. The market capitalization of Dhaka Stock Exchanges is BDT
104700 million and the market Capitalization of Chittagong Stock Exchange is BDT 800000 million.
The average turnover of both exchanges is now around BDT 5000 million per day.
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

Importance of Capital Market in the economy

The capital market is the market for long-term loans and equity capital. Developing
countries in fact, view capital market as the engine for future growth through mobilizing of surplus fund
to the deficit group. An efficient capital market may perform as an alternative to many other financing
sources as being the least cost capital source. Especially in a country like ours, where savings is
minimal, and capital market can no wonder be a lucrative source of finance. The securities market
provides a linkage between the savings and the preferred investment across the business entities and
other economic units, specially the general households that in aggregate form the surplus savings units.
It offers alternative investment windows to the surplus savings units by mobilizing their savings and
canalizes them through securities into optimal destinations. The stock market enables all individuals,
irrespective of their means, to share the increased wealth provided by competitive enterprises. Moreover,
the stock market also provides a market system for purchase and sale of listed securities and thereby
ensures liquidity (transferability of securities), which is the basis for the joint stock enterprise system.
(The existence of the stock market makes it possible to satisfy simultaneously the needs of the firms for
capital and of investors for liquidity.) Especially at times when the banking sector of the country is
facing the challenge of bringing down the advance-deposit ratio to sustainable level, the economy of the
country is unfolding newer horizon of opportunities. Due to over-exposure level of the financial system
the securities market could play a very positive role, had there been no market debacle. Due to the last
market crash and follow through events, it will be difficult to utilize the primary market to raise
significant volume of funds. Thus the greatest economic importance of securities market at this point can
be understood from the opportunities being lost. Bangladesh having its target to become a middle
8

income country must have significant level of rise in investment, which at the present state of banking
system cannot be met. The securities market could play the key role in meeting these huge investment
demands if the secondary market would remain stable. The capital market also helps increase savings
and investment, which are essential for economic development. An equity market, by allowing
diversification across a variety of assets, helps reduce the risk the investors must bear, thus reducing the
cost of capital, which in turn spurs investment and economic growth. However, volatility and market
efficiency are two important features which will ultimately determine the effectiveness of the stock
market in economic development. If a stock market is inefficient due to insufficient informational
supply, investors face difficulty in choosing the optimal investment as information on corporate
performance is slow or less available. The resulting uncertainty may induce investors either to withdraw
from the market until this uncertainty is resolved or discourage them to invest funds for long term.
Moreover, if investors are not rewarded for taking on higher risk by investing in the stock market, or if
excess volatility weakens investors confidence, they will not invest their savings in the stock market,
and hence deter economic growth.
The emerging stock markets offer an opportunity to examine the evolution of stock return distributions
and stochastic processes in response to economic and political changes in these emerging economies.

Chapter: 3
Practical Aspects.

10

ECONOMIC CONDITIONS IN BANGLADESH

Bangladesh has an agrarian economy with 32% of GDP coming from the Agriculture Sector. Major
agricultural products are rice, jute, wheat, potato, pulses, tobacco, tea and sugarcane. . The country is the
largest exporter of jute and jute goods in the world. Readymade garments are among the most exportable
items. Tea, frozen shrimp, fish, leather goods and handicrafts are also major exportable commodities.
The country has under gone a major shift in its economic philosophy and management in recent years.
At Bangladeshs birth, the country embraced socialism as the economic ideology with a dominant role
for the public sector. But, since the mid-seventies, it undertook a major restructuring towards
establishing a market economy with emphasis on private sector-led economic growth. During the
nineties, the country has completed a major stabilization program which has reduced inflation as well as
fiscal and current account deficits and established a healthy foreign exchange reserve position with low
and sustainable debt-service liabilities. With modest economic growth, the basic indicators related to
health, education and poverty have all shown sustained improvement. According to a World Bank
estimate, Bangladesh has the 36th largest economy in the world in terms of GNP based on the
purchasing power parity method of valuation, and the 55th largest in terms of nominal GNP in U.S.
Dollars.
. In the world capital market there are many financial instruments such as-Forward, Futures, Option: Put
option, Call option, Spread, Straddle, Strip, Multi-period option: Interest Rate Caps, Floor, Collar,
Compound option, Swaps- Commodity Swaps, Interest Rate swaps, Currency Swaps, Variants, Hybrid
securities, Synthetic Securities, Zero coupon Bond, Repo, Reserve Repo, Junk bond, Floating rate
Preferred Stock, Equity warrant, Putt able common Stock.
The existing instruments of the capital market of Bangladesh are Shares, debentures, mutual fund, and
Treasury Bond: 5-year,10-year,15-year,20-year, NSD Certificate (3year&5year), REPO and REVERSE
REPO,US Dollar Premium bond, US dollar investment bond, Wages Earners Development bond in the
capital market of Bangladesh. Like in any other countries, a well developed tradable bond market is
critical to ensure stability and efficiency of the financial market in Bangladesh. An efficient bond market
is important for managing public debt and bank liquidity and for efficient conduct of monetary policy.
So far the bond market has played a limited role in the economy. The countrys financial sector is
dominated by the commercial banks.

11

At present, capital market intermediaries are of following types:

1. Stock Exchanges: Apart from Dhaka Stock Exchange, there is another stock exchange in
Bangladesh that is Chittagong Stock Exchange established in 1995.
2. Central Depository: The only depository system for the transaction and settlement of financial
securities, Central Depository Bangladesh Ltd (CDBL) was formed in 2000 which conducts its
operations under Depositories Act 1999, Depositories Regulations 2000, Depository (User)
Regulations 2003, and the CDBL by-laws.
3. Stock Dealer/Sock Broker: Under SEC (Stock Dealer, Stock Broker & Authorized
Representative) Rules 2000, these entities are licensed and they are bound to be a member of any
of the two stock exchanges. At present, DSE and CSE have 238 and 136 members respectively.
4. Merchant Banker & Portfolio Manager: These institutions are licensed to operate under SEC
(Merchant Banker & Portfolio Manager Rules) 1996 and 45 institutions have been licensed by
SEC under this rules so far.
5. Asset Management Companies (AMCs): AMCs are authorized to act as issue and portfolio
manager of the mutual funds which are issued under SEC (Mutual Fund) Rules 2001. There are
15 AMCs in Bangladesh at present.
6. Credit Rating Companies (CRCs): CRCs in Bangladesh are licensed under Credit Rating
Companies Rules, 1996 and now, 5 CRCs have been accredited by SEC.
7. Trustees/Custodians: According to rules, all asset backed securitizations and mutual funds must
have an accredited trusty and security custodian. For that purpose, SEC has licensed 9
institutions as Trustees and 9 institutions as custodians.
8. Investment Corporation of Bangladesh (ICB): ICB is a specialized capital market intermediary
which was established in 1976 through the ordainment of The Investment Corporation of
Bangladesh Ordinance 1976. This ordinance has empowered ICB to perform all types of capital
market intermediation that fall under jurisdiction of SEC. ICB has three subsidiaries:
. ICB Capital Management Ltd.,
ICB Asset Management Company Ltd.,
ICB Securities Trading Comp

Private Placement Market

The corporate sector used private placement market to raise funds either for total debt funds or for a
portion from the private and the remaining from public sectors till 2000. Two out of 12 issuers feel that
the environment of this market is strongly favorable. On the other hand, 5 out of 12 prospective issuers
indicate that the private placement market environment is not friendly enough for floating new bonds.
The private placement market may be encouraged at the initial stage through fiscal and regulatory
reforms for attracting issuers so that they can sell issues more quickly with less distribution costs and
regulatory formalities. This will enable them to issue debts publicly in the future. Shapiro and Wolf
(1972) show that 95 of 138 companies (69%) that are now selling straight debt issues publicly first sold
in the private placement market in the USA.

12

Public Placement Market

The public placement market is almost inactive in Bangladesh. Recently, only Islamic Bank Mudaraba
Perpetual Bond has been floated in the public market. 6 out of 12 issuers and 5 out of 12 prospective
issuers advanced this view. Secondary market trading is observed only in the first few weeks after
issuance. Later on, trading is observed very rarely. An active public placement market is essential.
Authorities should, therefore, provide fiscal and regulatory incentives to keep it active. The secondary
market activity of USAs corporate bonds is also fairly limited. It is due to the naive investment
practices, and strong affinity forbuy-and-hold investment strategies.
OTC Market
The OTC Market, popularly used for the secondary market corporate bond trading, does not exist in
Bangladesh though; Securities and Exchange Commission (Over-the-Counter) Rules, 2001 was
promulgated by the SEC in 2002. 5 respondents among current issuers and 4 respondents among
prospective issuers informed its non-existence and expected its introduction as quickly as possible.
Transparency in pricing does not exist in the OTC market. This opaqueness in pricing has contributed to
wide bid-ask spread, making transactions unnecessarily costly and inefficient to investors. A trading
mode concerning OTC may be established to ensure proper assessment of counterparty risks and pricing
flexibility of corporate bonds.

Bond Clearing and Settlement

The bond clearing and settlement system is weak according to 4 respondents each from current and
prospective issuers. Only one respondent among prospective issuers considered clearing and settlement
system as adequate. The delivery versus payment (DVP) system used for government bonds should be
introduced for corporate bonds too. Moreover, the clearing and settlement system for equities and that
for corporate bonds must be linked to facilitate redemption of fund units. The Asian Bond Fund has
successfully accelerated linking of these two systems in some markets. Bangladesh can draw lessons
from this practice.
Role of Credit Rating Agencies
The importance of bond ratings to both issuers and investors is always significant. Of 12 issuers, one
considered the current role of credit rating agencies in Bangladesh strong. One favored it as adequate
and three indicated it to be weak. Among 12 prospective investors, 3 felt that the current role of credit
rating agencies is weak. Nonetheless, Bangladesh lacks a rating culture. Though the two credit rating
agencies working in Bangladesh are struggling to establish their credibility, regulatory authority of
Bangladesh can designate reliable rating agencies in line with Nationally Recognized Statistical Rating
Organizations (NRSRO)4. This will be based on agencies organizational structure, financial
independence, quality of staff, rating procedures, and internal procedures in using non13

public information. Regulatory authority of China requires rating agencies to comply with specified
performance and training standards and regularly monitors their compliance with those standards.
Role of Trustee
The trustee should perform three important activities: (i) bond certification ensuring that bond issue has
been drawn up in accordance with all legal requirements; (ii) overseeing the issue assuring bond holders
that the issuers are meeting all of the prescribed functions specified in the indenture and (iii) taking legal
action against the issuers if they fail to meet interest and principal payments or satisfy other terms
specified in the indenture. Regarding the role of the trustee, 1 issuer marked it as strong, 2 issuers as
adequate and 2 issuers as weak. Apart from these, 5 prospective issuers felt that the role of trustee in
favor of investors is weak. In Bangladesh, the Investment Corporation of Bangladesh (ICB) and a few
insurance companies usually act as trustees.
Shelf Registration Rule
The floating of a corporate bond in the market is a bit complex as a process involving preparation of
documents, selection of a trustee, registration with the RJSCF and the SEC and formation of a selling
group6 . These procedures increase the floating costs. To reduce the procedures and minimize costs,
Shelf Registration Rule may be introduced. Both issuers and prospective issuers mentioned it as
nonexistent. So, authorities may consider introducing this technique for creating interest among current
issuers and prospective issuers.
Market Volatility
High price volatility is a matter of serious concern to investors. Any policy decision on volatility
controlling mechanisms must be supported by empirical evidence. No convincing empirical work has
been done to date on the effectiveness of the currently used mechanisms, trading halts and daily price
limits in mitigating market volatility. A comprehensive empirical research work on the efficacy of
currently used mechanisms is thus warranted. Suitability of other mechanisms including margin
regulations, price stabilization funds and securities transaction taxes merit proper attention of the policy
makers.
Multiple BO Accounts
Genuine investors should not suffer from harassments because of multiple BO accounts held by
unscrupulous investors. Here, proper procedures of opening bank accounts and maintaining them should
be in place. Meticulous examinations of required information in the BO accounts form, namely,
passport/voter ID number, driver license and bank statement will disable unscrupulous investors to open
fictitious multiple BO accounts. Importantly, many fake BO accounts opened at the initial stage of this
provision should be detected and closed immediately. Furthermore, no individual shall be allowed to use
another investors BO account for investment purposes.
Expansion of the Issuer Base
The market suffers from a dearth of quality securities. To overcome this problem, quality issuers need to
be attracted. In the opinion of the researchers, Bangladesh has the potential to do so. Profitable stateowned enterprises, multinational corporations and large home grown private enterprises with clean and
strong balance sheets should be listed with the SEC. Issuance of SOE securities will include
transparency in their operations besides multifold expansion of the equity market. The government can
improve guidelines relating to the capital structure of SOEs making it similar to those for financial
institutions and banks. In addition, complete or partial issuance of SOEs can be possible through public
14

offerings in the market. Parent companies of multinational subsidiaries are listed in developed equity
markets. However, it will be a difficult task for Bangladesh unless the local stock markets effectively
enforce a unified and transparent corporate governance system.
Large private businesses should not be forced to be enlisted without creating an enabling environment
for them. Abolition of excess fees for IPOs, reduction of time needed to complete the IPO process and
reducing the high taxes in place are likely to help create such an environment. In addition, SMEs should
be encouraged to be listed with the stock exchanges under rules and regulations that are separate from
large private sector firms, as appropriate.
Fair Value of Share
An important aspect of a well-functioning capital market is the fair valuation of shares. Currently, this is
not the case in either the primary or the secondary equity markets in Bangladesh. It has already been
observed that offer prices of all shares floated in 2008 were less than average of the trading prices of the
first three days by two to eight times. This implies that issuers do not get fair prices of their shares. For
price discovery, in addition to direct listing rules, a book building system should be introduced quickly.
Unnecessary formalities and transaction costs should also be cut down to improve market efficiency. For
fair prices in the secondary market, local and foreign institutional as well as individual investors need to
be enticed. These types of investors would add to market sophistication by information dissipation.
Incentives for Issuers
Reducing time taken to meet compliances of numerous formalities, lowering cost of initial public equity
offerings, making dividend income from PLC tax-free, eliminating double taxation, providing tax
holiday and granting CIP status to the sponsors of PLC will be helpful to the equity markets
improvement. Shares with smallest denomination (say with paisa one/Tk. 1) like US penny stocks may
be made available in the equity market. Regarding the inclusion of foreign issuers and local large
industries, regulations should be made compatible for licensing or registration. After reaching a certain
stage, they may be allowed to use the capital market for direct financing. In addition, monitoring
agencies, namely, SEC, DSE, CSE, CDBL and credit rating agencies need to play an integrated and
active role in simplifying the bureaucratic intricacies and remove the duplication of work in different
agencies. New rules need to be instituted to provide incentives to the existing as well as prospective
issuers.
Advertisement
For a vibrant market with active presence of issuers and investors, the SEC should initiate awareness,
educational and promotional programmes through institutional training and advertisement in the
domestic as well as the foreign print and electronic media.
Foreign Portfolio Investments
Foreign portfolio investments that are nearly absent from the Bangladesh stock market can be attracted
by the creation of a favorable environment. This requires political stability, developed information
infrastructure, selective deregulations, etc. Moreover, image building activities through seminars,
symposium and fairs at home and abroad deserve due consideration.

15

3.3 Findings:
Price Manipulation

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

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

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 and they 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.

16

3.3 Swot analysis of Bangladesh Capital market.

The capital market of Bangladesh is overshadowed by recent market failure and investor mistrust. The
industry has often been considered highly volatile by industry experts and specialists. The market has
sometimes been marred as highly unpredictable because of high uncertainty involved with market
returns and overall risk perspective. Interviews with the executives from different equity firms currently
operating in the capital market of Bangladesh has revealed some key characteristics of the market.
Following is an industry analysis covering the strengths, weaknesses, opportunities and threats of the
industry.

Strength
Frontier market status:JP Morgan has given a Frontier Five status to Bangladesh
considering its above-average growth opportunities and potential for higher positive excess
return from a long-term perspective. Bangladesh has also been given an Emerging Eleven status
in another research report published by Goldman Sachs.
High Return and Growth: The fact is globally investors now have very limited opportunities to
earn high positive excess returns by investing in assets belonging to the developed countries
around the world. This is why investors have a tendency to move their capital into a less
structured environment where there are still opportunities of massive development and returns
resulting from that. Bangladesh is offering that kind of opportunity to the foreign investors.
Hedging against Global Risk: Even when the entire worlds economy faced a recessionary hit in 2008,
the capital market of Bangladesh was still in a robust growth state. In fact, the market was at that time
becoming a bull market. This fact proves that the Bangladeshi capital market can be a better hedging
investment location for the global investors because even when the world is in recession, Bangladesh
offers sizable opportunities of growth.

17

WEAKNESS

Lack of expert manpower:

There is a lack of qualified and resourceful human capital base.
In most of the companies operating in the capital market, there are no efficient bases of human
capital for which operation of the entire market is often inefficient and depends on rumor news.
Besides, lack of expert manpower also means that investors will not be able to get quality and
relevant information about the capital market in time. There also arises another problem when
investors want some advisory or consultancy services from the manpower concerned.
Lack of equity research:
The market is not driven by research knowledge. So, equity firm
employees are not encouraged to do relevant research on the listed securities. This is the primary
reason for which the employees working in equity firms cannot deliver the investors with
investment ideas from a long-term perspective. Fear exists among those investment employees
that if they give some long-term advice about investing in a security to the clients and after that
the price of that security falls, the clients might think that they are not capable of handling
advisory role successfully.
Insider information and Insider Trading:
The entire market is said to be driven by insider
information and insider trading. Employees working in the equity firms are said to be involved
with insider trading as they have adequate prior knowledge and ideas of different press releases.
These sorts of prior information have made them able to able to front-run general investors by
buying or selling securities much ahead of the investors.
Manipulation by Institutional investors:
Recently, the merchant banks have been blamed by
experts from all corners as they have involved in massive-scale market manipulation. These
merchant banks have artificially manipulated the market in favor of their institutional investors by
Omnibus accounts which cannot be tracked by SEC on an account-by-account basis. Other sorts
of market manipulation (e.g., block trading) are also responsible for sudden rise or fall in
particular securities. Asset management firms sometimes artificially inflate the share price by
issuing bonus/right shares which have no economic reason to justify.

High volatility:The major weakness of the capital market of Bangladesh is its sensitivity to high
unpredictability of returns. High volatility also means that investors will be entitled to high
returns also. But it has been evident from the recent market failure that the risk profile of
Bangladesh is quite high. This high risk often makes the investor base vulnerable to massive
losses. The fact is also concerning when the loss has to be borne by investors who invest in the
market for the first time or who is not responsible for any market bubble.

Weak infrastructure: Bangladesh stock market has not been able to provide an adequate
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infrastructure base for an efficient operation of the market. Limited technology use coupled with
lack of efficient manpower has made the overall infrastructure very poor compared to that of other
countries. It has also been reported that the algorithm that is followed to determine DSE index is
flawed and this is why investors sometimes get concerned over price movements which are
actually not significant. It has also been reported that DSE index is not adjusted for splits, bonus
shares, rights shares, repurchases and other market activities effectively.
Low regulatory oversight: The SEC is the controlling body of the entire equity capital market of
Bangladesh. Till date, the regulatory oversight that the entity has tried to implement into the system of
the market has not been successful because of massive loopholes and scopes of non-compliance.
Besides, frequent changes in stock market rules and regulations are responsible for further complication
of trading in the market

OPPORTUNITY
Regulatory effort by the government: The government surveillance system is still unable to develop
the entire market system. However, the government is now trying to change the current scenario
incorporating the need of an efficient market structure and adequate market oversight.
Positive future outlook: Goldman Sachs has reported in a seminar that it will come to invest in
Bangladesh in 2-3 years as the future prospect of the countrys stock market and the overall economy
looks promising.
Growing base of investors and experts: Because of inability of Bangladeshi citizens to invest in safe
investment instruments of other countries, stock market will be a promising investment haven for
investors within the next decade.

THREAT
Competition with other frontier markets: Frontier markets like Sri

Lanka and Pakistan are far ahead of Bangladesh in implementing an efficient

market because of technical as well as human resource base. Bangladesh
may not be able to attract of adequate foreign funds if these other markets look much
more profitable in the long run.

Possibility of further price bubble: The geographic limitation of

Bangladesh is one of the major problems that make ways to price bubbles. Because
investors do not have much wide scope for investment, they end up investing in a
concentrated base.

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Chapter: 4
Conclusion Aspects

20

Recommendations:
The study has been both theoretical and empirical one. It has used direct approach to
the collection of primary data and consulted available existing literature for collecting
secondary data. It has used both financial and sophisticated multivariate techniques for
analysis of data collected for study. The study has found followings findings:
a)

The size of debt market is very low as compared to other SAARC countries.

b)

There are huge opportunities for growth and making money for bond market

participants.
c)

The problems which draws attention of policy makers, professionals and market

participants for the development of bond market are shown as follow in order of
magnitudes:
1.
Risk and Return Factor;
2.
Liquidity and Government Policy Factor;
3.
Issue Management Factor;
4.
Investment Policy Factor;
5.
Macro-economic and Regulatory Factor; and
6.
Market and Issue Related Factor.

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.

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Chapter: 5
Ending Matters

22

5.1 Bibliography.
[1] S.M. Solaiman, Recent Reforms and the Development of the Securities Market in
Bangladesh , Journal of Asian and African Studies, Vol. 41, No. 3, pp. 195-228,
2006.
[2] M. K. Mujeri, and M. H. Rahman, Financing Long Term Investments in Bangladesh:
Capital Market Development Issues, Paper provided by esocialsciences.com in its series
Working Papers with number id: 2060, 2009.
[3] K. A. R. Islam, The prospects, possibilities and challenges of Bangladesh capital
market, The Financial Express, Home Page, Dhaka, Thrusday, December 20, 2007
[4] J. Abedin, Bangladesh Share and Capital Market, Antarip Publication, Dhaka, p. 22,
2008. [5] The Daily Jugantor, 05.03.2011
References:
1
Annual report of Dhaka Stock Exchange Ltd
2
Annual report of Chittagong Stock Exchange Ltd.
3
Different publications of Bangladesh bank.
4
Publications of commercial banks.

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