Forma # 1.ai - ICAB

IPO in a year, a number of these
banks were unable to comply with
this target.90 This would indicate
that the number of merchant
banks in operation is large
compared to what the market
could sustain.91 Where the
operation of the merchant banks
should have been confined to
portfolio management, often these
banks are alleged to act as
‘brokerage houses’.
Lack of coordination among
various financial markets
including debt market, equity
market and bond market is
considered to be a major
weakness for sustainable growth
of the capital market. Decisions
(or indecisions) of different market
regulatory bodies taken at various
points of time, have often
contributed towards significant
volatility in the market. For
example, possible diversion of
industrial credit to the capital
market was anticipated by the
Bangladesh Bank in its Monetary
Policy Statement for
July‐December 2010, but the
required surveillance came only at
a much later stage. Further, the
margin rule instrument available
to the SEC appears to have been
applied without proper assessment
of the overall money supply and
demand situation prevailing in
different sectors. Moreover,
notwithstanding their mandated
responsibilities, most market
agents, such as brokerage houses,
merchant banks, investment
banks, institutional investors,
members of DSE, are involved in
short term ‘trading’. Overall, lack
of proper coordination between
two leading regulatory bodies of
the financial sector, namely the
Bangladesh Bank and SEC is said
to have contributed to the current
volatile behaviour that is observed
in the country’s capital market .
Prospect of smooth landing
of the market?
In the backdrop of much
apprehension about severe market
correction, the capital market has
experienced some hiccups in
December, 2010.92 In this
connection, on 19 December
2010 DSE witnessed the highest
fall in a day in the history of stock
market (6.7 per cent fall of total
share pricehe index in a day). It is
to be noted that within 15 days
(6‐19 December 2010) share price
index dipped by 1264 points
(‐16.1 per cent) incurring an
estimated loss of capital of about
Tk.41,984 crore (Figure 16).
Whilst a number of actions (and
inactions) of the SEC is alleged to
have contributed to this situation,
mopping up of liquidity by the
financial institutions in view of
instructions of the Bangladesh
Bank is may have played a major
role in this downward spiral in the
share price index.93 SEC has
taken a number of urgent
measures, such as re‐fixing margin
loan ratio, withdrawal of the
requirement of extra deposit of the
brokerage houses, bringing back
the shares of Grameen Phone and
Marico to normal trading floor
from spot market, and extending
the timeline for reporting of loans
of the commercial banks (as per
instruction of Bangladesh Bank),
which has temporarily
smoothened the volatility in
market prices.
Figure 16: Fall of the DSE Share Price Index between November 2010 and December 2010
Source: Based on DSE.
28
January - March 2011
The Bangladesh Accountant