The Chittagong Stock Exchange (CSE) began its journey in 10th October of 1995 rom Chittagong City through the cry-out trading system with the promise to create a state-of-the art bourse in the country. Founder members of the proposed Chittagong Stock Exchange approached the Bangladesh Government in January 1995 and obtained the permission of the Securities and Exchange Commission on February 12, 1995 for establishing the country’s second stock exchange. The Exchange comprised of twelve Board members, presided by Mr. Amir Khosru Mahmud Chowdhury (MP) and run by an independent secretariat from the very first day of its inception.
CSE was formally opened by then Humble Prime Minister of Bangladesh on November 4, 1995. MISSION The Chittagong Stock Exchange believes that a dynamic, automated, transparent stock exchange is needed in Bangladesh. It works towards an effective, efficient and transparent market of international standard to serve and invest in Bangladesh in order to facilitate the competent entrepreneurs to raise capital and accelerate industrial growth for overall benefit of the economy and keep pace with the global advancements.
It has a separate secretariat independent of policymaking Board. The Board comprises of brokers and non-brokers directors with equal proportion to ensure the transparency. The Board constituted Committees to delegate such functions and authority as it may deem fit. There is an independent secretariat headed by a full time Chief Executive Officer. CSE activities are regulated by it’s own regulations and bye laws along with the rules, orders and notification of the SEC.
The opening price of a security shall be the price at which maximum number of securities is matched. In the event of there being no trade for certain securities, then the last closing price for the security shall be made the opening price for the day. No order entry shall be permitted during this session. Continuous Trading Session: All types of orders will be accepted by the system during this period. Orders shall be executed during this session and if an order can not be executed in whole or in part, then it will be stored as an unfilled order. Unfilled orders from the pre-opening session shall be carried forward with time stamp to this session. Closing Session No order is received in this session.
Pending orders executable at closing price and orders ‘match at closing price’ shall be executed in this session. The closing price for a security shall be determined as per the weighted average price of all the trades in the last 30(thirty) minutes before the closing session. If there is no trade during the above specified time, the weighted average price of determination of closing price. If there has been no trade in the security during the continuous trading maximum 50 (fifty) number of trades preceding the above 30(thirty) minutes shall be taken for session the opening price of the security shall be treated as the closing price. Close Price Trading Session
Only ‘match at closing price’ order and all executable pending orders shall be executed in this Session at closing price. If any ‘match at closing price’ order is not executed in whole or in part, it will be removed from the system automatically and all other pending orders except the expired ones shall be carried forward to the following Trading Day. Post Closing Session The trading members will make enquiries, verify, and down load the daily transaction details in this session. Other Sessions The system will also have sessions for Odd Lot , Spot and Auction sessions . These sessions however may take place simultaneously with the normal trading sessions .
If brokers are interested to do trade in Odd Lot or are interested to see what stock is being sold and bought they will need to open the relevant windows only.
Initiatives Taken
By the CSE to Develop the Capital Market Central Depository System: While establishing Chittagong Stock Exchange in 1995, we felt the need for a central depository in the country and have since been working on a CDS. Now, very fortunately after a good five years, we are close to forming a CDS company. Isn’t it too long a time? Can we afford it? A CDS is an indispensable part of a stock market. We automated our trading system more than two years ago. Without a CDS, the full benefits of automation cannot be reaped. It would have been nice if we could have started a CDS simultaneously with the trading system automation.
Sri Lanka had started their CDS even before automating their trading system. India and Pakistan had established their CDS long ago. This is a G-30 recommendation, which has already been implemented by almost all the emerging markets of the world. But we are wasting time some unnecessary issues and trailing behind. We require a sophisticated system in accordance with the need of our market and at the same time this system should be scalable to accommodate the future needs of the market. This system should be run on a state-of-the-art technology as we went ahead while implementing our trading system. Procuring a software system for CDS is not the whole gamut of the game. This is only a part.
Educating the users of this new method of transaction settlement, dematerializing the physical form of securities, bringing all the relevant parties into confidence, and so on and so forth are all a very intricate and difficult job to perform before the whole system can be made operational. If we cannot reach a consensus at this very initial stage of the project, I am afraid we would never have a CDS in our market.
Research & Information development: Research & Information development are essential pre-requisites for effective functioning and development of any stock exchange. Chittagong stock exchange has Research and information department. This section deals with research and development, library and public relation of the organization. Research is a foremost necessity for any stock exchange. In I order to fulfill the need CSE has established a research center and are keeping close contacts with the UN bodies,
Professionalism in Brokerage business & suspension of brokers: Brokerage business all over the world has reached its pinnacle. Now we can see that quite a great many brokerage houses are much bigger than many big stock exchanges. They are innovative, aggressive and doing their business professionally. Their services range from investment advice to the clients to asset management, investment banking to portfolio management and what not. Broker/Dealers in our country should consider the whole gamut of the financial services needed in the investment arena. They should diversify their business and create professionalism in their services. Development and reconstruction of our vulnerable market mostly depend on their professionalism and commitment.
Depending on seriousness of irregularity noticed in a members trading, trading terminal is suspended until such time the issue is resolved. The other activity of this department is:
- Watching net high-low position
- Taking Disciplinary action
- Investigation into specific deals of brokers/dealers.
Incentives for foreign portfolio: Bangladesh Govt. took a number measures to encourage foreign and local investors to invest in the securities market. Foreign portfolio investment exerts a profound impact on any stock market and helps ease a country’s resource constraints for development finance. Portfolio investment contributes towards creating additional funds for industrial finance, providing stock market liquidity, modern management skills and technology.
Though it was never too high, the inflow of portfolio funds has been tapering off in our market ever since 1996. If we want to attract them and maintain a continuous inflow of portfolio funds, we have to make our market stable, create market depth and ensure a congenial business atmosphere in the country. CSE Allows foreign investors to participate in IPO and right issue without any regulatory restriction & withdrawal of all regulatory restrictions on international portfolio investors for investing in the secondary securities market. E. Market rules and operations: As the market demands, it is natural to frame new rules of market operation and amend the existing ones from time to time.
These rules should be aimed at easing the operations of the exchange, protecting the interests of the respective parties, and maintaining a balance among the markets. Recently three different boards for the listed companies have been introduced in the exchanges, and the settlement of trades of those category shares has been made unique too. For the “Z” category of shares, the T+1 settlement system has been prescribed by SEC, which is not practicable for CSE brokers. Because CSE transactions are settled in three different places – Chittagong, Dhaka and Sylhet. CSE has planned to expand its trading network to more cities in the northern parts of the country. It is the mission of CSE to create investors country-wide and bring millions of them under the trading network of CSE in the long run.
We hope that thus we could develop a capital market, which will eventually contribute to rapid industrialization in the country. F. Transparency and accountability: Mainly transparency signifies the disclosure of all relevant, reliable and material information in an appropriate and objective manner. Now a day CSE authority under the supervision of SEC placed rules and strictly enforced without fear so that the companies are fair and square in their disclosures to investors and concerned parties. G. CSE as middleman: As this stage, it may be pertinent to keep in mind the key difference between capital market and financial intermediaries such as bank or life insurers.
Capital markets cut out middleman by bringing savers and borrowers face to face. But bank institutions stand between savers and investors in directing the flow of resources. There are two main types of capital markets. Firstly, equity markets, which are used for trading, company, shares. Secondly, bond markets were the debt of companies and governments are traded. Both equity and debt markets perform important functions in the economy by moving resources across space and time from where they are in surplus to where they are needed most, and by producing valuable information throw the prices they set, to firms households, and government to use and manage resources better. H. Over the counter market:
Over the counter market is a new facility launched by CSE, unlike in other stock exchange in the country, for the issuers, investors, capital market and the nation at large to assist in efficient capital formation by developing vibrant dynamic regulated capital market. 6. 7OTC has been established with a specific mandate to service small & medium innovative growth enterprises in raising resources efficiently through the capital market. I. Management information system (MIS): The idea behind establishment of computer based management information system at SEC is to achieve better efficiency and accuracy in day to day office work as well as capital market supervision and monitoring .
The Securities and Exchange Commission Automated System (SECAS) project was initiated in September, 1998 under ADB technical assistance. The project includes establishment of LAN cable system and installation of local area network among all the workstations at SEC and development of MIS software to meet automation needs of its different departments. Major activities of the project implementation occurred during June -July 2000. These activities are listed below.
- LAN cables system acquisition, its installation and testing.
- LAN hardware and networking system acquisition, its installation, testing and commissioning.
- Customized MIS software system acquisition and its development, debugging and testing.
ANALYSIS OF FINDINGS:
The country networking warranted regional settlement of securities and accordingly CSE has been settling transaction at all its trading region from the every first day. The current settlement system of daily meeting on rolling settlement T+5, however, is a severe hindrance to this regional settlement despite this fact CSE has been rendering this service till today at the expense of boundless hardship particularly in transporting millions of shares between three region everyday.
The automation of CSE trading system was the biggest event of the year 1997 for this institution. The most significant feature of the CSE trading system is its widen-area network which enable the CSE members to do on-line real time trading from three places-namely Chittagong, Dhaka and Sylhet- by logging in trough normal telephone facilities at the cost of a local phone all charge only with the opportunity to expand to anywhere I the country in the fact the CSE’s communication network thorough the satellite is capable of supporting trading from any corner of the world and it has been discreetly installed upon the prudent decision of the CSE board in view of the growing future trends of interaction between the global capital markets.
The second most important feature of this system is that dealers/brokers can trade from multiple terminals using a single phone line through LAN or WAN network within their officers or beyond. These two outstanding features of the CSE present trading system have added a new dimension to stock-trading in Bangladesh with the result of reaching the benefits of the most modern technology of stock investment in the present day world to the door-steps of millions of investors.
The activities of the research cell have considerably improved during the last year. Portfolio is being published regularly with increasingly better content, sharper analysis and greater quality. The initiative of publishing such a journal has been appreciated by almost all the quarters of the capital market.
A CSE web site has already been launched on the internet where the CSE, rules and regulations, regulations information regarding trading listing, settlement, listed company financial performance and the like have been trained in the CSE Automated trading System and in the investors to get the information on real time movement of stock prices.
The CSE Board ahs earmarked the development of human resources as a top priority on the CSE agenda, Dealers/ Brokers have been trained in the CSE Automated trading system and in the MINTS, the brokerage back office software had been installed I the member’s officers by CSE. 6. In 1998 CSE has consolidated the system by making all necessary alterations to it and promptly upgrading sit as and when new SEC rules called for adaptation or tuning CSE automated the settlement system to a great extent in so far as the regional settlement in concerned. CSE made the whole system Y2K compliant both front and back ends at the same assisted the members regarding their Y2K compliance.
CSE has incurred loss 1998 and unless the turnover increases it will have to face financial hardship in the coming years. There is no alternative of increased of increased turnover for an exchange to survive and reach a solid level.
CSE experienced a smooth operation of its newly established screen based trading system to date since its installation in June 1998. Given the state of telecommunication infrastructure in the country, the extent of experience in operating a sophisticated computerized system on a country wide area network and level of management standard in a developing country, CSE’s performance can be said to have been just super beyond expectation.
Conclusion
Problems of CSE in the development of capital market. (Most of the members of CSE are not rendering optimum services to the investor’s. Some stock exchange members also serve as director of listed companies. This can lead to the chance of insider trading especially in such a poorly regulated market. (Some stock exchange members act only at brokers, i. e. , they buy and sell on behalf of the clients on receipt of specified trading commission. They do not undertake the market making roles. (Stock market efficiency depends upon the availability of reliable and unbiased information about the capital issue and companies.
Though existing provisions in the companies act ensure disclosure of adequate information though prospectus, but several defects are noticed in practice. (Raising the number of curb operators. There has been general allegation by the investors that there has been some fraudulent acts insider trading which may have contributed to the abnormal fluctuation the pries of transparency, systematic deficiency and management inadequacies in the conduct of the trade by the stock exchange. Lack of proper and adequate disclosures o Certifiers of financial statements and Property value’s of the company are the identical o Management and Owners (Councilors) of CSE are entwined o Lack of enforcement with the compliance of rules and regulations o Corporate governance – sponsor-owners are managing the firm. All most all cases, no professional management are hired to run the affairs of the listed company.
Suggestions to remove the CSE’s problem:
- The dormant members of stock exchange should be surveyed very strictly. Such members should be compelled to either trade or give up their membership.
- Market makers create both demand for & supply of securities and to the consistency in the prices. So it is recommended to make necessary provisions in stock exchange by laws for permitting market maker’s activities.
- To minimize the chances of insider trading legal provisions should be made that, no stock exchange member would be allowed to become directors of any listed company.
- In Bangladesh, we should follow the practices of developed capital markets & not allow curb market anywhere.
- The average investor must have access to all information that might help the right investment decision. SEC can institute either a set up or to encourage the formation of investors associations under its umbrella.
- Credit rating enables the investors to judge the viability of the company for investment.
Bangladesh capital market can accommodate some credit rating agencies. Case Study CASE STUDY Mr. Jalal ahmed is a student of Chittagong University. He has just completed his BBA degree. He invested in primary market in June 2006. He invested in secondary market in July, 2007 at first his capital was 30000 . At present his capital is 700000. He is not willing to take the share business as his profession.
He has said that, he wants to take it as his side business. Because in our country the share market is not well organized & it is not possible to anyone to take the share business as a profession CASE STUDY: Mr. Abul Kalam is a service holder. He works in Eastern Bank Ltd. His age is 50. At first he started his share business by investing tk. 100000 in primary market in 2004. In 2006 he entered in secondary market. He has told that secondary market is more profitable than primary market, if you have huge knowledge & experience. At present the market is downward, according to him this is because of rumor. Most of the investors in our country are not conscious.
More over most of the companies are not honest about the distribution of dividend. Case study: Mrs. Momena Akhter is a house wife. She started her share business in 2005 by investing in primary market. Her capital in primary market was 25000 only. But now her capital is 126700. She is not willing to enter in the secondary share market. Because this market contains high risk which is not possible to bear herself. She is investing her small amount of money just to mobilize rather than depositing in an account. Conclusion: Steady development and efficient operation of the capital market are fundamental to the accelerated economic growth of a country.
The capital market is the intermediary through which the surplus money of the society can be mobilized and then channeled into productive investments with the eventual aim of fostering industrial development, which will in turn lead the country to the target economic growth. Realizing this fact, Bangladesh undertakes economic reform programs and giving up the past systems of economic controls and restrictions to let the capital market operate in a more flexible and competitive environment. Due to privatization and economic reform programs, stock markets in Bangladesh have great potentially to become successful. Actually, no better alternatives way is suitable like a stock market to strengthen the financial base of a country, to rise up its development activities and gain economic release.
