Indices Calculation Methodology of DSE & CSE

ASSIGNMENT ON INDICES OF DSE & CSE

Submitted to: Prof. Dr. Mahmuda Akter Professor, Department of Accounting & IS University of Dhaka

Submitted by: Al-Mamun ID: 11324067 Department of Accounting & Information Systems MBA Program (Evening)

Submission Date: March 14, 2014

University of Dhaka

Begging of DSE and CSE Bangladesh has two Stock Exchanges, Dhaka Stock Exchange (DSE), where trading is conducted by Computerized Automated Trading System and Chittagong Stock Exchange (CSE), which is also conducted by Computerized Automated Trading System . All exchanges are self-regulated, private sector entities which must have their operating rules approved by the SEC. The Securities and Exchange Commission (SEC) was established on 8th June, 1993 under the Securities and Exchange Commission Act, 1993. The Chairman and Members of the Commission are appointed by the government and have overall responsibility to administer securities legislation. The Commission, at present has three full time members, excluding the Chairman. The Commission is a statutory body and attached to the Ministry of Finance. Dhaka Share Market consists of the Dhaka Stock Exchange or DSE, the main share market of Bangladesh. DSE is situated at the main market place of Dhaka, capital of Bangladesh, called Motijhil. Dhaka Share Market formally started its trading in the year 1956 even before the formation of Bangladesh as a country. Dhaka Share Market is still at its infant stage and has to walk a long way for coming into the radar of the Global Financial Market. The Chittagong Stock Exchange (CSE) began its journey in 10th October of 1995 from 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. Stock Exchanges are mutual organization that facilitates trading of company stocks and securities to the stock brokers and traders. The stock exchanges deals with the

issue of securities and other financial instruments. The stock exchanges also involves in the payment of income and dividends. The role of the stock exchange is to raise capital for businesses, mobilize savings for investment, facilitate company growth, and redistribute wealth as well as raising capital for financing the development projects of the government.

DSE Indices There are three categories for the DSE indexes. These are –  DSEX: DSEX represent the DSE all Share Price index for the Dhaka Stock Exchange (DSE).  DS30: DS30 is an index where the best thirty stocks are listed. The best thirty performing stocks information, movement, overall information is provided here.  DSES: DSE Shariah Index (DSES) is constructed as a subset of the DSE Broad Index (DSEX) and includes all the stocks included in the parent Index that rules- based screens for Shariah compliance.

Construction of DSE general price index The algorithm of index calculation according to IOSCO index methodology is: Yesterday's Closing Index X Current M.Cap Current Index = -------------------------------------------------------------Opening M.Cap

Yesterday's Closing Index X Closing M.Cap Closing Index = -------------------------------------------------------------Opening M.Cap

Current M. Cap = ∑ (LTP X Total no. of indexed shares) Closing M. Cap = ∑ (CP X Total no. of indexed shares

CSE Indices  CASPI: CASPI represents the CSE all Share Price index for the Chittagong Stock Exchange (CSE).

 CSCX: It represents the Chittagong Special Categories Index. Here all the stock including the Z category stock is also included.

 CSE 30: CSE 30 is an index where the best thirty stocks are listed. The best thirty performing stocks information, movement, overall information is provided here.

Index Calculation of CSE All the indices of the Chittagong Stock Exchange Ltd (CSE) are calculated and maintained following Laspayers Method which was considered as the most transparent and scientific at the time of its inception. Now it is required to adopt a modern and internationally accepted calculation methodology to provide a more sensitive, investable, and tradable and transparently managed Index. The enhanced CSE indices will provide a platform for a wider range of investable and appealing opportunities. The constituents will be free float adjusted with only the investable portion included in the index calculation. Globally, the free float Methodology of index construction is considered to be an industry best practice and all major indexes like MSCI, FTSE and S&P have adopted the same. MSCI, a leading global index, shifted all its indices to the Free-float Methodology in 2002.

Free-Float Calculation Methodology: Total Outstanding Shares Less: Shares held by Directors/sponsors

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Government Holdings as promoter/acquirer/ controller

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Strategic Stakes by Private Corporate Bodies/

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Individuals (Any holding more than 5% held by an individual/company, be considered as strategic) Shares held by Associated Companies (Cross holdings)

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Other shares under lock – in (if any)

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Free-Float:

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All CSE indices will be calculated using following formula:

Free-float market capitalization of index constituents/ Base Market capitalization * Base Index Value