Industrial tour Report on CSE(Chittagong Stock Exchange)

ON Role of Chittagong Stock Exchange for the economic development of Bangladesh

SUBMITTED TO Mohammed Shahedul Quader Assistant Professor, Department of Marketing Studies and International Marketing University of Chittagong.

SUBMITTED BY Name

ID

Mohammad Atikuer Rahman bhuyan

08304013

Md.Mahmodul Hasan Rone

08304034

Bibi Joynab

08304083

Md.Ibrahim

08304083

Srimangal Das

08304110

Tajkia Sherefin

08304132

DATE OF SUBMISSION: July 6, 2013

Letter of Submission Date: January 7, 2012

To

Mohammed Shahedul Quader Assistant Professor, Department of Marketing Studies and International Marketing University of Chittagong. Subject: Submission of Industry Report.

Dear Sir, We have great pleasure to submit you my industrial tour report title “Role of Chittagong Stock Exchange for the economic development of Bangladesh”. During preparation of this paper, I have tried my best to ensure completeness. We have put my best effort to overcome my shortcoming and prepare the report to the best of my ability. However, if any clarifications are required, I would be glad to provide them as best as we can.

Thanking you

Yours sincerely,

Name

ID

Mohammad Atikuer Rahman bhuyan

08304013

Md.Mahmodul Hasan Rone

08304034

Bibi Joynab

08304083

Md.Ibrahim

08304083

Srimangal Das

08304110

Tajkia Sherefin

08304132 2

Role of Chittagong Stock Exchange for the economic development of Bangladesh

PREFACE Stock market is an essential part of capital market. The economy of our country largely depends on a strong capital market. Contribution of any stock exchange generally leads to economic growth by increasing the funds to finance industry and other enterprise

The Industrial Tour is a program that is common for the BBA student. The program intends to provide practical training in handling of jobs as well as to integrate the knowledge of theories, formulas, frameworks and models with current management practices in business community. This paper titled “Role of Chittagong Stock Exchange for the economic development of Bangladesh” is conducted as a part of Industry Tour arranged by department of Finance And Banking, University of Chittagong. In this report I have tried to give an idea about Role of Chittagong Stock Exchange for the economic development of Bangladesh in our country.

This report is prepared on the basis of study and submitted in partial fulfillment of BBA course requirements of the department of Finance and Banking, University of Chittagong.

3 Role of Chittagong Stock Exchange for the economic development of Bangladesh

EXECUTIVE SUMMARY This report concentrates on the “Performance evaluation of the Chittagong Stock Exchange.” From the very beginning of taking birth, this organization is playing an outstanding role for the betterment of the capital market in this country

Stock markets contribute to the development of economy through the development of businesses and Industries. It can perform will to meet financial needs of business enterprises on a continuous basis if there exist a congenial legal, administrative and infrastructural environment for boosting confidence of all stock market participants including investors. Stock market in Bangladesh has two exchange-CSE and DSE. The study has examined the performances of CSE on different important such as growth in listed companies and securities, market capitalization, sales volume, market shares ; changes in stock index, changes in share prices by employing both statistical and financial techniques. It has also tested the randomness of changes in share prices of some listed securities. It has identified some important problems such as political instability, lack of supply of good certificates, demand listed members, lack of awareness of investment, etc. to the development of stock market. The study has put especially of Chittagong stock exchange (CEG). The policy measures are promulgation of lows for activating dormant listed members, bringing good securities into the net, curbing fraudulent activities in the stock market, introduction of full-flagged corporate governance, and disclosure of financial information. These measures are for consideration of Government, policy markets, SEC, stock exchange and other concerned parties in other to develop the performance of stock market, especially of CSE.

4 Role of Chittagong Stock Exchange for the economic development of Bangladesh

ACKNOWLEDGEMENT First of all gratitude goes to almighty Allah who blessed me to accomplish the industry tour report.

At first I like to thank my honorable teacher Mohammed Shahedul Quader

Assistant

Professor, Department of Marketing Studies and International Marketing, University of Chittagong. who sent us to the Chittagong Stock Exchange in lieu of visiting its various departments and modes of operating CSE. His assistance, instructions, advice, investigation were all along with me while working on the issue. My report has seen the face of success because of his sincere assistance as well as supervision..

5 Role of Chittagong Stock Exchange for the economic development of Bangladesh

CHAPTER ONE

6 Role of Chittagong Stock Exchange for the economic development of Bangladesh

1.1 INTRODUCTION Stock market is considered to be a barometer of the Economy. The economic development of a country depends largely on the effective performance of stock market. The stock market augment the process of economic development though a number of ways: a) bringing together holders of surplus funds and users of such funds; b) offering a broad spectrum for investment and financing choices to both investors and issuers, c) drawing more institutions into investment, and e) reducing the dependence of industrial enterprises on non security market for capital. Thus stock market contributes to the development of economy through the development of businesses and industries.

Stock market can perform well to meet the continuous financial needs of business enterprises if exist a congenial environment for boosting confidence of both stock market operations and investors. The growth and development of stock market in a market economy largely depend upon the creation of enabling environment for boosting up investors confidence. Lassitier has identified five prime environment ingredients that contribute to the enhancement of investors „confidence and in turn, healthy growth of stock market. .These are: a) stable political environment, b) investment sensitivity tax and regulation environment c) reliability flow of information d) liquidity and e)fair financial disclosure practice, codes of conduct and smooth trading guidelines

1.2 OBJECTIVE OF STUDY The objective of the study is to evaluate the performance of the Chittagong Stock Exchange. The study covers the period from 2000 to 2011 and the study in confined to analyze the capital market indicators of CSE only. The study is purely based on primary and secondary data supplied by CSE. The study attempts to evaluate and examine the performance of CSE in terms of securities analysis and market capitalization under the auspice of market development indicators of the same. Though the principal objective of the study is to observe the growth pattern of CSE, The study attempts to strive at the following specific objectives:  To evaluate the securities listed with CSE during the period from 2000-2011. 7 Role of Chittagong Stock Exchange for the economic development of Bangladesh

 To examine and evaluate the growth of the issued capital and market capitalization of the securities during the period under study.  To analyze the indicators of the development of CSE during under study.  To highlight the performance of CSE on different parameters such as number of listed companies, number of listed securities, volume of trade, capitalization market, market share, and share price fluctuation etc. 

To identify the weakness with the stock market operation, especially of CSE.

 To suggest some sound policy measured for the improvement of the performance of CSE.

1.3 METHODOLOGY OF THE STUDY The present study is a part of academic curriculum. The collected data and information have been tabulated, processed and analyzed carefully. It has been prepared in present from to make the study more informative and useful. The study period has been made only by one month. I tried my best to be acquainted with all the sections and departments of this organization. The information of the term paper has been collected through primary and secondary sources. Most of the data have been collected from secondary sources. The primary data had been collected by direct interviews and discussions all the secondary information helps a lot. The secondary information is collected from various books, financial papers, document articles related with the capital market, stock exchange, and security & exchange commission etc.

Analysis of data The data thus collected have been tabulated first manually. Then they have been analyzed by employing techniques such as percentage for measuring the growth in listing of companies and securities in CSE; average, standard deviations and coefficient of correlation foamed r measuring financial & turnover performance of listed securities, ratio analysis for market capitalization & turnover, diagrammatic and graphical presentation for seeing the trend of CSE price index; variance & coefficient of variance for measuring the price volatility of some selected companies ,securities. It has also used the test of randomness of changes in share prices of sample listed 8 Role of Chittagong Stock Exchange for the economic development of Bangladesh

companies. Different calculations using the data made by the researchers themselves, average, ratios, percentage and necessary calculations have been done by using statistical methods. A number of different indicators over time have also been prepared

1.4 SCOPE OF THE STUDY As I was involved myself a Chittagong Stock Exchange I know various areas of the stock exchange, its managing procedures, working systems and environments which are very helpful to know & to increase our knowledge & to get more information and data regarding my topic. The information section of Chittagong Stock Exchange is very rich that‟s why I as able to collect the required books, magazines, periodicals, journals, brochures, portfolio and the Internet facilities.

1.5 LIMITATIONS OF THE STUDY A good report sells the result of the study but should not over sell. In spite of my sincerest endeavor, the report has the following lacking:

 The study was confined in CSE & Internet  Primary & secondary data were not available in the organization form  Short Time: I had to conduct the whole survey alone in this very short time, which also hindered my study.  There was shortage of adequate literature in the CSE  Low facility of the Internet and personal computer.

 Lacks of enough previous experience also limit my performance in conducting the study.

In spite of above limitations, I have tried with all of my efforts to know and find out the response pattern of the subject and consultation of relevant record and document. Data have reached a fairly acceptable degree of accuracy 9 Role of Chittagong Stock Exchange for the economic development of Bangladesh

CHAPTER TWO

10 Role of Chittagong Stock Exchange for the economic development of Bangladesh

2.1 HISTORICAL BACKGROUND OF THE CSE The Chittagong Stock Exchange (CSE) is a nonprofit making organization. It was incorporated on 1st April 1995 as a limited company by guarantee. After six month, on 10th October 1995 floor trading was started with open cry- out auction system. In the backdrop of a strong need to institute a dynamic automated and transparent stock exchange in the country, seventy reputed business personalities under the leadership of Mr. Amir Khosru Mahmud Chowdhury MP, the founder president established this bourse in the commercial capital Chittagong. Only 30 securities were listed on the first day trade when market capitalization stood at US$ 0.2 Billion. Now CSE is a completely automated exchange with screen based trading facility on countrywide communication network. The Chittagong stock exchange will create an effective, efficient and transparent market of international standard to save and invest in Bangladesh in order to facilitate the entrepreneurs to raise capital and accelerate industrial growth for overall benefit of the economy.

2.2 MISSION OF THE CSE The Chittagong Stock Exchange will create a successful well-organized and transparent market of international standard to save and invest in Bangladesh in order to facilitate the competent entrepreneurs to raise capital and speed up industrial growth for overall benefit to the economy.

2.3 OBJECTIVES OF THE CSE The prime objectives of the CSE are to create a nation-wide stock market also beyond the national boundary, which will simultaneously act as a platform for industrial entrepreneurs and general investors. Explicitly the objectives of CSE are following:  To develop a strong platform for the entrepreneurs for raising capital.  To provide an investment opportunities for small and large scale investors.  To develop a transparent market ensuring investors interest.  To provide a fully automated trading, Clearing and settlement system to ensure quick, easy, accurate and easily accessible to all transactions.  To attract non-resident Bangladeshis to invest in Bangladesh Stock Market. 11 Role of Chittagong Stock Exchange for the economic development of Bangladesh

2.4 MANAGEMENT & ORGANIZATION CSE has a policymaking Body of 24 members, of whom 12 are nominated and 12 are elected. This Board comprises of one president, three Vice-Presidents and 20 Directors. The Chittagong Stock Exchange was in corporate on 1st April 1995 as a limited company by guarantee. Its activities are regulated by the following a Acts & Regulation:

1. Companies Act, 1994. 2. Securities and Exchange Commission Act, 1993. 3. Securities & Exchange commission Act, 1993 (Act repelling controller brokers) Regulations, 1994. 4. Chittagong Stock Exchange. a) By laws b) Listing Rules c) Memorandum of Association d) Articles of Association e) Settlement to Transaction Regulations.

In 1998 CSE had many new rules and regulations as well as amendments in the rules & regulations of Stock Exchanges, Issuers and in the overall capital market. Some major ones are as follows: 1. The National Parliament passed “The Depository Act, 1999” on the 5the of April 1999. 2. SEC adopted “public Issue Rules 1998” which was gazette on the 25th January 1999 and subsequently brought some amendments in this rule on the 28th April 1999. 3. SEC has approved the “Merging Rules 1999” to facilitate proper administration of credit facilities extended by the brokers to their clients and to enhance liquidity in the exchange. 4. The cabinet on June 7th, 1999 approved the amendment to the “Trust Act 1882” to facilitate the investment of 25% of person and insurance funds in the capital market. 5. SEC has extended the time limit for brokers/dealers to continue underwriting business form June 30 to December 31, 1999. 12 Role of Chittagong Stock Exchange for the economic development of Bangladesh

6. SEC amended the “Securities & Exchange Rules 1987” with a view to removing the “Counter party Identification” facility form the trading of the Stock Exchange. 7. SEC amended the “Settlement of Stock Exchange Transactions Regulations 1998” envisaging stern measures a gained defaulters for failing to deliver securities or make payment within stipulated time.

2.5 STRUCTURE Ministry of Finance

The securities act –1920 Securities & Finance ordinance 1969 Securities & Exchange rule –1987 The SEC Act-1993

Company Act-1994

SEC

CSE

CDBL

The Depository act-1999

The Registrar of Joint Stock Companies and Firms DSE

SEC Act-1920 SEC Act-1993

2.6 TRADING HOUR OF CSE Pre-opening session

10:35 a.m. To 10:55 a. m

Opening session

10:55 a.m. To 11:00 a. m 13

Role of Chittagong Stock Exchange for the economic development of Bangladesh

Continuous trading session

11.00 a.m. To 3.00 p. m

Closing session

3.00 p.m. To 3.10 p. m

Close price trading session

3.10 p. m To 3.30 p. m

Post closing session

3.30 p. m To 4.15 p. m

Odd lot session

11.30 a. m To 2.30 p. m

14 Role of Chittagong Stock Exchange for the economic development of Bangladesh

2.6.1ORGANIZATIONAL CHART OF CSE

Board of Directors

Chief Executive officer

General Manager

Deputy General Manager Assistant General Manager

Manager

Senior Manager

Officer

15 Role of Chittagong Stock Exchange for the economic development of Bangladesh

2.7 STRUCTURE OF THE STOCK EXCHANGE (CSE) General Body Board of Director CEO

Committees CEO in Committees 2.8 COMMITTEES OF CHITTAGONG STOCK EXCHANGE (CSE)

Administrative Committee Finance Committee Human Resource Committee Trading Committee Technical & Development Committee Surveillance & Inspection Committee Clearing House Committee Default Committee Attribution Committee 16 Role of Chittagong Stock Exchange for the economic development of Bangladesh

CHAPTER THREE 17 Role of Chittagong Stock Exchange for the economic development of Bangladesh

3.1 General rules and regulation of CSE to protect Bangladesh Economy Resignation, expulsion & suspension of members, member of an association, fine and penalties, suspension of a member, reconsideration of resolution of expulsion, no action maintainable against

notice

of

exchange,

creditors

of

expelled

or

suspended

members,

suspension/reinstatement/expulsion, expulsion entails forfeiture or card, liabilities to subsist, disposal of forfeited card and proceeds thereof, authorized assistants, unauthorized assistants excluded from market, power of authorized assistants, register of authorized assistants, notice of authorization - termination & withdrawal, undertaking from the authorized assistants, liability of the employer to continue until notice, admission during food behavior, badges, penalty for improper use of badge, loss of badge, return of badge, members ceasing to do business, expelled members, report of violation of rules, sub-committees, chairman and member-secretary, removal/retirement of member, arbitration committee, dispute to be referred to arbitration, application for arbitration, appointment of arbitrators, disagreement between arbitrators, late claims barred, appeal to arbitration committee, award of committee final in certain cases, members interested not to attend, adjourned meetings etc are discussed in general rules and regulation of CSE.

3.2 Chittagong Stock Exchange (Direct Listing) Regulations, 2006 1) These regulations may be called the “Chittagong Stock Exchange (Direct Listing) Regulations, 2006”. (2) These Regulations shall be applicable for direct listing of shares of public limited companies. Requirements concerning capital and operation: The concerned company------i) shall have minimum paid up capital of taka 100(one hundred) million; ii) shall have no accumulated loss; iii shall be in commercial operation for at least immediate last five years 18 Role of Chittagong Stock Exchange for the economic development of Bangladesh

iv) shall have profit in three years out of the immediate last five completed accounting/financial years with steady growth pattern; and v) is regular in holding annual general meeting. Legal Documents of Listing of Concerned Companies:i) The Company shall apply to the stock exchanges with application fee of Tk. 10,000/-(ten thousand) only, and shall simultaneously furnish a copy thereof, along with the copies of documents mentioned under sub regulation (ii), to the Securities and Exchange Commission (SEC). ii) The Company shall, among others, submit the following documents along with the application : (a) Memorandum of Association and Articles of Association (b) A brief profile of the company, including brief particulars of existing sponsor-directors of the company; (c) Certificate of incorporation and certificate of commencement of business (d) Audited financial statements for the last five years (e) Members/ shareholders list together with shareholding position (f) Return of allotment(s) filled with the Registrar of Joint Stock Companies and Firms (g) Existing material agreements including deed of mortgage (if any); (h) Status of loan including information concerning loan default, if any, of the company; (i) VAT and Tax identification numbers; (j) Due diligence certificate from the directors as per format prescribed by the Exchange; (k) No objection certificate from the lending bank(s) /financial institutions of the company, if any, where applicable; 19 Role of Chittagong Stock Exchange for the economic development of Bangladesh

(l)

Undertaking in the prescribed form as laid down in the listing regulations of the Exchange

to the effect that the company shall comply with the securities laws including requirements of the said listing regulations upon listing with the Exchange; (m)

Relevant resolution(s) of the shareholders in the general meeting of the company and the

Board‟s resolution, if so authorized, for the purpose of listing with the Exchange; (n) Credit rating report issued by the credit rating company registered with the Commission with minimum investment grade of “BBB”; (o)

Information Document as per format prescribed by the Exchange;

(p)

The shareholders resolution in respect of disposal of shares in accordance with the

regulation.

3.3 Chittagong stock exchange (short - sale) regulations, 2005 These regulations may be called the “Chittagong Stock Exchange (Short-Sale) Regulations, 2005”. 1. Owning security: A person shall be deemed to own a security only if – 2. he has title to the security; or 3. he has purchased the security which is available in his own account (including his BO account); or 4. he has entered into an unconditional contract, as prescribed by the SEC legally binding on him to buy the security, even if the buyer does not yet have title to them; or 5. he has unconditional right or interest to or in the security; or 6. he owns a security convertible into or exchangeable for the relevant security and has tendered such security for conversion or exchange or has issued irrevocable instructions to convert or exchange such security; or 7. he has an option to acquire the security and has exercised such option; or 20 Role of Chittagong Stock Exchange for the economic development of Bangladesh

8. he has rights or warrants to subscribe to the security and has exercised such Manner of short-selling: (1) Subject to the provisions of regulations 3 and 4, a stock dealer or stock broker may short-sell a security – 

for its own account; or



for the account of its clients provided it knows or is informed in writing that an order to sell is a short-sale, and shall, when placing a short-selling order, indicate in such manner as the stock exchange concerned shall, from time to time, determine that the order is a short-selling order.

On receipt of an order for the sale of a security, a stock dealer or stock broker shall enquire of the client whether at the time of placing the order such client owns the security offered for sale. A stock dealer or stock broker shall take all reasonable steps to ensure that the client‟s disclosures pursuant to these regulations are accurate.

3.4 Chittagong Stock Exchange Investors' Protection Fund Regulations, 1999 These Regulations shall be called the “Chittagong Stock Exchange Investors‟ Protection Fund Regulations, 1999”. 

On the commencement of these regulations, there shall be established a Fund to be called the Chittagong Stock Exchange Investors‟ Protection Fund.



The Fund shall be irrevocable.



The Fund shall consist of contributions of CSE and its members, value of securities or amounts collected by the Board of Trustees on account of the customers of or a defaulting member, accumulations thereof, interest or profits received by the Board of Trustees in respect of such contributions, accumulations of investment in securities with such contributions, securities or amounts lapsed or forfeited, and of any capital gains arising from the transfer of the capital assets of the Fund and any other amounts as may be vested in or accrued to the Fund from time to time.

21 Role of Chittagong Stock Exchange for the economic development of Bangladesh



All moneys forming part of the Fund shall be deposited into a bank account opened with any scheduled bank in the name of „Chittagong Stock Exchange Investors‟ Protection Fund‟.



All investments and banking accounts of the Fund shall be operated jointly by at lease two of the Trustees as decided by the Board of Trustees



The Fund shall be used to satisfy the claims of the investors and expenses under

3.5 REGULATORY UPDATE from October 2010 to September 2011 Circuit breaker on the index SEC has introduced circuit breaker on the capital market index which halts the market if the index gains or losses more than 225 points. The move came in a bid to prevent unusual fluctuation in the market on January 19, 2011. It was removed from January 25, 2011.

Suspension of book Building method The Securities and Exchange Commission postponed the book building method for initial public offering until further order. SEC/CMRRCD/2008/186/Admin dated January 20.2011.

Amends to the Securities and Exchange Commission (Stock Dealer, Stock Broker and Authorized Representative) Rules, 2000 The Securities and Exchange Commission (SEC) added new criteria to obtain license of stock broker or dealer. As per the new rule any company or statutory organization is not eligible for stock dealer stock broker registration certificates if more than fifty percent of its directors are members or associated with the sponsor or Sponsor Company.

(SEC/CMRRCD/2001-002/66/Admin/03-04 dated October 10, 2010)

22 Role of Chittagong Stock Exchange for the economic development of Bangladesh

Branch opening allowed only in divisional Cities: The commission suspended the approved to open the branch offices by stock brokers‟ outsides divisional on October 20, 2010.

Initial Public offering Rule: Several changes have been made in the initial public offering (IPO) rukes undaer athe Book building method through SEC notification no. SEC/CMMRCD/2009-193/67/Admin/…Dated November 14, 2010. The thrust Sectors (namely power and Gas infrastructure) companies with at least one year of commercial production and profits would now be eligible to raise funds under the book building method. Earlier minimum three years of commercial operation and two years profits were the required minimum qualification criteria. The eligible institutional investors who participate in the indicative price discovering process must compulsorily take part in the final bidding for price determination.

Issuance of Capital The Securities and Exchange Commission shorten the eligibility public flotation by companies having paid up capital of tk. 30 crore (thirty crore) only instead of tk 40 crore as set earlier, provided that the IPO portion should not be less than tk 12 crore but not less than 10% of their total paid up capital

Margin Ratio: Securities and Exchange Commission reduced the margin ratio once again in an effort to tame a heated

market

through

SEC

notification

no.

SEC/CMRRCD/2001-43/68

&

SEC/CMRRDCD/2001-43/69 dated November 21, 2010. The previous ratio for margin was 1:1 which set at 1:0.5. Credit providers will have to follow a net asset value (NAV) based method while giving loans to their clients or investors. The members of the stock exchange and the merchant ;bankers were also restricted to provide credit facility to the clients during the first 30 trading days of opening the clients‟ account for and depositing clients‟ own fund into such account for trading purpose.

23 Role of Chittagong Stock Exchange for the economic development of Bangladesh

Members’ margin: Securities and Exchange Commission on November 25, 2010 decided that members of the stock exchange would have to double their deposits with the stick exchange against any additional trade exposure from December 5, 2010. Under the new directive, a stockbroker or a stock exchange member will have to deposits 40% of the value of an additional trade value crosses BD:T1 crore after the free limit for BDT 5 crore. For up to trade value of BDT 8 crore, the SEC raised the rate to trade value of BDT 9 crore. The ratio is unchanged at 100%. However this directive of sec was suspended indefinitely on December 19, 2010 before application.

Margin Issues /the margin ratio for member and Merchant Bank had been increased affair from to 1: 0.5 to 1:1 through SEC notification Nos. SEC/CMRRCD/2001-43/74 & SEC/CMRRCD/2001-43/75 dated December 13, 2010.

Margin Issues: Securities and Exchange Commission (SEC) raised the margin loan ratio to 1:1.5 instead of 1:1 and suspended the net asset value based margin loan calculation system on December 19, 2010. That means from now on investors will get margin loan worth taka 150 from the brokerage houses and merchant banks.

24 Role of Chittagong Stock Exchange for the economic development of Bangladesh

CHAPTER FOUR

25 Role of Chittagong Stock Exchange for the economic development of Bangladesh

4.1 Role of CSE for the Economic Development CSE has been performing different investment related jobs, and undertaking and implementing different programs in order to accomplish its objectives. The performances of Chittagong Stock Exchange have been judged on different performances such as number of listed companies, number of listed securities, volume of trade, market capitalization, market share, share price fluctuations etc. these have been discussed in the following :  Growth in listing  Market capitalization in economy  Market Capitalization and Turnover  Market share of CSE  Sales performance Company Wish  Financial performance of listed Companies  Sector-Wise Financial Performance of Listed Securities  Stock Market Performance and CSE Index  Variances in Share Prices of Some Selected Companies  Test of Randomness of the Changes in Share Prices

Now I try to discuss one by one, to realize the performance of CSE on Economic growth of the Bangladesh capital Market.

26 Role of Chittagong Stock Exchange for the economic development of Bangladesh

4.2 Comparative Statement of Chittagong Stock Exchange for Economic development.

The comparative statement of CSE at the end of FY2008-09 and FY2009-10 is shown below:

Indicators

As on 30th June 2009

As on 30th June

% Increase

2010 Number of listed securities (include 245

232

-5.30

13,742.05

20,111.56

46.35

96,247.70

2,53,439.33

163.32

10,477.67

18,116.05

72.90

mutual funds and debentures) Issued capital of all listed securities Market Capitalization of all (Tk. in crore) listed All Share (Tk. PriceinIndex securities crore) Source: Chittagong Stock Exchange. *All share price index is calculated on General Share Price Index (excluding ‘Z’ group) by withdrawing weighted average method from 9 December, 2003.The index base was 1000 for CSE from the year 2000. Previously it was 100.

The number of securities (including mutual funds and debentures) listed with the CSE stood at 232 as of June 2010 which was 245 as of June 2009. By the end of June 2010, the issued capital of listed securities stood at Tk. 20,111.56 crore which is 46.35 percent higher than that of end June 2009. As of June 2010, market capitalization of securities reached Tk.2, 53,439.33 crore (36.6 percent of GDP) which is 163.32 percent higher than that of end June 2009 . General share price index of the CSE reached 18,116.05 as on June 2010, which was 10,477.67 on June 30, 2009. The trading operation in the Chittagong Stock Exchange since 1995 to June 2010 is shown in table 5.9 below:

27 Role of Chittagong Stock Exchange for the economic development of Bangladesh

Trading Operation in CSE for Economic Dvelopment Calendar

No. of

Initial Public

Issued

Year/ Month-

Listed

Offering

Capital

End 1995

Securities 61

(IPO)

1996

117

16

1872.60

1997

141

19

1998

150

1999

Market

Turnover

Capitalization (In crore

(In crore Tk.) (In crore Tk.) 1036.80 2413.90

Price Index*

Tk.) 1.97

409.43

14704.30

608.90

1157.90

2276.14

5283.23

854.51

332.98

6

2418.03

4138.25

1403.60

232.80

159

9

2508.09

3654.24

1153.79

197.83

2000

165

3

2726.60

5776.55

1293.38 1412.25

2001

177

9

2965.27

5636.35

1479.62 1836.87

2002

185

9

3107.99

6046.77

1358.61 1841.14

2003

199

10

4196.76

8531.23

668.86

2004

195

3

4697.87

21501.08

1755.13 3597.70

2005

210

16

5551.93

21994.28

1404.27 3378.68

2006

213

6

6937.84

27051.07

1589.31 3724.39

2007

227

13

8917.39

61258.00

5259.03 7657.06

2008

238

-

12160.32

80768.40

9980.37 8692.75

2009

217

18

15512.49

147080.70

16256.26 13181.37

2010

232

7

20677.4

224176.8

21711.2 23449.0

1642.78

Source: Chittagong Stock Exchange. *All share price index is calculated on weighted average method from 24 November, 2001.The index base was 1000 for CSE From the year 2000. Previously it was 100. 28 Role of Chittagong Stock Exchange for the economic development of Bangladesh

*All share price index is calculated on General Share Price Index (excluding ‘Z’ group) by withdrawing weighted average Method from 9 December, 2003. The index base was 1000 for CSE from the year 2000. Previously it was 100

4.3 Growth in listing to contirbiute Economy A public limited company having a minimum paid up capital of TK 10 Million can get enlisted with CSE and make a public issue. CSE also encourages direct listing of a company having minimum paid up capital TK 100 Million. Government has provided tax incentives to listed companies. All these are aimed at bringing more companies into the net of stock market.

Number of Companies listed

Year

Dhaka Stock Exchange

Chittagong Stock Exchange

2001

249

177

2002

260

185

2003

267

196

2004

256

198

2005

286

210

2006

310

213

2007

350

227

2008

412

238

2009

415

217

2010

437

232

2011

445

240

Source: Bangladesh Economic Review, Chittagong Stock Exchange, Dhaka Stock Exchange and Securities and Exchange Commission (Annual Report and quarterly review), various issues.

29 Role of Chittagong Stock Exchange for the economic development of Bangladesh

4.4 .Market Capitalization in the Economy Market capitalization is an indicator of economic development. It includes 204 equity securities, 4 corporate bond, 37 mutual funds, and issue of performance shares which has not yet been sponsored by any company. The higher the amount of market capitalization, The better performance of stock exchange. Market

Year

Total Market Capitalization (in million taka)

GDP (million taka)

Capitalization

2002

131,730

2,732,010

2003

182,899

3,005,800

4.82 to GDP (%) 6.08

2004

439,934

3,329,730

13.21

2005

453,018

3,707,070

12.22

2006

593,879

4,157,280

14.28

2007

1,366,530

4,724,770

28.92

2008

1,708,765

5,458,220

31.53

2009

3,357,984

6,147,950

54.61

2010 Descriptive Statistics of Market capitalization to GDP Mean

20.71

Standard deviation

16.78

Skewness

1.30

Minimum

4.82

Maximum

54.61

Market capitalization ratio equals the value of listed shares divided by GDP. In terms of economic significance, the assumption behind market capitalization is that market size is positively correlated with the ability to mobilize capital and diversify risk on an economy wide basis (Agarwal 2001). La Porter et al. (1997, 1998) used the market capitalization to GDP ratio as an indicator of market development. Above table shows the size of Bangladesh stock market. Market Capitalization ratio has i n c r e a s e d f r o m 1 4 . 2 8 % i n 2 0 0 6 t o 54.61% in 30 Role of Chittagong Stock Exchange for the economic development of Bangladesh

2009. Then the stock market experienced a sudden growth in market capitalization in the next two years, 28.92% in 2007 and nearly 31.53% in 2008.

4.5 Market Capitalization of CSE for the dvelopment of Economy

Year

Market Capitalization GDP (million taka) (million take)

Market Capitalization to GDP (%)

2002

60,468

2,732,010

2.15

2003

85,312

3,005,800

2.8

2004

215,011

3,329,730

6.07

2005

220,353

3,707,070

5.61

2006

267,501

4,157,280

6.44

2007

612,479

4,724,770

12.00

2008

807,875

5,458,220

14.80

2009

1,470,807

6,147,950

23.92

2010

2,983,929

6,905,710p

43.20

Mean

12.99

SD

13.24

Coefficient of Skewness 1.76 Table -05: Market Capitalization of CSE as a % of GDP 31 Role of Chittagong Stock Exchange for the economic development of Bangladesh

4.6 CSE contribution in the Bangladesh Economy

Year

Market Capitalization (in million taka)

Turnover (in million taka)

Ratio of Turnover to Market Capitalization

2002

60,468

13,581

22.46

2003

85,312

6,719

7.88

2004

215,011

14,808

6.89

2005

220,353

13,933

6.32

2006

267,501

16,530

6.18

2007

613,175

52,328

8.53

2008

807,875

100,747

12.47

2009

1470,807

162,563

11.05

Mean

10.22

SD

5.43

Coefficient of

1.97

Skewness Table: CSE contribution in the Bangladesh Economy Source: CSE Portfolio

32 Role of Chittagong Stock Exchange for the economic development of Bangladesh

CHAPTER FIVE

33 Role of Chittagong Stock Exchange for the economic development of Bangladesh

5.1 Share Pricing Share is nothing but dividing the total capital in small units. Share price is determined two times: 1. At the time of initial public offering 2. In the secondary market.

1. At the time of initial public offering Share pricing during the IPO‟s are 3 categories: a. At per b. At premium c. At discount.

A. At per: Normally share is issued at per basis. Here face value and issue price both are same. Face value of a share depends on the no of shares. B. At premium: If share is issued above face value. C. At discount: If share is issued below the face value

Continuous Trading Index: Calculated considering the trade price of scripts and it changed with respect of the share price changed. Close index: Calculated the basis of close price of the shares. It is treated as the open index for the next day.

5.2 Trading Procedure & Types of Trading System There are three types of trading system. These are: 1. Cry out System 2. Automated Trading System 3. Internet Trading System

Cry Out System: 34 Role of Chittagong Stock Exchange for the economic development of Bangladesh

Before starting on line trading at the Chittagong Stock Exchange trading were conducted through Cry out system. Under this system members and there authorized assistant of the Stock Exchange who have license to trade from the Securities and Exchange Commission would come to the Stock Exchange Floor and participate in trading. But there were a number of shortcomings of this trading system.

Automated Trading System: To fulfill the need of Chittagong Stock Exchange a vector (Standard product of CMC Ltd.) was customized. The program is window based and user friendly. The system has three modules(1) Brokers Workstation (BWS) (2) Market Operation (MOP) (3) Surveillance. The broker‟s workstation module is available from each broker‟s office. This module provides the facility to view the market scenario and input order. This department handles the market operation is exclusively for the trading department of the Exchanges issues like disclosure and circuit breaker. The surveillance department of the exchange will use the third module. This module facilitates on-line surveillance adding new dimensions to the issue of overseeing the market in this country.

5.3 Internet Trading System Internet Trading System or ITS is CSE‟s venture on behalf of the brokers. This site has been provided by the Chittagong Stock Exchange so as to give customers the convenience to trade or put orders on CSE from anywhere in the world irrespective of the trading hours of the stock exchange. The trading is done by registering on the site under some existing broker of the stock exchange.

5.4 EVALUATION OF CSE Evaluation of nay organization needs more concentrated effort. Here a brief subjective evaluation of CSE is done in the form of SWOT: 35 Role of Chittagong Stock Exchange for the economic development of Bangladesh

 Strength: The nationwide connectivity and recently the worldwide connectivity through the Internet is the superiority over the other stock exchange of Bangladesh. Efficient management and effective Corporate Governance gives CSE an edge over the competitor.  Weakness: CSE‟s operation is less effective due to the lack of professional attitude of the members, lack of Dhaka based member, non-availability of the dual listing facilities, small number of active members, regional image problem, etc.  Opportunity: With the growth of Internet users and government‟s interest in the capital market ushers new opportunity for CSE. As a member of SAFE, CSE will get the opportunity to trade regional (Sough Asian) shares in future.  Threat: New regulations of the different regulatory bodies (e.g. Government, SEC, Bangladesh Bank, etc.) change the trade volume in the exchange. Besides connectivity to the Internet also increased the security concern of the network.

36 Role of Chittagong Stock Exchange for the economic development of Bangladesh

CHAPTER SIX

37 Role of Chittagong Stock Exchange for the economic development of Bangladesh

Problems and Recommendation for Economy development On the basis of this tour I found some problems and they are shown below with recommendation: 

Some companies offering shares are lower because of some firms do not eventually list for trading through they nominally complete their offering.



Here the companies date are not searched in an "Advanced Data Search" in prime to secure data on the following basic issue and issuer characteristics after filtering for 1PO's.



Financial information for each offering is not available from "public pricing parameters".



Other firms list at varying periods of time after the offer, typically about a month after the offer date. This lack is zero in the most recent period.



The offer date is the date on which the offer opens for bidding. "There should be allowed offer proceeds equal the issue size and the issue price.



Among the control variables, firm age is negatively related to under - pricing, so older firms are less under - priced.



High IPO activity may follow high under pricing because underwriters encourage more firms to go public when public valuations turn out the higher than expected and because underwriters discourage firms from filing or Proceeding with an offering when Public valuations turn out to be than expected.



One interpretation of the result is that older firms are easier to value and can be sold at lower levels of under - pricing the other controls firm size and a technology dummy are not significant.



For each offering, company obtain data the face value of equity, earnings per share, price -earning ratio, industry average price-earning ratio and weighted average return on net worth prior to the issue and net asset value post issue.

38 Role of Chittagong Stock Exchange for the economic development of Bangladesh

CHAPTER SEVEN

39 Role of Chittagong Stock Exchange for the economic development of Bangladesh

7.1 Policy implication for Eonomic develoment In view of the foregoing analysis of findings of the study, the following suggestions have been put forwarded for consideration of Government, policy makers, SEC, Stock exchanges and other concerned parties in order to develop the performance of stock market, especially of CSE: a) SEC Along with stock exchanges should make a provision to compel every member of stock exchanges either to tread or to give-up membership of exchanges. Besides, regulation is warranted for checking the fraudulent activities of stock exchange. b) Government should promulgate macro-economic policy such as fixation of interest on treasury securities considering the interest of stock market of the country. Besides, it should come out with policy for bringing profitable SOEs and MNCs into the net of stock market. c) SEC in Corporation with CSE and DSE should establish a training institute for research and development of human resources in the different level of security industry. This will help improve the awareness of investors. d) SEC Should comes out with full-field get guideline for introducing carport governance to listed companies. This may improve not only financial disclosure practice; but also stock market operation of the country. e) Listed companies should disclose financial information through different vehicles such as newspaper, websites, report from etc. this will give investors easy accessibility to the information.

40 Role of Chittagong Stock Exchange for the economic development of Bangladesh

7.2 Conclusion CSE has been found to play a pioneering role in boosting the confidence of all participates including investors. It has implemented different revolutionary programs for developing a congenial regulatory and administrative environment in its operations. Of course, it has exerted influence in the entire stock market of the country. The study has identified different impediment of development of stock market; and also suggested some policy measures for improvement of the operational efficiency of CSE. The suggestions are expected to develop the stock market of the country as well. The analysis of the three measures of CSE development indicators reveals that CSE shows a smooth and steady growth over the decade under study but low market capitalization as a percentage of GDP is reflecting shallowness as well as the lack of depth of the market. This sort of market is always subject to manipulation.

41 Role of Chittagong Stock Exchange for the economic development of Bangladesh

References 1. "Foreign Investment in Asian Stock Markets" ESCAP, Monograph No. 6,1996; 2. Ahmed, M. Farid, Khan, Harunur Rashid and Islam Md. Sadiqul, 'Industrial Finance Through 'Capital Market in Bangladesh; A study on the Demand Side'. The Asia Foundation and Bureau of Economic Research, Dhaka University; 3. Annual Report and monthly Review of DSE and CSE, various issues; SEC Quarterly Review and Annual Report, various issues. 4. Annual Report of Bangladesh Bank, Various issues. 5. Annual reports of 2010, 2009.2008,2007,2006,2005,2004,2003,2002 of Chittagong Stock Exchange. 6. Bangladesh Capital Market" — A publication of Chittagong Stock Exchange March-2001 7. Bangladesh Economic Review, 1999. 8. BIBM Bulletin, Vol.2 No. 3, May-June, 1999. 9. CSE Bazar Porikroma" -May 2007. 10. Levin, Ross "Stock Markets: "A Spur to Economic growth", Finance & Development, March, 1996. 11. MCCI, Chamber News, Various issues 12. Portfolio" of Chittagong Stock Exchange (Jan-Mar; 2005). 13. Rouf, M.A and Nabi, Md Golzare "Stock Market in Bangladesh Challenges Ahead" "Thoughts on Economics", July December 1998. 14. Share-e- Binioge" — A publication of Chittagong Stock Exchange. 15. The Financial Express, Various issues.

42 Role of Chittagong Stock Exchange for the economic development of Bangladesh