Securities Trading

4.1 Overview
     4.1.1 Market Structure
      4.1.2 Size of Markets
      4.1.3 Financial Indices
4.2 Principal Stock Exchange
       4.2.1 Names and Location
      4.2.2 Legal Basis
      4.2.3 Structure of the Stock Exchange
      4.2.4 Functions of Stock Exchange bodies
      4.2.5 Stock Exchange dealers/ members
4.3 Over the Counter Market
4.4 Derivatives Exchanges

 

4.1.2 Size of Markets

Figures as at 30 December 2002 (Chittagong Stock Exchange)

4.1.3 Financial indices

Both the Exchanges have their own All Share price indices.

4.2.1 Names and Location

Dhaka Stock Exchange Ltd.

Chittagong Stock Exchange Ltd.

For contact details see section 8.1

The license to operate a stock exchange is granted by the Securities and Exchange Commission according to the Securities and Exchange Ordinance, 1969. Exchange activities are regulated by Stock Exchange’s own regulations and bylaws, along with the rules, orders and notifications of the Securities and Exchange Commission.

4.2.3 Structure of the Stock Exchange

The Stock Exchange is a company limited by guarantee having share capital. It is a non-profit organisation.

The Body of General Members of the Exchange considers and approves the financial statements and annual reports of the bourse. The General Body also elects members to the Board.

Chittagong Stock Exchange has a policy-making body of 18 members, 6 of whom are nominated by the Securities and Exchange Commission and 12 who are elected by the General Body of the Exchange. The Board elects its own President and 3 Vice Presidents.

The council of Dhaka Stock Exchange is constituted by 12 elected and 12 nominated councilors.

The wide administrative powers of the Board include:

     - admitting and expelling members of the Exchange.
     - granting and canceling the rights of members
     - admitting listing and de-listing of securities
     - controlling the Exchange and managing the business of the Exchange.
     - making, amending and suspending the operation of the rules, by-laws and regulations of the Exchange
       subject to the consent of the Commission.

The Board constitutes Committees e.g. Arbitration Committee, Defaulters’ Committee Listing Committee etc. The Committees are vested with such functions and authority as may be delegated by the Board.

There is an independent secretariat headed by a full time Chief Executive Officer.

4.2.5 Stock Exchange dealers/ members

To become a member, an individual or body corporate must meet requirements set down by the Law and obtain approval from the Board of Directors. In the Chittagong Stock Exchange a Corporate body must have a minimum issued and paid-up capital of BDT 2.5 million to become a member. No minor, bankrupt, person of unsound mind or person convicted by a competent court of an offence involving moral turpitude is eligible for membership

Individuals may apply and receive membership on condition that they form a corporate body within a given time, usually 3 months.

Stock Exchange Members can act as Broker or Dealer. Dealers can perform transactions on their own account and also on behalf of their clients but Brokers can act as agent only on behalf of their clients:

Brokers and Dealers must:

     - be Members of a stock exchange
     - be Members of the Clearing House
     - obtain Brokerage/Dealership License from the Securities and Exchange Commission

4.2.6 Stock Exchange Trading

• Trading Hours

Pre-opening Session	10:00 - 10:20
Opening Session	10:20 - 10:30
Continuous Trading Session	10:30 - 14:00
Closing Session	14:00 - 14:10
CP - Trading Session	14:10 - 14:30
Post Closing Session	14:30 - 15:15

 

• Types of Transactions

All securities are transacted on a ready delivery basis. Forward trading is forbidden.

The seller broker/dealer of a share under spot trading must deliver the certificates directly to the buyer or broker/dealer within the day of trading. Confirmation of settlement must be given to the Stock Exchange clearing house by 1000 on the next trading day. Spot trading is only permitted when there is a price sensitive disclosure also declaring a share transfer book closure and or immediately prior to renunciation period in case of newly issued securities.

• Groups of Quotations

On line price quotations are disseminated through the computer workstations logged in to trading system.

Opening Quotation: In the Pre-opening sessions members are able to see the closing price of the previous day only. In this session, members’ orders are received but not executed before the opening session. In the Opening Session the best price that ensures the maximum volume of trade calculated. These prices are disclosed in the trading session as Best Buy and Offer (BBO) window.

Closing Quotation: In the closing session weighted average price of each securities is calculated and that produces the Closing Quotation.

Odd Lot: A separate window for Odd Lot displays the Odd Lot Quotation.

• Fixing of price

Investors are allowed to quote their expected price in the their Buy/Sell orders. The trading system of the Exchange automatically matches the best prices. Before execution of an order, the investors, through their brokers may revise the price. Therefore in a broad sense, the prices are fixed by the market forces of supply and demand.

In June 1998 a screen based, fully automated trading system, was implemented in the Chittagong Stock Exchange (CSE. The system enables the members to trade nation-wide simultaneously. Dhaka Stock Exchange has also automated its trading system in August 1998 with a local area network (LAN). Trading operates on price and time priority. Orders are matched with opposite orders of the best price. Waiting orders are matched in the following sequence:

1. Best Price
2. Within Price, by time priority.

The best buy order will match with the best sell order. The best buy order for a seller is the one with highest price and the best sell order for a buyer is the one with lowest price. An order may match partially with another order resulting in multiple trades.

• Trading Lots

A deal executed on the Exchange should be for one board lot or multiples thereof, with the exception of odd lot. The board lot size is suggested by the listed companies and approved by the Securities and Exchange Commission.

In most cases lot size is 50.

• Regulations regarding price fluctuations

The following table shows the standard upward and downward price limit over the previous day’s market price :

In the case of a new issue free trades are allowed for first 5 trading days. Subsequently the above limits are applicable.

• Most frequent orders

With a Limit Order,the buying price or selling price for a certain quantity of particular security is specified.

Market Order is an order to buy or sell a certain quantity of particular security at the best price or prices prevailing in the market at that time.

A Drip Feed Order is an order in which the member has the option to specify a replenish quantity along with the total order quantity. Only the replenish quantity is revealed to the market. The quantity gets replenished only when the previous quantity has been traded. Every time the quantity gets replenished, the visible quantity gets a new time stamp. The system treats the drip feed order as multiple limit orders.

A ‘Match at Closing Price’ Order allows the Member to specify that the order is executed at Closing Price.

An applicant company is expected to meet the following basic requirements for the listing of securities:

• The Company has to be a registered Public Limited Company
• The minimum paid –up capital has to be BDT10 million (US$ 0.20 mil )
• Share subscription must be at least 250.
• Submission of the following is required:

· Memorandum and Articles of Association

· Certificate of Incorporation

· Prospectus

· Audited Accounts for the last 5 years or for the whole of the life of the company if less than 5 years old.

· A brief history of the Company since incorporation giving details of its activities including: re-organisation, changes in capital structure and borrowings

· A statement showing: dividends and cash bonuses and/or bonus shares or right shares issued during the last 10 years.

· A copy of agreements or other documents relating to arrangements with intermediaries

· A statement containing particulars of material contracts (e.g. for technical advice and collaboration)

· Name and address of the Directors and persons holding 10% or more of the equity security on the date of application together with the number of shares or debenture held by each.

· Any additional information/documents that may be required by the Exchange

There is no over the counter market in Bangladesh.

Currently there is no derivative market in Bangladesh

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