Chittagong bourse losing relevance as turnover remains low: Stakeholders

The relevance of the Chittagong Stock Exchange (CSE) has been called into question for its insignificantly low turnover.

At a time when the regulatory bodies are contemplating reforms for the market's development, stakeholders ask whether the port city bourse should continue to operate as an independent exchange at all.

"It is time to think whether we should continue with the Chittagong Stock Exchange," said DSE Brokers Association (DBA) President Saiful Islam at a programme titled "Prospects & Challenges of Bangladesh Capital Market". The discussion was organised by the Bangladesh Merchant Bankers Association (BMBA).

The CSE on Tuesday witnessed a turnover of Tk 75 million, about 2 per cent of the turnover posted by the DSE on the same day.

It is rare for the port city bourse to experience notable turnover value without any large amount of block trades. The CSE's turnover values have remained below Tk 200 million in most sessions since May this year.

Both the Dhaka Stock Exchange and the CSE conduct trades during the same period. The securities and products listed on the exchanges are the same.

Apart from the hassles that a company has to deal with for dual listing, the securities regulator has to allocate resources to monitor the CSE whereas its turnover does not exceed 5-10 per cent of that of the premier bourse.

"Around 50 per cent of the brokers of the port city bourse participate in the DSE trading. The CSE's operations aren't financially viable for thin investor participation," said the DBA president.

The port city bourse is at an advanced stage of introducing Commodity Exchange (CX)."That's why the CSE can focus on CX instead of equity operations," Mr Islam said.

There are examples in other countries, including neighbouring India, where many regional stock exchanges have been merged with big bourses.

At Monday's discussion, CSE Chairman AKM Habibur Rahman said representatives from the CSE had discussed the matter with the Bangladesh Securities and Exchange Commission (BSEC).

"We discussed whether the listing of local companies [in Chittagong] can be ensured through the port city bourse," Mr. Rahman said.

The CSE began its journey in 1995, with a promise to create a state-of-the art bourse in the country. There are three boards on the CSE -- main board, SME board and ATB board.

A majority of the companies on the CSE's main board are also listed on the Dhaka bourse.

Both the DSE and CSE became demutualised in 2013 and Bashundhara Group became the CSE strategic partner by purchasing a 40 per cent stake in the Chittagong exchange.

Capital market for long-term financing

At the Monday's progarmme, discussants also suggested cutting down dependency on the money market for business financing so that the equity market can flourish.

Nazma Mobarek, secretary of the Financial Institutions Division (FID) of the Ministry of Finance, said banks were now facing a miserable situation due to over dependence on big borrowers and the government's heavy reliance on the money market.

Problems have emerged from maturity mismatches in banks' debt management - long-term financing against short-term borrowings.

"Now, we need to divert our thoughts. The capital market should be the main source of financing for big borrowers and the government as well," Ms Nazma said.

Chairman of the BSEC Khondoker Rashed Maqsood and top officials of the central bank, revenue board, bourses, and other capital market stakeholders attended the programme at a hotel in the capital.

FID Secretary Ms. Nazma said many problems of the market had already been identified and other areas would be addressed on recommendations from the recently-formed task force.

Tax incentives for new listing

She said a large number of big companies, including multinational ones, were still out of the capital market.

"The revenue board should consider tax incentives to attract good companies to the capital market." Companies would not be interested in going public if the corporate tax gap between listed and non-listed companies is only 5 per cent, said Ms Nazma.

She also questioned the relevance of too many brokerage firms and merchant banks in the country, exceeding the numbers of such entities in India.

The speakers in the meeting said listing of quality scrips should be prioritized in bringing reforms to the market.

BSEC Chairman Mr Maqsood said the market watchdog was working to enhance the depth of the capital market.

"The government has talked to some multinational companies to get them listed," he said, adding that the regulator would not intervene in the market to let the index move based on its own strength.

Changes required in securities rules

Highlighting flaws in the margin loan policy, Vice Chairman of Shanta Asset Management Arif Khan said loans for investment in companies with 40 P/E (price-to-earnings ratio) were not available anywhere in the world.

"Margin rules should be reformed immediately along with measures to contain insider trading rules," Mr Khan said.

Speaking of the dire straits of the mutual fund industry, Mr Khan said India had shown how the capital market could be developed through such pooled funds.

For protection against remour-driven trading, rules should be framed allowing market analysts to speak about listed securities, he added.

BMBA President Mazeda Khatun moderated the programme attended by former BSEC chairman Faruq Ahmad Siddiqi and top officials of the central bank and the revenue board.

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