12 days ago

What future awaits DSE?

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The first cover page of the Annual Report 2021-2022 of Dhaka Stock Exchange (DSE) carries a brilliant slogan 'Capital market: The source of long-term and affordable financing.' The Chairman of DSE has observed, "Long-term finance is considered to be the care of sustainable development of a country." It contributes to faster growth, greater welfare, higher productivity and wider scope of economic development. Although banks are the most important providers of credit, they do not offer long-term financing. Capital market is the source of long-term finance leading to long-term investment. In fact, share market mandarins feel proud claiming it to be the source of providing long-term capital for creating national wealth. It harnesses the savings of the common people and connects the national flow of capital for development of the country.

What is the situation in Bangladesh during IPO (Initial public offering) is the direct process through which the general investors take part in the national development. They supply permanent capital through purchase of shares of a company. In the secondary market i.e. stock exchange the investors purchase and sell shares in their own interest. It does not directly contribute to the capital request for development and increase of national development. However, it cannot be denied that a vibrant stock exchange is a great source for development of the primary market, to be precise, initial public offerings.

During 2021-2022 IPOs were issued worth Tk. 48,484.24 million. This amount is quite insignificant compared with the total investment. So, corruption-ridden commercial banks are chief providers of long-term capital because of the absence of a competent share market. There is a saying that the play Hamlet' cannot be staged without the Prince of Denmark. Here the buoyant general investors are important. What is to be found here? There are only 1.6-1.7 million (sixteen/seventeen lakh) BO (Beneficiary Owner) accounts in operation. It means less than one per cent people are involved in the share market. Explaining this phenomenon, Ahmed Iqbal Hassan, former Chairman and President of DSE, has said both DSE and Bangladesh Securities and Exchange Commission (BSEC) have taken all steps to discourage the general investors. No person can take part in the share market activities without opening a BO account. Tk. 450 is to be paid for maintaining a BO account annually whether there is any transaction or not. Is it not a burden for a small investor? The BSEC has completely closed the door to neophytes entering the share market. No neophyte can apply for any IPO share. Ahmed Iqbal Hassan has observed that the provision for direct application would have attracted the newcomers to enter the market thereby creating some sort of euphoria in the share market. Ahmed Iqbal Hassan has further observed that he cannot remember if there is any such impediment for the neophytes as is found here. The number of IPOs is scanty. Even in such a situation various quotas are imposed and a section of shenanigans form a syndicate. When the issue is listed and trading starts, the syndicate members sell their shares and the market price falls, thereby making the general investors frustrated as they do not have any chance to book any profit.

In early 2022 capital market mandarins held grand road shows consisting of members from different segments. One group hitchhiked the USA, another group visited Switzerland and the UK. They are all capital market experts. There has not been any immediate positive effect on the market. In the long run, it may have good effects. The stock market has been limping for a long time. Of course, the index has been kept within a specific range. It is very easy to manipulate the index. Manipulating the price of a few high-valued and big-size issues the market capitalization can be raised and the index can be pushed up.

If our national economy is to get rid of corruption-stained commercial banks, we shall have to bring back the glory of our IPO market. Once, our IPO market was a gold mine. In late eighties when some state-owned enterprises were partly privatized, every issue was oversubscribed several times. Steps are to be taken for our industries to go public. Neophytes should be unchained. Set them free to come to the market. Some state-owned banks have been turned into public limited companies but they have not yet gone public. Let them go public. The long and short of the story is that our stock market shall have to be made buoyant and vibrant by our own people.

In a column it appears that the period of 1987-92 was a time of blackout. In the 1992-93 budget, nonresidents were allowed to invest in the stock market, both in primary and secondary shares; of course, the secondary market in the initial stage. But subsequently the primary market was also opened. This gave a big thrust and the representatives of foreign investors started to visit Bangladesh.

A securities training institute was opened under the control and guidance of the then Dhaka Stock Exchange Council. A group of brokers and ICB officers were trained and after completion of the training the then state minister late Barrister Aminul Huq gave away the certificates. Mysteriously that institute was shut down and subsequently it was reincarnated as DSE Training Academy. During this period DSE became an Associate Member of FIBV (International Organization of World Federation of Stock Exchange).

Before we conclude we once again want to stress that the natives will have to return. Our investors who for some reasons or other are away from the market shall have to be brought back. Local road shows are more important than the international ones. A section of share market experts hold the view that the market manipulations find communists in playing with the innocent small investors. So, the less in number they are, the better for share market. It is a preventive and negative concept.

After demutualization the independent directors including the chairman have outnumbered the broker members of DSE. It will be unfortunate and harmful if the majority members always want to downplay the minority's psyche. The minority psyche should be given due importance, an environment of mutual cooperation should be there.

The curse of finance in the form of financialism has been engulfing the globe. Nicholas Shaxson mentioned in his book 'The Finance Curse", 'Finance turns away from its traditional role serving society and creating wealth, and towards often more profitable activities to extract wealth from other parts of the economy, it also becomes politically powerful, shaping laws, and rules and society to suit it.'

If we cannot harness our people's money through IPOs, if we cannot utilise this money for creating wealth and increasing GDP, then what are we going to face?

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