Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
The dispiriting results of the imposition of the floor price on stocks apparently have failed to dissuade the 'overenthusiastic' capital market regulators from opting for unmerited curbs. Before fully withdrawing the floor price, which was imposed around two years ago to keep bears hibernating ignoring the suggestions from economists and capital market experts, they have chosen fresh restrictions --- a cut in the single-day permissible price decline of stocks. Keeping the upper circuit unchanged at 10 per cent, they have reduced the lower circuit to 3.0 per cent from 10 per cent for all securities except for the six that still have floor prices imposed on them.
In their efforts to artificially prevent any potential plunge and thus 'protect investors', they have imposed all these restrictions ignoring the basic economic theory of demand and supply. The restrictions have taken away the vibrancy of most good stocks, contributing to a liquidity crunch in the market and frustration among investors for their inability to sell stocks. The outcome was an obvious one. Stock prices on both the bourses dipped with the prime index of the Dhaka Stock Exchange declining by 758 points or 12 per cent following the gradual withdrawal of the floor price since January last. All the restrictions, in fact, have failed to achieve anything other than delaying the market plunge. Had the market been allowed to operate normally during the last two years, the situation would be better than what it is now.
The authorities are unable to fathom the long-term impact of the regulatory market maneuverings. In fact, it is inviting more harm than good to the market, eroding the confidence of investors, which might keep taking its toll for a long period. Another trouble the floor price restrictions have invited is the piling up of interest on investors who enjoyed margin loans but could not sell their stocks. They are now facing the risk of forced sale. Will they inject money afresh after losing what they had in their hand?
The capital market is not isolated from the overall economy. Any decision made without taking the prevailing macroeconomic factors into consideration will never offer any benefit to the market. In line with the central bank monetary policy, banks have increased deposit interest rates substantially, making deposits in banks more attractive than investments in the capital market. How many investors are there in society who are too imprudent to cling to a place where there is no guarantee of gain, particularly when there exist options to get higher return? So equity outflow took place from the capital market to the banking sector.
Regulators should evaluate the benefit or harm the floor price curbs have brought to investors, share traders and the market as a whole and listen to the stakeholders before opting for any new restrictions, not only at the present time but also in the future.