SEC slaps circuit breaker to curb volatile trading
Experts say the move can create more panic
FE Report
20.01.2011
The securities regulator Wednesday imposed a circuit breaker on the DSE general index (DGEN) for the first time in an effort to rein in volatile trading at the country's premier capital market.
Under the latest Securities and Exchange Commission decision, trading at the DSE will come to an automatic halt for the whole session if the DGEN - the main market barometer -- gains or loses 225 points.
The move backfired on the first day of its introduction as trading of Dhaka shares ground to an automatic halt just 86 minutes after share transaction begun in a truncated session.
"The SEC has taken the decision at the meeting of its market monitoring committee," its executive director Anwarul Kabir Bhuiyan said at a press briefing in the city. "It will remain in action until further order."
The SEC said trading at the smaller Chittagong Stock Exchange (CSE) will also be suspended automatically for the day when DSE stops its trading.
Officials said the move aimed at "curbing volatility and the tackling abnormal ups and downs" in the plunging market and bring confidence back among millions of investors
The market, however, lost for the fifth day Wednesday, shedding nearly 800 points or more than 11 per cent. The fall sent thousands of investors on to the streets as they clashed with police to vent their anger.
"We imposed the circuit breaker to put a brake on volatile behaviour of the trading. We hope it will bring sanity back into the market," another SEC official said, adding the move was taken as a "desperate" attempt to restore order.
Officials said the DGEN could dive deeper or gain further than the circuit breaker i.e. 225 points after adjustments of the day's trading. On Wednesday, the DGEN fell as much as 237 when the circuit breaker comes into effect.
According to the SEC calculation, the lower limit of the circuit breaker is 225 points. And the upper limit can go as high as 249, depending on the adjustments.
Normally, the DSE adjusts its indices after every five minutes. If the DGEN stands at 224 points and hits the circuit breaker moments later, the benchmark index can go as high as 237 points when the next adjustment is made.
Officials said the circuit breaker was introduced after consultations with the Finance Minister AMA Muhith, who flew back to the country Tuesday night, after a visit to London.
SEC Chairman Ziaul Haque Khondker, its member Muhammad Yasin Ali and the Bangladesh Bank governor, Atiur Rahman attended the meeting held at the residence of Finance Minister.
Experts slammed the imposition of the circuit breaker, saying the move will create more volatility in the market.
"It is not a permanent solution. It can create panic in the market. Every time the circuit breaker halts trading, it can send more protesters on to the streets," ex-DSE chief executive Salauddin Ahmed Khan said.
"The SEC should have addressed the main problems of the market first before adopting this measure," he said, adding the market has been on a free-fall because "the banks' hands are tied up and they are not buying anything."
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Unrest continues to buffet DSE as investors protest share fall
http://www.thefinancialexpress-bd.com/images/news_image_2011-01-20_18220.jpg
FE Report
20.01.2011
Thousands of angry investors went on the rampage in the capital's Motijheel area Wednesday protesting the continuous fall in share prices, as the newly introduced 'index circuit breaker' failed to stabilise the stock market.
Within the 90 minutes of the day's start of delayed trading, the benchmark index hit a lower limit by losing 237.77 points or 3.33 per cent, which prompted trading to grind to a halt automatically at the Dhaka Stock Exchange (DSE) caused visibly by the index circuit breaker.
The Wednesday's trading started at 1pm, two hours later than the usual time following the order of SEC.
Earlier in the morning, the Securities and Exchange Commission (SEC) imposed index circuit breaker on DSE, meaning that trading at the bourse would come to an automatic halt if the DGEN gains or loses 225 points.
As the trading was halted with the new rule in force at about 2:30pm, the aggrieved investors came out onto the street from different brokerage houses and set off a street violence that jolted the city's commercial area, leading to sporadic clashes.
By chanting slogans against the top bosses of the bourse and the market regulator, the protestors damaged at least 20 vehicles and threw brickbats and stones at the law enforcers, prompting them to charge batons to maintain order in the bustling financial hub that turned the area into a veritable battlefield.
They also blockaded the approach roads of the area with burning tires, wooden materials and paper in front of Dhaka Stock Exchange (DSE) building, which seriously disrupted traffic movement for more than one hour, causing immense sufferings to city commuters.
Officer-in-Charge of Motijheel Police Station said they charged the protestors with batons to maintain peace in the area as the latter became unruly after the shutdown of trading. "We've stepped up security in the area to avert further trouble," he added.
The investors also urged the government to take effective measures to save the stock market. Many frustrated investors said that they lost almost all of their portfolios in the continuous fall of share prices.
"We don't want violence but the continuous fall has forced us to do so. We want an investor-friendly atmosphere in the capital market," a protestor said.
He also demanded immediate resignation of the high-ups of the regulatory body for their frequent failure to control the market.
Yewar Sayeed, managing director of AIMS Bangladesh, said, "The recent incidents that occurred in the stock market are nothing but a painful and shameful experience for us."
The market opened with a positive note in the morning, gaining more than 45 points within five minutes, but it began to decline amid ups and downs and finally closed 226 points lower.
The benchmark DSE General Index (DGEN) was down by 3.18 per cent or 226.86 points to end at 6913.39.
The broader DSE All Shares Price Index (DSI) ended at 5739.29, shedding 3.14 per cent or 186.29 points. The DSE-20 blue chips index lost 2.21 per cent or 101.03 points to 4471.49.
The benchmark index of the DSE shed 10.11 per cent in the last seven days and it lost 22.48 per cent since the peak on December 5 last year.
Share prices of all the sectors finished in the red on the day.
Turnover stood at only Tk 5.37 billion. Out of 181 issues traded, only five advanced and 176 declined.
However, normal share trading resumes at 11am today (Thursday) and will continue on schedule, the authorities said.
With the Wednesday's halt, the SEC has suspended share trading for the third time and the second day in a row.
On Tuesday, the SEC suspended trading of the DSE and CSE in the wake of a free fall of share prices amid street protests by the investors.
On the day, hundreds of angry investors came out from different brokerage houses and gathered in front of the DSE main building and staged protests against the continuous fall of share prices and chanted slogans against the market regulator and DSE top bosses.
On January 10, the SEC suspended share trading both of the bourses when Dhaka stocks slumped by 660 points or 9.0 per cent and Chittagong stocks by 914 points within 50 minutes of trading, which sparked violent protests by the investors.
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Govt to postpone book building for price fixing
Mohammad Mufazzal
Financial Express
20.01.2011
The government has decided to postpone temporarily book building (BB) method for price fixing of shares to protect siphoning off money from the stock market through over-pricing, sources said.
The decision came at a meeting Wednesday at the residence of Finance Minister A M A Muhith.
It was said at the meeting that under BB method many companies are fixing very high price of their shares before offloading in the stock market. As a result, huge amount of money is being siphoned off from the stock market, and liquidity crisis has been created.
"In such a situation, it was proposed to suspend the BB method temporarily, and the finance minister gave his nod," it added.
Another source said the Securities and Exchange Commission (SEC) has decided in principle to suspend BB method following the decision of the meeting. The stock regulator is likely to issue a gazette notification within two or three days regarding the matter.
However, some companies have submitted their IPO proposals to the SEC to go public under BB method.
"These companies can be listed under fixed price method, if they intend to go public. But the companies, which have already completed their subscriptions, have no bar to go public under BB method," an SEC source said.
The SEC issued a guideline on March 9, 2010 to introduce BB method. But the experts criticised high prices of shares, fixed under it. Those who buy shares at the bidding can easily come out of the market by selling shares due to minimum lock-in period imposed on their shares.
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