Rony Islam - Presentation For AR Training - Updated

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Dhaka Stock Exchange Limited

Introduction to DSE:
Current Status & Growth Potentials of Capital market

Presenter

Muhammad Rony Islam


Senior Manager & Head
Training Academy
Dhaka Stock Exchange Limited
STOCK EXCHANGE

Trading of shares
Stock Exchange or securities is
is a facilitator Where done in terms of
sale & purchase

Tuesday, October 20, 2020 2


Features of Stock Exchange
v It is an organized securities market
v It is an important constituent of capital market;
v It is a voluntary association of persons wanting of dealing in securities;
v Stock exchange is a voluntary association, its membership is not open to
everybody;
v In a stock exchange, only the members can deal in buy & sell securities; The
members of a stock exchange can buy and sell securities either as brokers for & on
behalf of their clients;
v Increase the marketability and liquidity of securities;
v Help the investors to know the worth of their holdings;
v Help capital formation;
v Help companies and government to raise funds from the investors;

Tuesday, October 20, 2020 3


Brief History
v Established on 28 April, 1954
v Trading began on 1 September, 1956
v Trading suspended in 1971 during liberation war and resumed
in August 1976
v Screen based trading introduced all over the country on 10
August, 1998
v Central Depository System for electronic settlement of share
trading started on 24 January, 2004
v Web based trading introduced on 10 June 2012
v Demutualized on 21 November 2013
v Launched new DSEX and DS30 (28 Jan 13) Indices and DSES (20
Jan 14) developed and maintained under S&P Bangladesh
Index Methodologies
v Changed Trading System with Matching Engine (X-stream INET)
from Nasdaq and Centralized Order Management System (co
branded as DSE-FlexTP) from Flextrade on 11 December 2014
v Market wide mobile app, “DSE-Mobile”, directly integrated
with the trading infrastructure launched on 9 March 2016
v DSE awarded ISO 9001:2008 Certificate on 30 October 2016
v On September 04, 2018 the consortium of Shenzhen Stock
Exchange and Shanghai Stock Exchange has become the
strategic shareholder of DSE.

Tuesday, October 20, 2020 4


Legal Status
Ø Dhaka Stock Exchange Ltd. is registered as a Public Limited Company
under the Companies Act 1994.
Ø Presently DSE has 250 outstanding shares (Members) having
present market value of Tk. 320 mn. (appx), equal to US$ 4 mn.

ØIt is Self Regulatory Organization and its activities are


regulated by :
ü Memorandum & Articles of Association
ü Own (set of) Regulations and Bye-laws
ü Companies Act 1994
ü Securities and Exchange Ordinance 1969
ü Securities and Exchange Rules 1987
ü Other relevant laws of Bangladesh.
Tuesday, October 20, 2020 5
Regulatory Body of the Securities Market
q Regulatory body of Securities Market is Bangladesh Securities and Exchange
Commission which is constituted as per Securities and Exchange Commission
Act, 1993.
q Major Functions of Securities and Exchange Commission:
ü Protect the interests of the investor.
ü Develop and maintain fair, transparent and efficient securities markets.
ü Ensure proper issuance of securities and compliance with securities laws.
ü Regulating the business of the Stock Exchanges or any other securities market.
ü Registering and regulating the business of stock-brokers, merchant bankers and
managers of issues, trustee of trust deeds, registrar of an issue, underwriters,
portfolio managers, investment advisers and other intermediaries in the securities
market
ü Registering, monitoring and regulating of collective investment scheme including all
forms of mutual funds.
ü Monitoring and regulating all authorized self regulatory organizations in the securities
market.

Tuesday, October 20, 2020 6


Mutual & Demutualised

q Demutualized Entity
q Mutual Entity • Company Limited by Shares
• Company Limited by Guarantee • Owned by all types of firms and
• Owned by stockbrokers persons - Stockbrokers, individuals,
• Does not pay dividends companies etc.
• Cannot raise fund by public offer • Pay dividend
• Market discipline weak • Able to raise fund by public offer
• Shares may be listed and traded like
any other company’s
• Market disciplines poor financial
performance as well as operational
and strategic weakness
• Access separated from ownership

Tuesday, October 20, 2020 7


Board Structure of DSE

Shareholder
Independent Directors 5 –
Directors 7 – Elected by the
shareholders for 2
Managing
For a term of 3 (two) consecutive Director –
(three) years terms Ex-Officio

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Independent Directors

Mr. Md. Eunusur Rahman


Chairman

Prof. Dr. Md. Masudur Rahman Brig Gen Md Mostafizur Rahman Ms. Salma Nareen NDC
hdmc, afwc, psc, Ph.D

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Independent Directors

Mr. Md. Muntakim Ashraf Mr. Habibullah Bahar Professor Dr. A. K. M. Masud

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Shareholder Directors

Mr. Md. Rakibur Rahman Mr. Md. Shakil Rizvi Mr. Mohammad Shahjahan

Mr. Xie Wenhai Mr. Kazi Sanaul Hoq


Mr. Md. Siddiqur Rahman
(From Strategic Investors) Managing Director
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Functions of Stock Exchange

q Listing of Companies (as per Listing Regulations).


q Providing the screen based automated trading of listed Securities.
q Settlement of trading (As per Settlement of Transaction Regulations).
q Gifting of share / granting approval to the transaction/transfer of share
outside the trading system of the exchange (As per Listing Regulations
42).
q Market Administration & Control and Market Surveillance.
q Monitoring the activities of listed companies (As per Listing
Regulations).
q Investors grievance Cell (Disposal of complaint bye laws 1997).
Investors Protection Fund (As per investor protection fund Regulations
1999).
q Announcement of Price sensitive or other information about listed
companies through online.
q Providing multi-faceted trading platforms (ATB/ETF/SME/Derivatives)

Tuesday, October 20, 2020 12


Organizational Information

Description Amount/Number
Authorized Capital Tk. in mn 25,000.00
Paid up Capital Tk. in mn 18,037.77
Face Value of each Share Tk. 10
Number of Employees 370

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DSE Tower at Nikunja, Dhaka

§ Own Funded
§ Strategic location next to International
Airport
§ Total area 700,000 sft
§ 13 storied building + 3 basements along
with 405 cars parking facility
§ Central Air-conditioning
§ 3 layer power supply
§ Structure to sustain Richter Scale 8.5
seismic tremor
§ Large Auditorium with 600 seating
capacity
§ Modern Security System

Tuesday, October 20, 2020 14


Market Structure

• Trading Session, Timing and Settlement Cycle


– Trading hours : 10:00 AM to 2:30 PM
– Trading days : Sunday To Thursday
– Normal Settlement : T+2 (A, B, G and N category)
– Spot Settlement : T+0
– Prohibitory Settlement : T+3 (Z Category)

Categories:
A => Companies declaring 10% or more dividend;
B => Companies declaring less than 10% dividend;
G => Green Field companies. Category changes on 1st dividend declaration;
N => New Listed Companies. Category changes on 1st dividend declaration; and
Z => Companies not declaring and / or not organizing AGMs;

Tuesday, October 20, 2020 15


Types of Market
Primary Market Secondary Market
• It refers to the set-up which helps the industry to raise • Refers to a Market where Securities are already
the funds by issuing different types of securities. These
securities are issued directly to the investors (both listed in Stock Exchanges and Securities are
individuals as well as institutional) through the traded
mechanism called primary market or new issue market. • The secondary market is that market in which
The securities take birth in this market. the buying and selling of the previously issued
• When a company makes public issue of shares for the securities is done. The transactions of the
first time, it is called Initial public Offer. The Public secondary market are generally done through
limited and government companies are the issuers and the medium of stock exchange
individuals, institutions and mutual funds are the • The main purpose of the secondary market is to
investors in this market. create liquidity in securities. The following are
the financial products/instruments which the
v Application for consent under these Rules may secondary market deals with Equity Shares⁄
Rights Shares⁄ Bonus Shares⁄ Preference
be made on any of the following methods:- shares/Bond⁄ Zero Coupon Bond⁄ Convertible
Bond⁄ Debentures⁄ Coupons⁄ Treasury Bills etc.
• fixed price method, when offered at par value;
• book-building method, when offered above par
value.

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Instruments of the Exchange
Shares Mutual Funds Debentures Bonds
Equity Shares: Bonus shares Equity funds Debentures are usually Corporate Bond: Issued
Equity shares are Issued by the (stocks) loans that are by the public sector
those shares which Companies to their repayable on a fixed organization
are ordinary in the shareholder free of date, but some Short- Below -5 Yrs
course of company's cost based debentures are Mid- 5-12 Yrs
business. irredeemable securities Long- above 12 yrs
(these are sometimes
called perpetual
debentures).

Right shares : Issue of new securities to Fixed- Two types of Zero Coupon Bond
existing shareholders to buy additional shares income funds debentures: Issued at discount and
directly from the company in proportion to (bonds) 1. Convertible repaid at face value. No
their existing holdings within a fixed time debentures 2. Non- periodic interest is paid.
period. In a rights offering, the subscription convertible debentures Convertibility Bond:
price at which each share may be purchased in Convert the bond into
generally at a discount to the current market equity at fixed
price. conversion price .

Cont….

Tuesday, October 20, 2020 17


Instruments of the Exchange
Shares Mutual funds Bonds

Preference Shares: Treasury Bills-

vEntitled to get fixed dividend before equity 3 types of bills Issued by


share holders. Government :

vPriority to getting surplus before equity 1)T Notes for 1-10 yrs,
shareholders. 2)T Bills –below 1 yrs,
3)T bonds- above 10 yrs.

vAt the time to liquidation their claims


below to equity shareholders

Tuesday, October 20, 2020 18


Basic Market Structure
(Automated Trading System manages the following types of Market)

o Public Market : For general trading


o Block Market : For bulk volume trading
o Spot Market : For corporate action

Tuesday, October 20, 2020 19


Indicators 2014 2015 2016 2017 2018 2019
Market Capitalization to GDP: Bangladesh vs peer
No. of Securities 546 558 560 569 578 586
countries
No. of Listed Companies 274 286 111% 294 302 311 320
BANGLADESH
No. of outstanding Securities
49234 54,515 58,930 63,948MARKET
69,108 74,296
(mn)
Market Cap. (in bn US$) 41.85
77%
40.49 43.30 51.21
CAPITALIZATION
46.12 40.03
TO GDP LAGS
52%
DSE Broad Index (DSEX) 4,864.96 4,570.11 5,036.05 6,244.52BEHIND MOST 4452.93471
5,385.64
Annual Turnover (in bn US$) 15.26 11.92 15.12 26.28COMPARABLE
13.34
18%
11%
Market P/E 17.77 15.05 14.29 17.28COUNTRIES
15.19 11.8
Issued capital of all listed
Bangladesh
securities Sri Lanka
(in bn US$) Vietnam 13.55 India 14.15 Malaysia
14.53 14.46 14.82 15.27

No of IPOs 20 12 11 8 14 10

Tuesday, October 20, 2020 20


Reasons for low market
capitalization to GDP in Bangladesh

Lack of profitable blue-chip companies

Lack of investor trust

Investors’ risk aversion

Lack of promotion

Lack of fixed-income investment options


Welcoming measures / acts from
new Commission
Higher willingness to carry out needed reforms

Introduction of Bond Trading

Proactive enforcement of BSEC rules

Deeper scrutiny of IPO applications

Increased responsiveness to stakeholders

Quicker decision making


Fundamentals

• Earning per Share (EPS) is used particularly by investors and analysts to assess the
performance of a company over a period of time , and to compare the performance of a
company with that of other companies. Earnings per Share = NPAT/No. of Equity Share

• The Price Earnings Ratio often called the P/E ratio or price to earnings ratio, is a market
prospect ratio that calculates the market value of a stock relative to its earnings by
comparing the market price per share by the earnings per share. Price Earning Ratio =
Market Value Per share / Earning per share (EPS)

• The Dividend Yield is used by investors to show how their investment in stock is
generating either cash flows in the form of dividends or increases in asset value by stock
appreciation. Dividend Yield= Cash Dividends per share/ Market value per share

• Net Asset Value Per Share: Calculated as: Total Assets-Total Liabilities / Number of
outstanding Shares

• Indexes: The market indexes provide an historical perspective of stock market


performance. It acts as a forecasting tool. Studying the historical performance of the
stock market indexes, investors can forecast trends in the market .

Tuesday, October 20, 2020 23


DSE Index Methodology Designed & Developed by S&P
Dow Jones Indices

• Only companies established in Bangladesh and listed on the Dhaka Stock


Exchange are included in the DSE Bangladesh 30 Index and DSE Bangladesh
Broad Index. The index constituents are drawn from a universe of all common
shares listed on the Dhaka Stock Exchange.

• Dhaka Stock Exchange Limited launched three (3) new Indices namely; DSE
Broad Index (DSEX) and DSE 30 Index (DS30) on January 28, 2013 in
accordance with the DSE Bangladesh Index Methodology, designed and
developed by S&P Dow Jones Indices. DSE has also launched DSE Board
Shariah Index (DSES) on January 20, 2014. The Rating Intelligence (RI) works
with a Shariah Supervisory Board S & P which in a board of Islamic Scholar.

• The DS30 Index covers the largest and most liquid stocks from the Bangladesh
equity market and is designed to serve as the basis for tradable products. The
DSEX will maintain the continuity of the performance of the benchmark Index
of DSE.

• The base date of the DSEX and DS30 Index is January 17, 2008 and base values
are 2951.91 and 1000.00 respectively. The base values of DSES Index is 1000.

Tuesday, October 20, 2020 24


Major Rules & Regulations of Capital Market:
An Authorized Representative must know
v Securities and Exchange Ordinance, 1969
v Securities and Exchange Rules, 1987
v Securities and Exchange Commission (Prohibition of Insider Trading) Rules, 1995
v Securities and Exchange Commission (Stock-Dealer, Stock-Broker & Authorized
Representatives) Rules, 2000.
v Securities and Exchange Commission (Issue of Capital) Rules, 2001
v Securities & Exchange Commission (Mutual Fund) Rules, 2001
v Securities and Exchange Commission (Rights Issue) Rules, 2006
v TREC Regulations, 2013
v Exchange Demutualization's Act, 2013
v Dhaka Stock Exchange (TREC Holder’s Margin) Regulations, 2013
v Investors' Protection Fund Regulations, 2014
v Bangladesh Securities and Exchange Commission (Public Issue) Rules, 2015
v Dhaka Stock Exchange (Listing) Regulations, 2015
v Corporate Governance Code issued by BSEC on June 03, 2018
v Bangladesh Securities and Exchange Commission (Short-Sale) Rules, 2019
v Bangladesh Securities and Exchange Commission (Risk Based Capital Adequacy) Rules, 2019.

Tuesday, October 20, 2020 25


Financial Literacy - in Asia

§ Although Bangladesh ranks


(financially literate population
19%) comparable to some
other frontier economies such
as Nepal (18%), and
Cambodia (18%), Bangladesh
is way behind compared to our
neighbouring country
Myanmar and Bhutan (50%
both)

§ China ranks at a moderate


level with 28% of the
population financially literate

Source: S&P Global FinLit Survey § All over the world the rate
varies from 14% to 71%

Tuesday, October 20, 2020 26


Financial Literacy - Bangladesh among frontier economies

§ In Bangladesh
financially literate rate
19%, whereas
average rate is
35.46% among
frontier countries.

Source: S&P Global FinLit Survey

Tuesday, October 20, 2020 27


Why financial literacy is important in Bangladesh?

Daily Turnover Contribution


100.00% 90.19% 88.57% 90.14% 89.92% 89.26%

80.00%

60.00% § Average participation in daily


turnover in last five years by
40.00%
Institutions are 2.97% and
20.00% 3.45% 3.86% retails are 89.62%
1.75% 2.95% 2.85%
0.00%
2015 2016 2017 2018 2019

Institution Retail

Tuesday, October 20, 2020 28


Dealing with Investors - Parties

BSEC
Exchange

TREC Listed Co

Investors

CCBL CDBL
Responsibilities of TREC Holders

❑ Accepting a customer to open a customer account for trading;


❑ Executing the customer’s order for buy or sell as per their written or
telephonic order;
❑ Buy or sell securities at the optimum market rate;
❑ Justify a security before the transaction and be sure about its
authenticity and never does the transaction of the defective security.

❑ Would not attract anyone to buy or sell securities only for


gaining brokerage or commission or won’t provide any false or
misleading quotation or any false information .

❑ Providing trade confirmation report on the executed order with


details within 24 hours of trading,
Responsibilities of TREC Holders
❑ Making timely payment against sell of security, or delivery of security
bought;
❑ Provide clients the bills for all transaction of the clients.
❑ Maintain register covering names, addresses and code numbers of
clients;
❑ Maintain register based on agreement, securities and clients;

❑ Maintain list of authorized representative with their roles and


responsibilities;
❑ Keep separately the customer’ s securities from others’ securities;
❑ Keep separately the customers’ money through consolidated
customer’s bank account from the broker’s money;
❑ Update KYC database properly and timely.
Responsibilities of TREC Holders

❑ Maintain honesty, goodwill, efficiency and credibility in dealing


with client.

❑ Engage in fair practices;

❑ Would not reveal any information of clients to anyone or misuse the


information regarding the personal investment due to the
business relationship.
❑ Would not apply any trick for self interest, make any transaction
to deceit investor or spread rumor for self interest or destroy the
balance in the market.
❑ Can not create any artificial market individually or with others which
will be harmful for the general investors.
❑ Settlethe customer ’s complaint, if any, against
the stock-broker
concerned;
❑ Informing about the doubtful activities to the Exchange & Commission
in written.
Sl Provisions of Securities Laws for Protection
#
of Interest of Investors
Name of law Relevant Reference of Law
The Securities and 20A - Power of commission to issue direction in certain
Exchange Ordinance, cases
1 1969
2CC - Power of commission to impose conditions over other
law
2 Securities and Exchange Preamble - Purpose of establishment of the commission
Commission ACT, 1993
3 The Companies Act, 1994 233 - Protection of minority interest

4 The Exchanges Preamble - Development of the capital market, good


Demutualization governance
Act, 2013 19 - Obligation in performing operation of the exchange
DSE (Board and 8(3) - Responsibility of directors of stock exchange
Administration)
5 Regulations, 2013
10(5)(a) - Responsibility of MD of Exchange
6 DSE (TREC) Regulations, 5(3) - Qualification for TREC : Exchange may specified
2013 certain standard
7 DSE (Investors’ Protection 3 - Purpose of the creation of IPF
Fund Regulations), 2014
8 Corporate Governance Code Preamble - Purpose of establishment of corporate
dated 3 June 2018 governance code
Tuesday, October 20, 2020 34
Hope you
benefited from
the presentation J

Tuesday, October 20, 2020 35

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