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BSEC initiative underway to tackle floor price withdrawal

Staff Correspondent
04 Jan 2024 21:59:43 | Update: 04 Jan 2024 21:59:43
BSEC initiative underway to tackle floor price withdrawal

The Bangladesh Securities and Exchange Commission (BSEC) is looking for an effective measure to inject funds into capital market intermediaries in a bid to tackle any fallouts arising from floor price withdrawal, planned after the national polls.

As part of this initiative, BSEC Chairman Prof Shibli Rubayat Ul Islam met with stakeholders – top leaders of the Bangladesh Merchant Bankers Association (BMBA) and the DSE Brokers Association of Bangladesh (DBA) – on Thursday at his office in the capital.

Moreover, the Capital Market Stabilization Fund (CMSF) on Thursday decided to lend Tk 100 crore to capital market intermediaries, such as brokerages and merchant banks. The CMSF made this decision following BSEC advice to bring stability to the capital market after polls.

Providing more details, BSEC Executive Director and Spokesperson Rezaul Karim said, “There is a plan to withdraw the floor price after the national polls. After that, panic sales and forced sales will increase in the market. So, the supply of funds in the market should be increased.

“A fund of Tk 100 crore has been created for this purpose, and the figure will later be raised to Tk 200 crore. At the same time, there is a plan to disburse loans at low interest. Investors will also be instructed to invest the amount equivalent to the loan.”

Speaking to The Business Post after Thursday’s meeting, DSE Brokers Association of Bangladesh (DBA) President Saiful Islam said, “The key problem in the market is the floor price imposed by the stock market regulator.

“This results in low-volume trades in the market. After the national polls, BSEC will lift the floor price. The regulator has already taken some initiatives to tackle the situation following this move.”

Saiful, also a director of BRAC EPL Stock Brokerage Ltd, added, “The BSEC is working with bankers and other relevant parties to bring funds into the capital market.

“We are optimistic that the securities regulator will withdraw the floor price very soon, which is anticipated to usher in a reprieve for investors, marking a positive turn after the challenges faced in 2023.”

On July 28, 2022, the BSEC imposed floor prices on all securities to prevent shares from falling beyond a certain level amid domestic and global macroeconomic strains.

The share prices of most companies have been stuck at their floor prices for an extended period of time, pushing investors towards liquidating their holdings and thus creating a liquidity crisis in the market.

Back in March 2020, the securities regulator took a similar move to limit the free-fall of shares following the global pandemic, when the DSEX fell below 3,000 points.

After its imposition, the floor price was a complete mess for the stock business, and a year of disappointment for the stock market followed as the average turnover and foreign investment reached rock bottom.

Such difficulties were never encountered by investors since the collapse in 2010.

According to a CMSF press release, since the establishment of the Capital Market Stabilization Fund in 2021, it has been conducting various investor-friendly activities.

In line with this, in consultation with BSEC, CMSF has decided to lend Tk 100 crore to “Capital Market Intermediaries” for the stability and development of the capital market as per Section 5 (15) of the Rules, 2021.

CMSF’s Board believes that empowering capital market intermediaries will contribute to keeping the capital market strong and stable. This initiative will be instrumental in enhancing market dynamics by building a resilient financial ecosystem.

Tk 100 crores will be disbursed to capital market intermediaries through nominated banks as per CMSF and BSEC guidelines.

In April 2023, the BSEC allowed market intermediary institutions [merchant banks, brokers, and dealers] to borrow from the Capital Market Stabilization Fund (CMSF) for investment in the country's capital market.

This loan is allowed under fewer than 13 conditions, including five years of investment in “A” category shares of companies listed in the capital market.

According to the policy, the CMSF-Market Intermediary shall assess the credit risk of the institution before approving the loan. Institutions can provide loans to their customers as per margin lending policies. Credit must be used against a dealer code or your own portfolio.

Moreover, the market intermediaries shall ensure a deposit of an amount equivalent to the loan amount from themselves to the dealer account or their own portfolio account. One hundred per cent security is required for margin loans.

The interest rate shall be fixed by the Board of CMSF, which shall not be less than three months on average. In that case, the FDR rate prevailing in the banking sector will be determined by the highest rate.

The maximum tenure of the loan will be 180 days, which is renewable.