Chapter 01

1.1. Introduction:

Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia
region. It has two full-fledged automated stock exchanges namely Dhaka Stock Exchange (DSE)
and Chittagong Stock Exchange (CSE).

Dhaka Stock
Exchange

Chittagong Stock Exchange

History of Capital Market

Dhaka Stock Exchange was setup on 28th April, 1954 that started formal trading on early 1956.
Post–independence government did not promote a capital market during the first five years, and
it was activated again in 1976 with 9 issues on board. In 1995, a second bourse, the Chittagong
Stock Exchange, was setup with sophisticated logistic support and modern management.

The selected topic of my proposal mainly highlighted the perspective of the Capital Market of
Bangladesh. The research covered the information and theory that are most highlight able to
relevant move of the two stock market of Bangladesh (Dhaka Stock Exchange and Chittagong
Stock Exchange). The Capital Market of Bangladesh method widely used in the investment
market for forecasting the future move of an industrial or the individual move of a bundle of
shares based on the presentation of the graphical picture of the predicted move. The method of
forecasting share price is mostly used in the large stock exchange like NASDEQ (National
Association of Securities Dealers Automated Quotations).The method also used in our country to
forecast the market information in a graphical format. The research also covered the economical

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movement due to the effect of the changing the base point of any index of any industry. The
research covered all the method of the Capital Market of Bangladesh chat those are popular and
used for present the information of the stock market as the overall or the industrial base segment.
To make the research more appreciated to the other and live we provided the core data like the
daily stock quote as the fundamental materials of the research. The research presents the
information and analysis the market future predication from the useful data arrangement.

The report forecasted the volatility of the security market due to change of any specific indicator
that may take place due to the change of the political, economical or the financial management
decision from the specific organization or the group of backhand peoples. The analysis mainly
takes part with presenting data of the exchange and predicted the graph for forecasting the future
of the overall security market of the specific group. The analysis is more useable and acceptable
for valuation of market. The Capital Market of Bangladesh is easier and acceptable then the
fundamental analysis. The fundamental analysis deals with the traditional method for valuation
of market. On the other hand the Capital Market of Bangladesh is the system of valuation of
market in a short time.

1.2. Learning Goals:

The report that presents the skills of the Investment and Portfolio
Management and the implementation of the learning knowledge that we can
be able to learn. The report has also covered the concept of the great
author’s and their contribution on the investment theories and there
concepts and over view that we convey inform or the contest of investment
market of Bangladesh.

1.2.1. Personal Goals:

I am working as HOD (Portfolio Management) of Security Broking & Management Services

Ltd, which is one of the corporate members of Dhaka Stock Exchange. So Working under the
supervision of the stock exchange was the mostly dream for me. And the dreams turn true from
my internship program. Working under Dhaka Stock Exchange Limited helps me to accomplish
the practical and theoretical knowledge. The knowledge also helps me to accomplish the
knowledge of the country’s largest capital market. Under the supervision of DSE–

 Knowledge about the trading method.

 The corporate behavior that generally accepted.
 From the stock market I also learn the relative economical factors that are

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 Mostly connected with the movement of a nation capital market
 It also gives the knowledge to work under most volatile position.
The stock exchange also provides me the knowledge to work under the diverse group.

1.2.2. Professional Goal:

Working at the stock exchange provides me more professional knowledge and information which
was important in my life. These study increases the level of my learning curve that helps me to
retain the professional goal. Work under the super vision of Dhaka Stock Exchange and Stock
Exchange Commission with their honorable employees contribution give me the knowledge to
pursue the work and learning on the point. They guide me to learn the corporate level behavior
and make me more comparative tasks oriented to achieve the goal of the organization and own.
They also give the thought and knowledge to understand the capital market mechanism and work
under the most responsible place with my little knowledge.

1.2.3. Educational Goal:

Working as an intern in Dhaka Stock Exchange, I tried to cover my entire education relevant
goal. I implemented all of my education that I have deserved from the International Islamic
University Chittagong (Dhaka Campus). As the student of Finance & Banking the specific
indicators which are most related with the stock market movement that I have learnt from book
as the theory that I have shown the theory as a practical move. Stock Exchange also helped me to
get knowledge about the law and regulation which are relevant with security & stock exchange
commission and other factor valuation.

 Learning by personal trial and error or doing -rather than verbal instruction
and demonstration.

 Learning in real life, rather than practice in artificial settings.

 Learning context specific skills - rather than general sable principles.

 Learning is person orientated and focused on people/relationships-rather

than information focused.

1.3. Background Instrument of the Research:

The research mainly covered the concept of the three important investment concepts.

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The concepts are–

1.3.1. Analysis:
a) Capital Market of Bangladesh.

b) Fundamental Analysis.

1.3.2. Market Behavior:

a) Behavior of the Investors.

I. Index Effect. II. Risk Taking Tendency.

b) Behavior of the Economy.

1.4. Rationale (basis of the study) of The Study:

The research conveys the information and the graphical presentation of the Capital Market of
Bangladesh. In the research I have collected the information and the concept of Capital Market
of Bangladesh and also highlighted the pitfall and comparisons among other method with Capital
Market of Bangladesh. The research mainly expressed the market behavior that related to
economy of the nation and also gives the information base on industry or the total fidelity of the
market. The research also defines the conceptual difference between the fundamental and Capital
Market of Bangladesh and also gives the analysis or the statement base on the indicators of the
fundamental and technical terms.

The research contains the economical factors that are relevant and influence
able for the market movement. Mostly the research based on the foundation
of the–

 Market Movement and the interact behavior of the investors.

 The concept of technical and fundamental analysis.

 The use and the predication of the technical and fundamental analysis in the
view of the graphic chat.

And the relevant market factors those are related with the economical and
political factor that prove the strong evidence about Capital Market of
Bangladesh.

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1.5. Objective of the Research:

The report mainly prepared for the context of the wide use of the Capital Market of Bangladesh
in the securities market. At the research we tried to represent the finding tactics of the Capital
Market of Bangladesh and also reveal the relation of the analysis with view of economical
context. In the report we again discuss the topic with the deep concern.

1.5.1. Broad Objective:

Mainly the objective of the research is to forecast the hidden mechanism of the Capital Market of
Bangladesh.

1.5.2. Specific Objectives:

The impact of the Capital Market of Bangladesh and its trend that consist in the
security market.

The implementations of the concept of market regarding the relevant

mechanism and important information to the investors.

The concept has also covered the movement of the market behavior.

1.6 Limitation of the Research:

The research also has the limitation to practice in the market. Our market is not efficient like the
USA market. And the efficient market hypotheses are unveiled. The investors have lacking of the
relevant education and also they went for the investment without the concern of the expert and
the availability of information is toughest to prepare a research on the specific topic.

1.7 Methodology of the Study:

For the collection of data we used the theoretical and analysis base information to find out. We
used financial tools like transaction explorer. We also used the statistical tools for analyzing the
data.

1.8 Data Collection Method:

Data are most important instrument of the research and the data are collected though
The Primary source and The Secondary sources are:

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1. Primary Data: Collecting the primary data for the research was difficult to
manage. For that reason we mostly depended on the secondary source.
2. Secondary Data: The research depended on the secondary sources. Because
of having unavailability of the primary data, we mostly depended on the stock
exchange daily stock price for the research.
3. Observation: The data collection also depended on the observation method.

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 Chapter 02

2.1. History of Dhaka Stock Exchange:

In 1952 the Government of East Pakistan realized the necessity of establish a capital market for
growing the national capital and also assist the local and international organization to accumulate
the capital to boost the national business. And the government also found that Calcutta Stock
Exchange denied transacting the East Pakistan Base organization share in their market. For that
reason and hoped to develop the capital market, the East Pakistan government setup a starring
committee for the formation of the stock exchange at Dhaka in 1953. On that point the
government also proposed that Karachi will open an out office at Dhaka operating the capital
market movement, but that time the pioneer of the East Pakistan business association analyzed
the need of the capital market for their own. The need realized by That Dhaka Narayanganj
Chamber Of Commerce & Industry. They suggested there members for purchase the
membership card at the Rs. 2,000 for proposed stock exchange. Although the organization
operated the formal operation form 1956 after obtain the Certificates of commencement of
business. But they shifted toward Dhaka in 1958 and started functional at Narayanganj Chamber
of Commerce building at Motijheel Commercial Area. And in 1959 the stock exchange shifted to
their own location for operated their business.

2.1. 1. About Dhaka Stock Exchange:

Dhaka Stock Exchange is the first capital market in Bangladesh for keeping the interest of large
organization by accumulating capital from the investors of the nation and also influences
international investor toward our capital market and increase the strength of local organization to
invest in profitable sector to boost up the national economy. The market operated from 1954 to
till. As the independent public limited organization under the act– 1913 & 1994, the organization
has its own glance to serve the capital market and to bring the industrial revolution as well as
insisting the investor to invest at the market.

The organization has its own rules and regulation to control over the market. The organization
also provides the economical and the industrial movement information toward the investor to
make our market acceptable to outside of the nation.

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8
The organization operates its operation base on the information technology and it has the promise toward
its investor to increase the development of the informatics market to keep the interest of the investor and

protect them from the volatility of the associated risk rise for the information. The organization also has
the control over the third party like the broker house and other interest group and controls them its own

rules. The organization has the policy to bring more investors at the place and composite several types of
index to influence the investors and listed organization toward the capital market. The organization makes

the market more attractive. DSE generates the DSE top 20 organization index and also generates the
general index for the investor to have the knowledge about the market condition. They have its website

and they developed it as possible as easy for the investor. The website is compiling with information and
other helpful article that helps the investor to accumulate deep idea about our market and economy. DSE

have its own Human Resource Management policy and training academy to make sound employee to
perform the job efficiently.

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2.1. 2. DSE at Glance:
• Incorporated as East Pakistan Stock Exchange Association Ltd.: 28th April 1954
• Start of Formal Trading: 1956
• Re-named as East Pakistan Stock Exchange Ltd.: 23rd June 1962
• Renamed as Dacca Stock Exchange Ltd.: 13th May 1964
• Trading Suspended under new State Policy: 16th December 1971
• Trading Resumed in Bangladesh: 16 August 1976
• Starting of All Share price Index calculation: 16th September 1986
• Share price Indices calculation on basis of IFC Designed formula: 1st Nov. 1993
• Starting of automated trading: 10th August 1998
• Starting of DSE-20 Index calculation: January 2001
• Starting of DSE General Index calculation: 27th November 2001
• Start of CDS through CDBL: 24th January 2004
• DSE All share price Index (DSI) re-introduced: 28th March 2005

2.1. 3. Formation of DSE (base on the legal term):

The organization formatting based on the company act 1913. In 1954 the authorized capital for
the organization was Rs. 0.3 million which are divided in to 150 shares each one was Rs. 2,000.
And they increase the authorized capital to Rs. 0.5 million in the year 1964.

2.1. 4. Logistic of DSE:

Dhaka Stock Exchange Limited has their own land to operate the operations. From the beginning
they try to organize all the activities to support all the operations from their own management
system. The organization also have the own management policy and other relevant support to
make the capital market more informatics so that the capital market can perform its activities on
the constant move.

Logistic in a glance Land: DSE have the 8.75 Kattah of land at the downtown.

Location: It’s situated at the 9/F, Motijheel Commercial Area.

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  Infrastructure: The organization have the own 10 stored building that
situated at the 9/F, Motijheel Commercial Area. At the building the organization
has their own office and the trading floor.

 Information Technology: As the important place of the national capital

market, it has its own internet back born and other support system like –
personal computer, fiber optic link and other facilities that assists the
organization to promote the capital market form sophisticated manner. They
also have the modern securities trading software that assists all the transaction
of the organization more effective manner.

2.2. Objective of DSE:

The objective of the exchange is to establish a sound and stable capital market based on just and
equitable principles of trades as well as protecting public interest. The exchange provides the
listed companies with a channel to seek the fund form the public. At same time it provides place
for the investor to buy and sell shares of the listed companies. The exchange is the nonprofit
making public company and therefore the property and income of the exchange are applied
towards the objectives of the exchange and portion of profit is paid or distributed to its members
in the form of dividend or bond. The amount of profit is distributed in following areas:

• Develop a strong platform for entrepreneurs raising capital.

• Provide a fully automated trading system with most modern amenities to
ensure.
• Quick, easy, accurate transactions and easily accessible to all.
• Undertake any business relating to the Stock Exchange, such as a clearing
house,
• Securities depository center or similar activities.
• Develop a professional service culture through mandatory corporate
membership.
• Provide an investment opportunity for small and large investors.
• Attract non-resident Bangladeshis to invest in Bangladesh stock market.
• Collect preserve and disseminate data and information on stock exchange.
• Develop a research cell for analyzing status of the market and economy.

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2.3. Mission of DSE:
The Dhaka Stock Exchange believes that a dynamic, automated, transparent stock exchange is
needed in Bangladesh. It works towards an effective, efficient and transparent market of
international standard to serve and invest in Bangladesh in order to facilitate the competent
entrepreneurs to raise capital and accelerate industrial growth for overall benefit of the economy
and keep pace with the global advancements.

2.3. 1. Legal Control:

The Dhaka Stock Exchange is registered as public limited company and its activities are
regulated by its Article of Association rules and regulation and bye – laws alone with the security
and exchange ordinance 1969, company act 1994 & security & exchange commission Act, 1993.

2.4. Function of DSE:

As the center of the national capital market Dhaka Stock Exchange have some functions. Those
functions guide them to attend the long term goal for the organization and also highlights to
member organization.

Functions are–

• Listing of companies and listing of the member organization act on the rules of
listed regulation.
• Provide the screen based automated trading of listing securities.
• Settlement of trading base on the settlement of transaction regulation.
• Gifting of share approval to the transaction / transfer of share outside the trading
system of the exchange act. And act is executed on the listing regulation 42.
• Market administration and control.
• Market surveillance.
• Publication of monthly review.

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 • Monitoring the activities of the listed companies. Monitoring take place as per the
existing regulation of the DSE.
• Investor grievance cell.
• Investor’s protection fund. And the function takes on the act investor protection
fund regulations 1999.
• Announcement of price sensitive or other information about listed companies
through online.

2.5. Rules and Regulation of DSE

DSE have its own rules and regulation for executing all the activities base on the law. The
regulations are taking place to protect the investor’s interest and also listed organization.
The commission also executed the laws and regulation for protect the capital market from the
digester involves by the economy and other illegal interest group. Exchange take laws and other
restriction base on the decision of the SEC.

Dhaka Stock Exchange Have the regulation and the regulation are–
The law and regulation for the listing as the member of DSE:
The Margin Law
The Settlement Act.
The Investor Protection Act
Those important acts are executed by DSE to make the market more spontaneous and
protect the interest of the investors and also for the listed organization.

2.5. 1. Regulatory Structure Overview:

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This hierarchy show the level of the delegated authority toward the exchange from
government and the structure also show legal controlling process of Dhaka Stock
Exchange.

2.6. Organ gram of Dhaka Stock Exchange

The organ grams show the hierarchy of Dhaka Stock Exchange Limited. It also holds the
information of the respectable manager’s work according to earning the goal of DSE and the
chart also contains their respective function to retain the goal for the exchange and also keeps the
interest of investors. Stock Exchange Commission divided their function for earning the goal and
to meet the success of the third world challenge–
Following are the functions of the CEO and the various Departments of DSE:

2.6.1. Systems: The System Department carries out the following functions:
• Deal with user queries.
• Manage communication network.
• Manage information technology developments and suppliers.
• Manage internal information technology awareness.
• Manage trading and operate vista settlement system.
• Maintain master file.

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 • Print daily reports and produce statistics.
• Support internal users and setup and train new system users.

2.6.2. Clearing, Settlement & DP: This department is responsible for:

> Delivering cheques and shares to members.

> Deal with bad delivery procedures.
> Manage security receive shares from members.
> Opening of BO accounts and provides other depository services.

2.6.3. Market Operations: This department carries out the following functions:

 Monitor public information.

 Monitor, receive and disseminate regular company information.
 On-line surveillance.
 Inspection visits to members.
 Receive and disseminate price sensitive company information.
 Receive and manage investor complaints.
 Receive and manage other complaints.

2.6.4 Listing, Marketing & Education: This department is responsible for the
Following:

 Arrange training.
 Ad hoc legal problems.
 Liaison with Securities and Exchange Commission.
 Maintain master organ gram.
 Maintain personnel files and staff list.
 Monitor and record leave requests and leave taken.
 Monitor rules and regulations.
 Monitor, receive and disseminate regular company information.
 Respond to requests for information, member’s queries and complaints.

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2.6.5. Finance & Administration: This department is responsible for the
following:
 Act as company secretary.

 Manage DSE finances.

 Manage income tax deductions and payments.

 Manage petty cash.

 Prepare and pay invoices.

 Prepare primary accounts.

 Reconcile bank accounts and regular cheques.

2.6.6. Research, Corporate Development & Information:

This department carries out the following functions:

• Maintain library contents.

• Press cuttings and press relations.
• Produce portfolio and other DSE publications.
• Public relations.
• Investor's information cell.

2.7. Trading Policy of Stock Exchange

DSE also control over the trading of stock in the market and the commissions also have some
laws for limited transaction of the stock or the security which creates a volatility of share
movement in the market. After 1996 stock exchange crush SEC & DSE work together to protect
the interest of the investor from the illegal transformation of the capital at the market. To protect
the interest of the investor and the listed organization, DSE introduces the automated system for

16
monitoring the overall transaction of the investors. Recently exchange commission also controls
over the investor by the law to open the BO Account. This may protect the trading policy of
stock exchange and protect investors from the unwelcome volatility.

2.7. 1. Automation Policy:

The world become in the era of information technology. The information is vital element in the
world to operate business and it is only possible by the improvement of the information
technology. Dhaka stock exchange realizes the consequence of the information technology in
DSE. It was understood by DSE that technology would ensure transparency, timeliness and
satisfaction in customer service. Considering these DSE has introduced Automated Trading
System on 10th August 1998, brought the trading floor close to the investors. In other words, the
trading floor has moved right into the member's office premises where an investor can place
buy/sell orders. After Automation more desired efficiency and transparency have come in trading
and settlement operations of the Exchange.

DSE have its own serves and software to control over the market. Through the support of
information system they control over the following:

a) Market.
b) Trading Sessions.
c) Market Information.
d) Broker Support.

2.8. The market movement and Dhaka Stock Exchange:

Market Capitalization:

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In 2005-2006 fiscal years the market was capitalized by the investor and the listed organization
was BDT 215.42 billion and the market capitalization leads the 5.08%in the national GDP by
Dhaka Stock Exchange.

DSE showed the five year market capitalization in the exhibit and the exhibit presented the
management policy and other effect that exchange creates toward the investor mind to invests in
the capital market.

The pie chat shows the market movement that takes place by the investor choice and
also presents the portrayal information about the industries. And the chant also presents
the information that the perforation of the individual industry in exchange.

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19
 Chapter 03

3.1 Topic Analysis:

The report deals with two terminologies for the matter that deals with the relevant instrument of
Dhaka Stock Exchange. The topic contains the most important phases, one is “The Stock
Market” and the other contains the trends or the predication of the market information in the
form of graph is “application of technical and fundamental analysis in stock market”. The
topic deals with the capital market of the nation for the consequence and make the report more
relevant we use the regarding the topic that are helped me to predict the report more appropriate
and help me for define the topic more efficiently. The stock market is the place where we always
have the information of the demand and the supply. It is the true place where the demand and the
supply theories play and important game to make the market more efficient and strong. The
market also deals with the most reflection of the nation economy.

To analysis the topic “The Stock Market of Bangladesh’ contains some Instruments. They are–
The behavior of stock market basically depends on those influences which mostly influence the
market in the form of strong or weak. For analysis the market we also adopt or use the EMH
(Efficient Market Hypothesis) that have the connection among all the fundamental instruments to
analysis the market behavior of DSE. In the market hypotheses we have the strong connection
between the economy of the nation and the information also provide the vital role in the market
behavior. In an efficient market, the information is available to analysis the market condition.
The market movements from the investors are highly depending on the abandon information that
helps them to retain the market with going concern attitude. Before we analysis the market in a
deep sense first we amalgam the Bangladeshi capital market with EMH.

The EMH only deals with the price movement matter. But in the sense of the market in the
context of Bangladesh we also add some of the instrument that assists us to understand the

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market. As the nation stand on the position of the third world nation we have some of the
limitation that mostly reflected at our capital market.

Some of the context the EMH theory does not applicable for those nations. The nation does not
have the efficient information system that generates the information for the investor to invest in
the market. Investor also have the fairness in the there mind about the change or they have the
risk to loss all the investment in the market. Because the developing market have more risk to
invest then the develop market. The develop market have the abandon facilities of the
information and the government ensure the well policy to protect the market basis of the
transparency movement of the information and also implement the investment orient laws to
protect the interest of the investors and also keep the interest of the new organization and insist
them toward the capital market to create new investment in the economy. They also assist the
foreign investors to invest in the market.
In the market the Exchange Commission always take policy basically on the segment of the
industries and they always keep the information of the market change or change of the policy or

21
other focusing matter that create a visvercial affect in the market to the change the price of any
shares. They always provide the transparency through their activities and also keeps the business
more advance to protect form the black markets for the collapse. All market like the capital
market or any market related with the product or service movement mostly depends on the
sufficient movement of the information. In the third world nation like Bangladesh most of the
market effect occurred or will occurring in the form of the unexpected movement of the real
information. The mobility of the information that conveys that, the real information will be
changed from the person to other person. And the end person has the information full of changes
that make a crucial effect at the market. For that reason the market have the dramatic effect on
the market behavior. At the same manner happen in the sector of the capital market. The capital
market behavior also depends or effected in the matter of the movement of the proper
information in the proper channel. And the information also relay by–

3.1.1. Investors.
3.1.2. Government Policy.
a. Security & Exchange Commission.
b. Bangladesh Bank.
3.1.3. Media.
a. Print Media
b. Television
3.1.4. Financial Institution.
b. Broker House.
c. Private Bank.

The information also change by the interested people those doesn’t have the investment market.
But in the consequence they spread the information to other for the investment. Among them
some of have the proper predication capability to ensure the proper consequence and some of
have lack of the knowledge of the predication of the information also puts the investment market
in the more inconsequence position. Those types of the information also make the market
behavior in an inefficient manner.

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The market behavior also effect by the decision of the member organization. The member
organization effect is more devastate then the change of the policy of the authority. For
understanding he share or the capital market behavior first we try to realize the information those
are mostly relevant with the change of the market. And find the source of the information, if the
source is reliable then we make ourselves aware form it. For more specification of the topic we
use those elements or the instrument those have the strong relationship with the topic to make the
topic more effective and acceptable. Analysis the topic on the basic of the instrument and find
relationship with Dhaka Stock Exchange.

3.2. Economy:
The stock market depends on the nation economical change. If the change occurs and brings a
positive result for the nation and over all industries it creates a positive impact at the stock
exchange also. For analysis the topic we find that over all nation economy have the effective
relationship with the capital market. In the third world economy like Bangladeshi stock market
have the more effective relationship with the economical instrument. For analysis the market
effectiveness we also look after all the micro and macro factors that have the direct influence
form the individual investor, member organization and also as the nation or government as the
whole. As the analysis micro effects are take place through (for the individual and the
organization)–

a) Level of the income by the organization and the individual.

b) The change in the price of commodity for individual as the end product and
the raw material for the organization.
c) The level of the saving by the individual and for the organization.
d) The abandon of the resource (land, machine etc.) for the individual and
organization.
e) The level of the consumption from the individual and the organization.
f) The level of the working opportunity or rate of unemployment.

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The micro level impact in the economy accumulated all the behavior of the individual investors
at the exchange. If any level of the satisfaction or any change occurred at the economy and that
affected both the micro level investor like individual and the organization it play an impact on
the behavior of the stock exchange. In the third world nation like Bangladesh the effect play
most effective in the sense of the investment or the capital market as a threat. But the macro level
effect like the change in the proportion of the GDP or the GNP of the nation also play a vital role
at the change behavior of the exchange. The macro level impact imposes by the government as
the basis of all the accumulation of the micro level influence. At the macro level economy the
government imposed the entire instrument as in the form of the nation income and expenditure.
The macro level influence government presents the contribution of the organization or the
department as the proportional express in a form of the percentage. The change in the sense of
any discipline that may have the direct or indirect influence in the GDP or GPN of the nation that
also reflect at the overall market and also it have the strong effect at the price movement
behavior of the stock market change.

At the macro level government also try to come– up with new ideal and rules regulation to
protect the nation income and other sensitive matter that can solve the entire problem like–

• Exchange Rate change and fixed the change rate with the national currency.
• Limit the level of the import.
• Gives more facilities to the exporter to contributing at the national income.
• Change the interest rate and fixed it as the flexible rate that help the investors or
individual to implement the loan at the respectable place.
• Control the price of the commodity that helps the consumer to consume at the
expected level.
• Gives more policy toward the saving and make profitable or the risk free place for
investment by the individual or the organization.
• For protecting the macro level investment market like the capital market the
central bank, security and exchange commission take the approach to protect the
market for the economical bubbles and other influence that hit the market as over
all devastation.

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The macro level the economy of the nation mostly depends on the government rules and
regulation those are take place for save the economy form the economical erosion. For protection
the nation and over all economy government and regulatory commission take the important steps
to protect the market like the capital market and other non-Variable market. But our topic related
with market behavior of the capital market and the information like the macro or micro level
economy have the control over the market as the basic instrument of the national economy. And
the economies also covered the behavior of the investors and also have the indication of the
market movement policy that take by the government and exchange as an authority. The stock
market movement also depends on the law & regulation those are taken by the government, or by
the security & exchange commission. The stock market behavior always reflected through the
law of the economical scale and the regulation taken placed by the exchange. But behave of the
market influence by the member organization and investors motive. The market also interrupts
by the hidden risk that market may or may not be executed. The riskiness of the investment at the
market by the investors always arises from the natural or determination by the pre– observation.
And the risk factor of investment begets from the change of the policy by the government or the
influence by the economy take place at the game.

3.3. How risk factor stemming stock market behavior:

The risk factors that comes from the mind of investors or, the pre calculation of the market trend.
But the market risk arises from the movement of the national economy. The behavior of the
market also depends on the systematic and unsystematic risk factors those influence the market
for investment. The change like–

a) Inflection rate.
b) Unequal balance of payment.
c) Consumption level.
e) Inefficient management policy taken by the government.
f) Level of the direct investment.
g) Natural Disaster.
h) Firm Economy.

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 i) Local currency devaluation.
j) Terrorism.

But that all are the external factor that influence the risk of the market. But the risk factors of the
exchange take place by the member organization, broker house and the hidden policies take
place by the security & exchange commission as the Back Hand tactics for create the
unfavorable market risk for the investor for investment. But the risk factors at the market take
place by the micro and macro factors that hindering market. In the practical sense Develop
economy market is less volatile or riskless then the emerging or under develops nation market.
And the risk related with economy is stronger then market making risk by the member
organization or commission. At the exchange the market risk measured the individual risk of the
security by the numerical form and the symbol beta “β”. The beta represents the risk of the
security as the individual. The beta rate is less then 1 means the risk of the investment is less
risky.
If the rate up the limit of 1 then we investment or the market have the risk for investment. For
make the statement more realistic we use an example for analysis the market relevant risk–
Assume that an investor has three different kinds of portfolio (port– 1, port– 2, port– 3) that have
the measurable or the relevant level of the beta market risk constant 1 but the investment have
the beta is respectively– Port– 1: 1.5, Port– 2: 1.0, Port– 3: 0.6.

1.15

1.00

0.6

26
The figure show the different rate of beta that predicting divers able risk of the stock or
In the portfolio that has the market related risk measured by the beta. It’s the information of an
investor portfolio. But on the level of market as overall the beta calculation for a single portfolio
is not sufficient to measure the risk of the overall market. But the beta contains a measurement of
the risk as a portfolio but it has the risk rate of the market. But the risk free rate of the market for
the security is assign form the Bangladesh Bank. The risk free rate is fixed base on the
government Treasury bond interest rate and the entire member organization take as the risk free
interest rate for calculating the market risk. And the rate also help the individual investor for
invest at the market with some hope of arise from the risk. And the risk factors for the stock
obstacle the market behavior and also hampers the movement of the share or securities
transaction among the interest buyer or the market. But the market mostly highlighted from the
individual investors and their risk taking tendency or the capability of absorb. The regarding risk
behavior also influences the security market behavior. The risk factor create from the economy is
the main obstacle to vesting security market investment in Bangladesh. The risk taking attitude
by the investor also change the stock market, but the concept base on the risk taking or risk avers
tendency by the investor. But the associated risk with security also threats the market. Sources of
the risk are–

a) Interest Rate Risk.

b) Market Risk.
c) Inflation Risk.
d) Business Risk.
e) Finance Risk.
f) Liquidity Risk.
g) Exchange Risk.
h) Country Risk.

27
The security market related with those source of risk. And associated market risk also rise form
those risk source. The sources of the risk also articulated at security and stock exchange
commission rules.

For surviving in the market from the associated risk and other relevant factors those mostly
covered the risk tendency of the market. The associated risk of the capital market arises with
total risk of the security. And security risk combines with the systematic risk and non–
systematic risk.

Total Risk = General Risk + Specific Risk

= Market Risk + Issuer Risk
= Systematic Risk + Non Systematic Risk

The stock market behavior mostly depends on the laying risk those associated with the market,
economy, individual investors and their risk taking myth and also by the hidden policies taken by
the member organization.

For analyzing the topic more clearly and specifically to understand we have combined the
economical and the market factor together to analysis the topic in the form of the specific
indication. And at the topic analysis those relevant information provides for the analysis the topic
for keeping the interest of our investors, member organization as the part of the micro economy
factors. And information provide base on the national statistic and the behavior analysis base on
the combination of the economical and investment and portfolio management theories those have
the strong relation at the movement of the market and its behavior those are not understand by
our investors because most of our investors are the rational investor.

28
3.4. Investor Analysis:
The investors are the most important instrument of the security market. At the security and
exchange market in Bangladesh the investors are mostly rational and they do not analysis the
stock before they went for the investment.
Before we analysis the types of investors for the topic analysis we mainly clarify ourselves
about the risk taking tendency of the investors through the types of the risk. Because associated
risk with investment in the market creates a positive impact for the investment. But the risk in the
market associated with the systematic risk those arise from the economy and some unsystematic
risk occurred form the risk attributed to factors unique to the security. Both the factors mostly
penetrated for the investors for investment at the market. Bangladeshi investors most are the
rational investor. For analysis the topic of the report we segmented our investor base on –

Most of our investors are the risk averse and they do not like the risk by bear among themselves.
Some of them have the risk taking tendency. And those tendency helps them to grabs the market,
also assign them to earn a profit from there portfolio. Analysis the risk taking tendency of the
investors government also provide the act at “Security & Stock Exchange Commission Act,
1969” for protecting the individual or the institutional investor. And at the act commission
forecasted the entire right and protection instrument for the investors. For analysis the types of
the investors we also analysis the intact behavior of our Bangladeshi investors and how their
behave act at the market movement.

29
3.4.1. The investor’s behavior regarding the risk taking tendency:
The behavior of the investors, are also one of the factors for the investment market. The behavior
of the investors play positive motive at the market behavior.
For the analysis of behavior of investor we find–

a) Tolerance level of the risk that an investor should absorb.

b) Risk taking tendency of the investors.
c) The mentality for keeping or off the security.
d) Expected level of the profit that he want to begets for the securities at the short term
or holds for the long terms.
e) Concept of the investors to arrange his/her portfolio with the combination of the risky
and risk less investment for the securities.

Those behavioral concepts of investors make an impact on the movement of the securities at the
market. But the behavior of the investor comes to them at the change of the micro and macro
level movement at economy by the government or by the individual. Analyzing the behavior of
the Bangladeshi investor, at first we analysis our economy. As we stand at the third world
economic nation our economy always influence by the policies and other foreign factors that heal
the development of our economy. And our investors always have the doubt of the hidden risk
those are associated with the nation and economical factors. Those create a negative impact at
our investors mind for holding the securities as a long time for earns the higher profit. Associated
risk and the policy of the government and member organization create impact at investors mind
for invest their money for the long term. For that manner the behaviors of our investors are–

a) Low risk taking tendency.

b) Lack of believe on the government policy.
c) Lack of the tendency for holding the securities for the long run.
d) With out understanding the market or the types of the securities they always run for
the profit for them at the short time.

3.5. Information:

30
Information is the most important part of the security market. All the movement in the stock
market like the change of the share price or the crash of the securities occurred due to have the
informational transaction for a specific group of the securities.

The hidden information takes place or change by SEC for keeping the interest of the investors at
the market. But the market the impact of the information mostly depends on source and also its
truthfulness. After that the real investor try to find that the information have misinterpreted at
time of convey or the providing information is the genuine. For the impact at the market form the
information interpretation first an investors analysis to try to find the channel of the information
that s/he receive for market analysis. And the information like the past and the present
information help the investor to pre determining the market position and help to hold the market
with his/her securities. But in the third world the information of the stock market is quite un-
abandoned and the truthfulness of the information becomes one of the facts for belief. For that
reason the security and stock market are more volatile then the develop market. And our national
market also volatile because the channel of the information is not constructs properly and the
investors have the stereo type’s minds. Our people have the problem to change the main message
in their own word and the main information goes to the end user at the change meaning. For that
reason the information at our security exchange play a dramatic role and the behavior of the
market has been change. For make the market more effective and base on the information we
most create a securable information channel with the combination of–

a) Internet.
b) Telecommunication.
c) Radio & Television.
d) Print Media.
e) Broker House.
f) Member Organization.

31
But we need more communication among the member organization and the member organization
posted their information relevant with the change of the policy by management for the
organization. And security & stock exchange commission give the daily information of the
transaction securities for their website and also give the information like the daily market
transaction report to the print media those don’t have the access at the modern information
highway.
As a third world nation our stock exchange provides that information through their website to
inform the interested investors about the market position. The flow of the information at the
market is the symbol of the Efficient Market Hypothesis theory. And the market behavior also
acts of change base on the mobility of the information and its reliability which is the most
important part of the EMH. As the part of the third world capital market our exchange and the
media channels keeps the right of the investor through provide the market related information
like the change of the security price or provide the information about those organization lunch
the new IPO or provide the dividend to the their respective security holders.

For the matter of the information and make the investor more enact about the market condition
and take their investment analysis behavior toward our investment market, The exchange
commission posts more important information at the official website of the Dhaka Stock
Exchange, makes the market more reliable to the local investors and also influences foreign
investors to invest in our market. Information is the main vehicle at the investment market and
the change of the market depends on the change of the information. And it’s also an instrument
for the EMH. If the information is available to investors and the investors are aware about all the
change at the market and its impact then the information become the vehicle of the EMH theory
information base investment market handing. Due to lack of the information movement at the
stock holders in 1996 the Dhaka Stock Exchange faces a bubble effect at the market. The
behavior of the market also influence by the bubble at the time.

32
3.5. 1. Picture of the market in 1996:
Trade on the Dhaka Stock Exchange (DSE) was dormant until 1993. The fourth quarter of 1996
was marked by feverish activity on the DSE, and on the smaller Chittagong Stock Exchange
(CSE). In September, October, and the first two weeks of November, records were broken daily
as share prices soared. Prices soon bore little relation to the current profitability or future
prospects of the companies concerned. Up to 300,000 first-time buyers joined in the bonanza,
driving the limited number of stocks traded-210-to a peak on 16 November, 1996, when the all-
share index reached 3,627, up from around 1,000 in June. By 4 November, market capitalization
had reached an unsustainable $6 billion, equivalent to some 20% of the country's GDP. The
government began to cool down the market by selling off state-owned enterprises. In late
December, the central bank announced that T2 billion ($47 million) would be available to the
state-run Investment Corporation of Bangladesh to buy shares and give some support to the
market, but the market crashed despite these preventative measures. In 1997, 37 stock brokers
were charged with market manipulation in the DSE boom and crash of 1996. The market also
collapse for the crab market broker influence the market for the bubble.

The stock exchange is the important part of economy. In the third world country like us, its play
a vital rule for the organization to create the marketable capital forms the investors. In the third
world country basically the investors are divided in two parts.

33
The emotional investors are the rational part of the investment business that is invested at the
capital market without the technique analysis on over all market intervals. On the other hand the
Technical invertors are analysis the over all data and the market index of the stock exchange and
also find out the return and policy of the organization they like to invest.

For the Dhaka Stock Exchange Scenario in the 1995 to 1996 the investors are related with the
business and have small knowledge about the investment market policy speculation they first
recognize the future bubble that occur at the exchange. At the point the fundamental or the
technical investor safe their investment form the market by the policy that they take to come out
form the collapse. On the other hand the rational or the emotional investor like to gaps the
market shares with out the analysis the movement of the market that occurred in 1996. The stock
price will goes up due to the invisible hand. Due the interception of the invisible hand, the make
an unthinkable scarcity of the share flow in the market. Due to keep the share on the invisible
hand the market price of the general index goes upward. For the scarcity of the reputed
organization share in the market in the investment market all other related organization share
price also went up. At the time the rational/ emotional investor invest at the market for getting
the high return from their investment. But the technical investors are very strong form to find out
the behind reasons for the unexpected increase the price of the share in the market.

Analyzing the topic more specific and relevant with the movement of the market regarding the
policy, economical factors, movement of the information and risk taking tendency of the investor
are analyzed for the topic makes the topic more elaborately and specific we used a case where
the case contain all the instrument of security market analysis.

3.6. Case Study:

The Stock Exchange Collapse and the Investors Motive

Mr. Sujon was very shocked for invest at the stock market. But the other hand his friends Mr.
Kamal have a good command and response about the stock exchange. At evening Mr. Kamal
talk with Mr. Sujon About the investment in the capital market. On the point Mr. Sujon was

34
disappoint about the investment and also told Mr. Kamal about the 1996 dilemma at Dhaka
Stock Exchange. At the point Mr. Kamal asked Mr. Sujon why he disappointed about the
investment at the stock exchange. But Mr. Kamal asked Mr. Sujon did you have any experience
form the market. Mr. Sujon yes I had the experience about the stock market where I loss a lake
take on the investment on the specific share that become collapse in one day. At the point Mr.
Kamal asked Mr. Sujon can you invest all the money at the market for the specific share. Yes, at
the time I had not proper information and knowledge about the investment market. Mr. Kamal
asked Mr. Sujon how your invest money at the share market, can you told me the history that can
make you backward for invest at the market. Mr. Sujon told the back flash for about the
investment and why he dislikes the stock market to Mr. Kamal– At the noon of November I walk
out form my home toward my office, when I was reached at the Motijheel, I saw rush of human
are gathering and some of the people are raise there voice about something that they hold at there
hands. People move toward them and buy the specific paper for there name. That also made me
influence toward the market where I followed everyone invested there money for getting high
return. Why I am not? For that instant the inner filling to earn higher can push me forward to
invest at the market with out having any experience. Mr. Kamal asked Mr. Sujon can you have
the well knowledge and information about the stock market. Mr. Sujon– No, I could not have the
proper information and interest on the exchange that creates that day. But the higher return of the
others influenced me to invest at the market. But Mr. Kamal, are you invested at the capital
market in 1996. Yes I did. But I did not loss all of my investment. Mr. Kamal how you save your
investment at the market and still you is one of the people who also invested at the investment
market with out scare.
But look on me after the devastation of the share market it make me more negative and scared
think and concept that it is the place for the gamblers. Mr. Sujon from where you bought the
share? Inside the market or form the street broker? Mr. Sujon yes I bought for the street broker.
Oh! Buy form the street broker means the Crab market not form the real place. Yes, but I have
question Mr. Kamal; because you are the investor at investment market can you define me about
the crab market? Mr. Kamal obviously because some wrong perception on the market makes you
more misguided about the market. Lets I clarify you about the stock exchange before and after

35
the dilemma. Lets I conform you why you loss your capital at the stock market. Before you
invest do you knew the condition about the market or where you went for invest and how you
hold or maximize your investment at the stock market. Lets I give you the information why you
are dose not sustain in the market.
First, you invest your all the money at the street through the brokers that was call the Crab
market. For the collapse of the 1996 market the major role also play by the street brokers or the
crab market brokers.Mr. Sujon asked Mr. Kamal about the crab market, and Mr. Kamal told the
about the crab market is the place where the brokers are run the stock market beside the central
stock market and they call the price of the specific share that call the ask price and the interested
buyer purchase the stocks. Basically the collapse of the market was consists by the crab market,
the limits of the law and regulation and the unethical exercise at stock exchange is the main
culprit for the devastation of the economical market. On November, 1996 the stock exchange
have the devastative crush of the index. The bubble occur for the beginning form the November
and the market in collapse at the ending of the month. In 1996 the stock exchange have the over
valuation of stock and suddenly market have a bubble occur at the stock exchange. Due to the
bubble the investors are loss the concentration for invest at the market.
Mr. Sujon also asked Mr. Kamal about the formation of the stock exchange, the rules that stock
exchange have to operated for stop the interrupt of the flow of the securities at the market. After
asking the question Mr. Kamal told he did not know about the formation of the stock exchange.
Let us I knowing you how Dhaka Stock Exchange Form and the roles and regulation that
maintain for the member of the stock exchange -
The stock exchange is the place for the public limited organization to create the capital form the
public. In Bangladesh we have stock exchange commission that they operated there operation at
Dhaka and Chittagong. The exchange has there own regulation and control over the activities.

3.7. Impact of the Capital Market of Bangladesh:

The second phase of my topic is “Impact of the Capital Market of Bangladesh”. The Capital
Market of Bangladesh is the study of market action, primarily through the use of charts, for the
purpose of forecasting future price trends In its purest form Capital Market of Bangladesh

36
considers only the actual price behavior of the market or instrument based on premise that price
reflects all relevant factors before an investor becomes aware of them through other channels.

Before analyzing the topic we first analysis our investors and other relevant matter those make
Capital Market of Bangladesh more applicable in stock market because their behavior mostly
highlighted in the security and stock market movement. Following factors are mostly related to
the market and also have the relation with market behavior.

• a) Educational Background.
• b) Tendency of the risk taking.
• c) Capability of holding the stock. (Individual Economical Position.)
• d) Capability of analysis market related information.
• e) Movement of the Economical indicators and their position.

3.8 Fundamental Analysis:

Fundamental analysis is a method of evaluating a security that entails attempting to
measure its intrinsic value by examining related economic, financial and other
qualitative and quantitative factors. Fundamental analysts attempt to study
everything that can affect the security's value, including macroeconomic factors
(like the overall economy and industry conditions) and company-specific factors
(like financial condition and management).

37
 NAV-P/E EPS-P/E

Highest value: 3041.75

Lowest value: 1179.25

LAST ONE YEAR (Price)

38
Basic Information

39
40
The end goal of performing fundamental analysis is to produce a value that an
investor can compare with the security's current price, with the aim of figuring out
what sort of position to take with that security (under priced = buy, overpriced
= sell or short).This method of security analysis is considered to be the opposite of
technical analysis.

3.9 Technical Analysis

The principles of technical analysis derive from the observation of financial markets over
hundreds of years. The oldest known hints of technical analysis appear in Joseph de la Vega's
accounts of the Dutch markets in the 17th century. In Asia, the oldest example of technical
analysis is thought to be a method developed by Homma Munehisa during early 18th century
which evolved into the use of candlestick techniques, and is today a main charting too. In the
1920s and 1930s Richard W. Schabacker published several books which continued the work of
Dow and William Peter Hamilton: Stock Market Theory and Practice, Technical Market
Analysis... At the end of his life he was joined by his brother in law, Robert D. Edwards who
finished his last book. In 1948 Edwards and John Magee published Technical Analysis of Stock
Trends (ISBN 9780849337727) which is widely considered to be one of the seminal works of the
discipline. It is exclusively concerned with trend analysis and chart patterns and remains in use to

41
the present. It is now in its 9th edition. As is obvious, early technical analysis was almost
exclusively the analysis of charts, because the processing power of computers was not available
for statistical analysis. Charles Dow reportedly originated a form of chart analysis used by
technicians -- point and figure analysis.

Dow Theory is based on the collected writings of Dow Jones co-founder and editor Charles
Dow, and inspired the use and development of modern technical analysis from the end of the
19th century. Other pioneers of analysis techniques include Ralph Nelson Elliott, William
Delbert Gann and Richard Wyckoff who developed their respective techniques in the early 20th
century.

Many more technical tools and theories have been developed and enhanced in recent decades,
with an increasing emphasis on computer-assisted techniques.

Technical Analysis Example

42
 Technical analysis of UCBL

The use of the specific market data for the analysis both combined stock price and individual
stock prices. Martin J. Pring States That, “The technical approach is essentially a reflection of the
idea that price moves in treads which are determined by the changing attitude of investors toward
a variety of economic, monetary, political and psychological forces. The act of Capital Market of
Bangladesh – for it’s an art is to identify changed trends at an early stage and to maintain an
investment posture until weight of the evidence indicates that the trend is reserved.”

43
 Chapter 04

4.1 Capital Market of Bangladesh:

Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia
region. It has two full-fledged automated stock exchanges namely Dhaka Stock Exchange (DSE)
and Chittagong Stock Exchange (CSE).

It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since,
it implements rules and regulations, monitors their implications to operate and develop the
capital market. It consists of Central Depository Bangladesh Limited (CDBL), the only Central
Depository in Bangladesh that provides facilities for the settlement of transactions of
dematerialized securities in CSE and DSE.

History of Capital Market

Dhaka Stock Exchange was setup on 28th April, 1954 that started formal trading on early 1956.
Post–independence government did not promote a capital market during the first five years, and
it was activated again in 1976 with 9 issues on board. In 1995, a second bourse, the Chittagong
Stock Exchange, was setup with sophisticated logistic support and modern management.

Vision

• Regulating the market structure through proper rules and strict compliance by members.

• Expansion of CSE trading network to cover 504 thanas.

• Introduce Book Building system in Bangladesh capital market.

• Introducing derivative market

• Continuous promotion of stock investment throughout the country.

• Create opportunity to cross border trading with SAFE countries.

• Introduce Global Depository Receipts (GDR)

Mission

To create an efficient and transparent Market facilitating entrepreneur to raise capital, so that it
accelerates industrial growth for over all benefit of the economy of the country.

Objectives

• Develop a strong platform for entrepreneurs for raising capital;

• Provide an investment opportunity for small and large investors;

44
• Develop a transparent market ensuring investor's interest;

• Provide a fully automated trading system with most modern amenities to ensure: quick, easy,
accurate transactions and easily accessible to all;

• Attract non-resident Bangladeshis to invest in Bangladesh stock market;

• Attract foreign institutional investors to invest in Bangladesh;

• Collect, preserve, disseminate data and information on stock exchange;

Management of Stock Exchange

DSE & CSE comprises of 25 members of whom 12 are elected through direct election from the
235 and 134 shareholders respectively. Another 12 members representing distinguished
personalities from different key economic and social arena of the country. The CEO of the
Exchange is also a Director of the Board.

Criteria of the share Category

“A” Category Companies: Companies which are regular in holding the Annual General Meetings
(AGM) and have declared dividend at the rate of 10 percent or more in a calendar year. (Mutual
fund, debentures and bonds are being traded in this category).

“B” Category Companies: Companies which are regular in holding the AGM but have failed to
declare dividend at least at the rate of 10 percent in a calendar year.

“G’ Category Companies: Green field companies.

“N’ Category Companies: All newly listed companies except Green field companies will be

Placed in this category and their settlement system would be like B-Category companies.

“Z’ Category Companies: Companies which have failed to hold the AGM or failed to declare
any dividend or which are not in operation continuously for more than six months or whose
accumulated loss after adjustment of revenue reserve, if any is negative and exceeded its paid -up
capital.

Trading System

Globally the developments in information & communication technologies (ICT) have created a
new instance in the securities market operations. Stock Exchanges all over the world have
realized the potentiality of ICT and inclined to the electronic trading systems. It was understood
by DSE that technology would ensure transparency, timeliness and satisfaction in customer
service. Considering those DSE introduced Automated Trading System on 10th August 1998.In

45
other words, the trading floor moved right into the member's office premises where an investor
started to place buy/sell orders.

Considering market growth the Automated Trading System was upgraded two times. The
recently Upgraded Trading System was started from 21st December, 2008.

• Fully automated screen-based.

• Nation-wide online trading network.

• Present coverage:

Chittagong, Dhaka, Sylhet, Rajshahi, Khulna, Barisal, Tangail and Coxsbazar

• Continuous expansion.

Function: Securities & Exchange Commission (SEC)

• Registering and regulating the business of stock exchanges, stock-brokers, merchant bankers
and managers of issues, trustee of trust deeds, underwriters, portfolio managers and other
intermediaries in the securities market.

• Promoting investors’ education and providing training for intermediaries of the securities
market.

• Prohibiting fraudulent and unfair trade practices relating to securities trading in any securities
market.

Functions: Dhaka Stock Exchange Ltd. (DSE) & Chittagong Stock Exchange Ltd. (CSE)

• Listing of securities and ensuring compliance by the issuers.

• Trading provisions for listed securities through efficient trading plat form (On line screen based
trading system).

• Over the counter market (OTC) provide by both DSE & CSE & Internet based trade facilities
provide by CSE.

• Real time online market Surveillance of trading and regular monitoring and compliance
inspection of trading operations.

• Clearing and Settlement of executed trades.

• Management of the Members.

Functions: Central Depository Bangladesh Ltd. (CDBL)

• Operate and maintain the Central Depository System (CDS) of Electronic Book Entry.
46
• Recording and maintaining securities accounts and registering transfer of securities.

• Changing the ownership without any physical movement or endorsement of certificates.

• Execution of transfer instruments, as well as various other investor services including providing
a plat form for the secondary market trading of Treasury Bills and Government Bonds issued by
the Bangladesh Bank.

• Supervision of Depository Participant activities.

Markets

Public Market: In this market instruments are traded in normal volume

Spot Market: Instruments are traded in normal volumes under corporate action if any

Odd lot Market: Odd lots of all Instruments are trade in this market

Block Market: Instruments are traded in bulk volume

The selected topic of my proposal mainly highlighted the perspective of the Capital Market of
Bangladesh. The research covered the information and theory that are most highlight able to
relevant move of the two stock market of Bangladesh (Dhaka Stock Exchange and Chittagong
Stock Exchange). The Capital Market of Bangladesh method widely used in the investment
market for forecasting the future move of an industrial or the individual move of a bundle of
shares based on the presentation of the graphical picture of the predicted move. The method of
forecasting share price is mostly used in the large stock exchange like NASDEQ (National
Association of Securities Dealers Automated Quotations).The method also used in our country to
forecast the market information in a graphical format. The research also covered the economical
movement due to the effect of the changing the base point of any index of any industry. The
research covered all the method of the Capital Market of Bangladesh chat those are popular and
used for present the information of the stock market as the overall or the industrial base segment.
To make the research more appreciated to the other and live we provided the core data like the
daily stock quote as the fundamental materials of the research. The research presents the
information and analysis the market future predication from the useful data arrangement.

The report forecasted the volatility of the security market due to change of any specific indicator
that may take place due to the change of the political, economical or the financial management
decision from the specific organization or the group of backhand peoples. The analysis mainly
takes part with presenting data of the exchange and predicted the graph for forecasting the future
of the overall security market of the specific group. The analysis is more useable and acceptable
for valuation of market. The Capital Market of Bangladesh is easier and acceptable then the
fundamental analysis. The fundamental analysis deals with the traditional method for valuation

47
of market. On the other hand the Capital Market of Bangladesh is the system of valuation of
market in a short time.

4.1.1 The following points summarize Capital Market of Bangladesh:

> a) Capital Market of Bangladesh is based on published market data and focuses on
the internal factors by analyzing movement in the aggregate market, industrial average,
or stick in contrast. It also analysis the economic and political factors which are external
to market itself.
> b) The focus of the Capital Market of Bangladesh is on identifying changes in the
direction of stock prices which tend to move in trends as the stock price adjusts to a
new equilibrium level. These trends can be analyzed, and changes in treads detected,
by studying the action of price movements and trading volume across time. The
emphasis is on likely price changes.
> c) Technicians attempt to assess the overall situation concerning stocks by analyzing
technical indicators, such as breath of market data, market sentiment, momentum, and
other indicators.

Before adopt the Capital Market of Bangladesh an investor should have the information
or the overall knowledge about the–

a) Economical Analysis. b) Sector Analysis. c) Company Analysis.

48
4.2. Frame work of the Capital Market of Bangladesh:

Time Movements in

The Aggregated Market Individual Stock

By assessing change
in prices through

Capital Market of Bangladesh Chart

.

4.3. History of Capital Market of Bangladesh:

The Capital Market of Bangladesh derived from the observation of financial markets over
hundreds of years. The oldest known example of Capital Market of Bangladesh was a method

49
used by Japanese traders as early as the 18th century which evolved into the use of candlestick
techniques and is today a main charting tool. Dow Theory is based on the collected writings of
Dow Jones, co-founder and Editor Charles Dow, and inspired the use and development of
modern Capital Market of Bangladesh from the end of the 19th century. Modern Capital Market
of Bangladesh considers Dow Theory its cornerstone. Many more technical tools and theories
have been developed and enhanced in recent decades with an increasing emphasis on computer-
assisted techniques.

4.4. Principle of Capital Market of Bangladesh:

Technicians say that, the market price reflects all relevant information So their analysis looks
more at "internals" than at "externals" such as news events. Price action also tends to repeat itself
because investors collectively tend toward patterned behavior -- hence technician focuses on
identifiable trends and conditions.

4.5. Difference between the technical & fundamental analysis:

The technical analysts believe on the market data. Because they thing the information those need
for the analysis, market is the best place for collection. They deal with the basic economical
theory supply and demand of the stock and try to find out the relationship or the gap of the trade
among the transaction of the security. Where the fundamental analyst deal with the profit
earnings ratio, sales volume, cost management, asset management, liquidity ratio and other ratio
calculation for find out the ratio analysis result for the valuing the market position of the
organization then take the decision for investment.
Fundamental analyst takes the information from the annual report or some source for analysis the
organization. But reliability of the information depend on the source hand means the
organization. If the organization hide the information or ignore any analysis the fundamental
have the different result at the investment. But the Capital Market of Bangladesh interpreted the
information those are grab form the market as the source like the daily stock market quote. And
the technicians have the risk that associated with the political and economical risk.

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Technical analysis and fundamental analysis are the two main schools of thought in the financial
markets. As we've mentioned, technical analysis looks at the price movement of a security and
uses this data to predict its future price movements. Fundamental analysis, on the other hand,
looks at economic factors, known as fundamentals.

4.6. What knowledge investors have for implementing the Capital Market of
Bangladesh?
Technician always work on the market related information those are generated from the
daily transaction. They technician work on the trend of the data and store the past data
for predicted the future outcome of a specific stock or the security. The technician
collect the information of the security form the paper or from the related website those
provide daily information base on the date, opening price, low price, closing price and
also provides the volume of the stock trades at the market. The technician always work
of predict the information in the form of graph for the specific stock or market as all.
For that the analyst take the computer base software solution for the forecasting the
information of the market.
They take information of overall market price for make a graph and also demonstrating
a graph for their interested security. And compare the overall market data with the
interested security and also find the gap of the trade between the previous transactions.

They create a concept–

 If the price of the share increase at the market and also the volume of the
trade also increase due to the change means the market is Bull Market.

 If the price of the share increase at the market and the volume of the trade
have the negative means the market is Bear Market.

Implementing the Capital Market of Bangladesh a investor should have the knowledge
about the–
a) Economy / Market Analysis: For a Capital Market of Bangladesh a technician
must have the knowledge about the relevant economical effect those have
strong relation with movement of market. And technician also has the
knowledge about the economical indicators those are mostly influence at
investment market.

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 b) The technician also has the knowledge about the business cycle. The business
cycle reflects movements in economic activity as a whole, which comprises
many divers part. And the technicians also have the information about the global
perspective of the market. And have the strong ability to analysis the stock
market behavior and mach the business cycle behavior with the market trends.

4.7. Impact of the Capital Market of Bangladesh:

Before inside the topic analysis we provide some view about the Capital Market of Bangladesh
those help us to analysis our investors behavior and also help us to analysis the “impact of the
Capital Market of Bangladesh.” or contest of Dhaka Stock Exchange.

Before we analysis the topic first we try to find the information about the market base on our
investor behavior, there education level, knowledge of fundamental term of the Capital Market
of Bangladesh, and some internal and external factor those mostly influence our technical
investor toward the market.
Analyzing the investor for the technical or the fundament analyst, first we analysis our investor
background and their technique for implementing the strategy at the market for higher profit for
their portfolio.

Basically we classified our investor concernment toward the market and segmented
them in two parts.
a) Technical Analyst.
b) Fundamental Analyst.

Both the team has our influence able elements like–

a) Risk Taking Tendency.
b) Level of the education.
c) Market analysis capability base on the fundamental & Capital Market of
Bangladesh.
d) External & Internal Factor.

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To apply the Capital Market of Bangladesh at the market the investors should have some
facilities those are mostly applicable by the security & exchange commission with help of the
government and reinforce some efficient flow of economical and informational development that
helps our interest investor to implement the Capital Market of Bangladesh at the market.
a) Constancy of the economical order at the market/ nation.
b) Balance movement of the monetary among the member organization.
c) Security & Exchange Commission also audits the member organization
balance sheet and other relevant document for finding the hidden mechanism
take by them for make illegal work for make the organization more acceptable
to the investor.
d) Protect the information from the misinterpretation by third party.
e) Create a high way for the information that assists the investor and the
f) Exchange commission to have the principle of the EMH.

Our investor always looks for stock exchange data. It is only possible if we manage an efficient

market where the information is the main instrument toward the investors.

For analysis of the topic more specifically we have analyzed the market related data like the
market price of a target organization and arrange a calculation through computer added software
for understand the effect of the Capital Market of Bangladesh with the evidence of EMH.The
presenting graph shows the Capital Market of Bangladesh factor of The National Bank
Bangladesh (NBL). The investor collected the one year market price of The National Bank
Bangladesh (NBL) stock and generated the graph for the Capital Market of Bangladesh of The
National Bank Bangladesh (NBL) And the technician also compare The National Bank
Bangladesh (NBL) Stock price for the past data and compare the data with the belonging
industry and compare the relative growth of the stock with the industry as whole.

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Highest value: 866.5

Lowest value: 81.8

4.8. Analysis the investors and the member organization:

At the chapter– 3, we have analyzed the topic base on the behavior science, economical theories
and combination of the financial, investment & portfolio management theory. But our main
instruments of our topic are protecting the investor and the listed organization from the volatility
of the market. In chapter– 3 we have analyzed the topic most on the adaptation of the economical
theory of demand and supply, most influence able micro and macro factor those have the positive
impact at the growth of the over all market. These chapters contains the investment theory like
the efficient market hypotheses, industry valuation technique, fundamental analysis and the most
limelight topic of our research Capital Market of Bangladesh. at the topic analysis we analysis
the investors and the listed organization under DSE and coupe up our analysis base on the risk
and other effecting factors influence the change of the market behavior. But at the point we have
discussed on the topic only the theory of the finance and economics. But make the topic more
strong and relevant to protect our investors and listed organization. For the volatility of market,
we try to find the SOWT analysis for our investor and listed organization. Analysis the SOWT

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and compare their sustainability at the market with change of any economical or financial
factors.

4.9. Investor Analysis:

4.9. 1. Strength:
Strengthen of an investor mostly depends on the market position. And the market positions are
influence through the political, economical psychological and other relevant influencing matter
those are influence and help the investors to retain profit from the market. And strengthens of an
investor also depend on the taking strategy of the investor should take regarding the market. And
the strength of the investor is–

a) Several choices for investment.

b) Full of information.
c) Bargaining power.
d) Rules and regulation take by SEC for protect the interest of the investors.
e) Wide development of information technology and the
f) Adaptation also helps the investor to invest at the market.

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4.9.2. Opportunities:

The capital market is the place for earning high or low amount of profit. The market is the place
where the opportunities are hidden and perfect investor are finding the opportunities and use the
opportunities to make profit double for him. The opportunities for an investor comes through–

a) Use the analysis method to evaluating the stock.

b) Change at the political and economical factor of the nation bring an opportunities
toward the investors.
c) Industrial movement like the industrial boom is the great opportunities for an investor.
d) Adaptation of the EMH is the opportunities for the investor to have the relevant
information about the market condition. And shape the stock base on the informational
analysis.
e) Decrease the interest rate by the government also an opportunities for investor to
own the money to invest at the market at low interest paying.

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 Chapter 05

5.1 Trading process

For the beginning of the exchange the trading process was run through the floor call system.
Where the employees are running the call on the share with the existing price and the investors
are call for the expected price for the share. The process was run through the middle man call the
broker firm. At the process the exchange has not the existing trading policy those exist now at
the exchange. At the time there is every organization shares are treated as the general share.

There was no circuited broken system of the trading policy which now has by the exchange.
There was not the spite of the blue chip organization hit list for the individual trade of the stock
at the market. Which is now as the DSE 20 index? Exchange has not the electronic trading
system before 1997. Where the records are were kept on pen and paper basic. The market also
traded the shares out the exchange by the street brokers. The street market for the share also calls
the crab market. Government doesn’t put any limitation to the investor to open the BO Account
regard the respective site for the investors. For the increase and decrease the market index at
Dhaka Stock Exchange also influenced by the crab market. For the interception of the street
brokers the market also creates some artificial scarcity of the stock at the market. For that the
market index goes up due to increase in the price of the over all marketable shares.
After the collapse of the market in 1996 the trading process and the regulation of the exchange in
changed. For devastation of the investment market took some procedure for protect the interest
of the member organization and the investors for the unacceptable circumstances government
and exchange commission take some stick rules for stop the collapse. The whole trading
processes are change. And the exchange adopted the new rules for protect the market. After the
1996 dilemma at the investment market government introduce circuit breaker. Mr. Sujon also
asked Mr. Kamal that government should take any new regulation for stop the unwise and
unacceptable crush at the market. Mr. Kamal told government take policies and roles for stop
this kind of vulnerability. The new roles are–

 Implemented the new computer base circuit system for a trade.

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  Imply the categories shares for the investors as the name as the general index
and construct DSE 20 index for the Blue chip organization.
 Introduce the Electronic monitory system for safe movement of the existing
process.
 For stop the unethical access of the brokers and the unexpected people at
the exchange adopt the D Mat system for give more security.

Also provide some guidance for the brokerage firm for control over them the flow of the share.
Also give law and regulation toward the investor for open BO account. (Beneficiary Owner
Account).The regulatory commission also makes mandatory the credit rating for the member’s
organization before they launch the new share at the market. The exchange also mandatory the
credit rating and rating for the organization those organizations are listed members and also those
want to be the member of the DSE. Mr. Sujon again asked Mr. Kamal “why the security and
stock exchange commission adopt the new roles for the investment market?” And at the new
policies that have been taken by the exchange some of the rules I don’t understand. Can you
clarify me about the D Mat system, the new adaptation of the Circuit breaker system?
Why exchange makes the credit rating mandatory for the member or listed organization? Why
exchange limited the BO account for the investors? Ok, Sujon lest I give the some view and
information about D Mat system that DSE adopts. The D Mat system is the process that consists
of the automated or the electronic communication system between the exchange, brokerages firm
and among the investors where they communicated between the exchange and the investors or
the brokerage firm through the internet facility. The process also adopted the consistence
between the exchange and the investors for the unwelcome access and other restriction that can
protect exchange for the unwelcome suspicion. Mr. Sujon hear about the process and told Mr.
Kamal, “it may like the electronic access and the exchange also adopt the electronic base record
tracking system for protect the information and the transition record for the individual investor
and also make easy to the investor for transfer there ownership from own ship to another one.”
Mr. Kamal: yes, but before the collapse of the exchange in 1996 the records are keeping under
the pen and paper base, where the bad interest investors or the unwell investor group have the

58
chance to take part at the unethical motive toward the stock. And the exchange have demerit on
the limits to open BO account for the investors. Where the investors have the chance to active at
the unethical operation? For the uncontrolled on the BO account the crab market brokers are free
to invest at the share.
They created the artificial demand of the stock at the market. Due to the reason the price of the
investment are arise. They are also culprits for ruined the market at the time. This is occurred for
lack of the roles and monitory policy by the DSE. But the new policy and roles stop this kind of
unethical activities at the market. After change the trading process DSE also introduce the
Circuit Breaker system for the exchange. Mr. Sujon, can you told me how the system work?”
Alright, it’s the process or the system that DSE have to implement at the exchange. Where
commission set the upper bound and lower bound limits for individual share. Where the price of
the share doesn’t up and down below the specific or the set point by the exchange. Mr. Sujon,
“they fixed it before the stock traded at the market”. Yes.
For more clarification I show you the Circuit breaker system that exchange practice. The unusual
and abnormal price fluctuation raised the Price Index to unprecedented heights. In 1996 the
Securities and Exchange Commission, in order to protect the interest of the investors, introduced
Circuit Breaker System.
The guidelines of Circuit Breaker System are given below:
Standard upward and downward price limits over the previous days’ market price applicable for
each market day are as follows–

Previous day’s perSource: DSE, Annual Report

share market Limits 1998– 1999.
price
Up to taka 200 20% (twenty percent) but not exceeding
Taka 35
Taka 201 to Taka 500 17.5 %( seventy point five percent)
but not
Taka 501 to Taka 1000 exceeding Taka 75
15% (fifteen percent) but not
exceeding Taka 125
Taka 1001 to Taka 2000 12.5 %( twelve percent five percent) but not
exceeding Taka 200
Taka 2001 to Taka 5000 10 %( ten percent) but not exceeding
Taka 375
Taka 5001 and above 7.5 %( seven point five percent) but
not exceeding Taka 600
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In case of new issue, free trade may be allowed for first 5 (five) consecutive market days and
after that above limit will be applicable. In case of receipt of any price sensitive information like
right issues, bonus issue and dividend from the listed company, free trade may be allowed for
subsequent 3 (three) consecutive market days, and after that above limits will be applicable. In
case securities not traded for previous consecutive 30 market days, free trade may be allowed for
subsequent 3 (three) consecutive market days and after that above limits will be applicable. This
information’s are important and also give new view about the market. And also remove my fair
and also inform me the condition and new adopted policy that stock exchange takes after the
collapse. Mr. Kamal: “exchange is enforcing the credit rating mandatory for all the member
organization. Because the rated can show the financial position of the organization and the
investors also know about the organization equity and debt position and they went for the
investment. Mr. Sujon when informed all the information form Mr. Kamal and asked him that,
“is there any kinds of difference at the investors?” Mr. Kamal it have some difference at the
investors. Some of the investor those they want to invest at the market they study the trend of
market related information and also make him upgrade and informative against the market.
These types of investors are calling the technical investors. Before invest at the market they use
the investment analysis tools for find out the risk and return on the specific stock or the industry
they like to choose.

Mr. Sujon: “can you give me some general idea about the investment tools?” yes the tools for
analysis the markets are–

5.2 Efficient Market hypothesis

Regarding the investment at the stock exchange the investors are looking for the efficient market
where they using some tools to getting the effective result for the specification their there return
regarding the there risk and maximize there return. The effective capital market is concept or the
practical phenomenon that market in where security price reflect available information about the
price of a particular share. Where the information in available and the investor’s assets value
based on this information?

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Base on information availability the investor use the regarding tools for to know the market
situation before they went toward the investment. The market efficiencies also depend on the
traditional forms. It the traditional forms have three levels–

5.2.1. Weak – Form Market Efficiency

At the weak form of market efficiency states that current security prices fully reflect all historical
information. Further, it is state that investors cannot earn abnormal returns using the historical
information. Historical information includes not just price information, but information on the
trading volume, short interest and so forth. Weak– form– efficiency also implies that security
prices do not follow recurrent and predictable patterns. Instead, it suggests that security price
follow a random walk.

5.2.2. Semi – Strong Form Market Efficiency

Share prices adjust within an arbitrarily small but finite amount of time and in an unbiased
fashion to publicly available new information, so that no excess returns can be earned by trading
on that information. Semi-strong form efficiency implies that Fundamental analysis techniques
will not be able to reliably produce excess returns. To test for semi-strong form efficiency, the
adjustments to previously unknown news must be of a reasonable size and must be
instantaneous. To test for this, consistent upward or downward adjustments after the initial
change must be looked for. If there are any such adjustments it would suggest that investors had
interpreted the information in a biased fashion and hence in an inefficient manner.

5.2.3. Strong – Form Market Efficiency

Share prices reflect all information and no one can earn excess returns. If there are legal barriers

to private information becoming public, as with insider trading laws, strong-form efficiency is

impossible, except in the case where the laws are universally ignored. Studies on the U.S. stock

market have shown that people do trade on inside information.

To test strong form of efficiency, a market needs to exist where investors cannot consistently

earn excess returns over a long period of time. Even if some money managers are consistently

61
observed to beat the market, no refutation even of strong-form efficiency follows: with tens of

thousands of fund managers worldwide, even a normal distribution of returns (as efficiency

predicts) should be expected to produce a few dozen "star" performers.

5.3 Effect of Bangladesh Capital Market

Capital Market of Bangladesh refers to a broad range of economics, political and psychological
indicators, all which are base on notion, that pattern in security prices can used to reliably predict
future price patterns. The technical believe that the price of the share price up and down due to
the interaction of the supply and demand at the market. They use indicators that, they believes,
show upcoming shifts in the supply and demand relationships and thus securities prices.

5.4 Analysis

Analysis is based on the notion that every security has and intrinsic value and price movement.
The intrinsic value of a stock based on such factors as the expected growth rate of the company’s
earnings and dividends. Since all shares are sell for their intrinsic values, fundamental analysis
look for the undervalued shares those price are out of the line with their intrinsic value. Analysis
is one of the most important factor and tools for every investor.

5.5 Portfolio Investment Decision

It may seem that market efficiency implies that all investors should hold the same portfolio and
never make changes. The investor are make there own portfolio for the conversion of the risk
that regard on the individual investment. Even in the efficient market, the risk tolerance of the
investor are differ for there concept, tendency toward the risk, ages, income level and other
characteristic.
Use those tools and you try to find out the market related risk and also assume the return that you
want to invest at the market as an investor. You also find the efficiency of the market or the risk
of the particular share those you want to invest. Mr. Sujon: “but how I measure the risk and

62
return for a particular share that I want to invest? “Suppose you want to invest at the Square
Parma shares at the secondary market before you enter the market as the investor you may find
out the average and the annual market value of the share and also calculated the higher and lower
price at the market and also speculation the future price of the share if the market is efficient.”
You also find out the average return of the market price of the share and the risk using the
statistical tools like the mean and the standard deviation (∂) for the risk. For the investor the
process is mostly important.

For the risk calculation use the standard deviation (∂) =

Mr. Sujon, if we go through this process and analysis may we reduce our investment risk at the
investment market and your information and guide provided me the knowledge and the
forecasting helped me aware about the market. After the collapse of the market its push me far
way from the investment. In 1996, without knowing the market policy the rules and regulation I
went at the market for that just like other investors I also become the worse-off, but the investor
like you how all time analysis the market for the tools of the investment they become the better-
off. All the information those you provided me as the information those become the learning
process for me about the market.

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 Chapter 05

6.1 Findings:

1. The Dhaka Stock Exchange plays an important role in the capital market but the
organization does not have any strong policy for market manipulation.
2. Initially most of the investor does not reserve sufficient knowledge about capital
market. They achieve the knowledge after making loss in business.
3. Most of the investor does not take their investment decisions on the basis of risk
and return assessment. They invest in the market by following others or on the
basis of misinformation.
4. There is some restriction to buy and sell shares.
5. There are some gamblers in the market who always makes the market inconstant.

6. The capital market is a place of achieving high return but it has the possibility of
loss as same of return

6.2. Recommendation on the basis of findings:

1. The Dhaka stock exchange should have to strong against market manipulation.
2. The investors should take necessary training before going in the stock market.
3. The investor must have to take their investment decision on the basis of risk and
return assessment. In this process they can take help on fundamental and
Capital Market of Bangladesh.
4. Everyone should have awareness from the gamblers because most of the time
they try to present a inconstant market.
5. All the investor should invest in the market with cold mind so that possibility of
loss may reduce.

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6.3. Conclusion:

The report contains the topic of “Dhaka Stock Exchange and impact of Capital Market of
Bangladesh in capital market”. For analyzing the topic we have segmented the topic at two
phases and phases are deals with the Stock Market and Capital Market of Bangladesh. In the
topic we also analyzed the market behavior base on the economical factors, investor behavior,
and listed firms behavior and the policy they keeps to existing in the market. We have also found
the influence able matter those are mostly influences the market as the volatility. Given solve for
the matter if our investor follow those matter and aware themselves on the recommendation
factor they may protect them from the uncertain volatility of the market. We have analyzed the
market with the fundamental concepts of the finance and investment management and provided
more sophisticated information to protect our investment market from the collapse. We have also
provided the existing guideline and laws implied by our exchange commission to protect market
as whole. For the sound investment in market, we must demonstrated the all training and also
improve the laws and other matter to solve the market problem and implement the efficient
market for investment by the investor.

6.4. Reference:

• Dhaka Stock Exchange Library

• www.wikipedia.org
• http://www.dsebd.org/
• www.stockbangladesh.com
• Contemporize Investment: Douglas and Ziama
• Financial Management: Van Horn
• Fundamental of Corporate Finance: Ross, Westerfield, Jordan
• Market Efficiency, Time-Varying Volatility and Equity Returns in
Bangladesh Stock Market (article): M.Kabir Hassan, Ph.D., Anisul M.
Islam, Ph.D., Syed Abul Basher

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