Relief for big investors as floor price lifted from block market

The country's twin bourses yesterday withdrew the floor price from the block market allowing big investors to trade shares at rates lower than the existing ones in the main market.

The block market is a platform of an exchange where a large number of stocks are traded in a single transaction at a negotiated price without affecting the index. The trading amount should be at least Tk 5 lakh.

The new move, however, meant nothing for the small investors as the main market would still be ruled by the floor price.

On March 19, the Bangladesh Securities and Exchange Commission (BSEC) imposed the floor price of all stocks by calculating their last five days' average prices to stop the index from falling amid the pandemic-induced rout. It was applicable for the block market as well.

The initiative made the stock market illiquid as investors could not trade stocks below the floor price even at the block market.

Subsequently, the turnover, one of the key indicators of the stock market, has dropped to Tk 60 crore on an average since the market opened after closure for more than two months owing to the shutdown imposed to flatten the curve on the deadly virus.

Many institutional and foreign investors had criticised the regulator for the decision because they were unable to sell shares at the floor price, which was a bit higher than that the market-determined price.

On this backdrop, the BSEC ordered the stock exchanges last week to scrap the floor price from the block market and it was implemented yesterday.

"Now, big investors will be allowed to trade shares in the block market at 10 per cent lower than the floor price," said Mamun-Ur-Rashid, managing director of the Chittagong Stock Exchange.

The decision was implemented to facilitate trading through the block market, he added.

The move was taken so that big investors, except directors of the listed companies, can buy and sell stocks at lower than the floor price without affecting the index, said a top official of the Dhaka Stock Exchange (DSE).

"We hope the turnover will go up in the block market thanks to the decision," he added.

The decision would give some relief to the big investors, said a top official of a merchant bank.

"But it does not mean anything to the small investors because the main market is still illiquid due to a lack of buyers."

If a small investor faces any problem and tries to sell shares, it is simply not possible, he said.

"The problems of the small investors would not be solved until the floor price lifted from the main market."

Many stock investors are favouring the floor price but it would create a huge problem in the long-run for the market, a stockbroker said.

"Investors are now happy to see an artificial increase in the price of shares in the portfolio. But it doesn't make any sense because they cannot sell them even if they need money to save lives."

The news failed to bring any cheer to the market though.

DSEX, the benchmark index of the DSE, dropped 3.02 points, or 0.07 per cent, to close the day at 3,964.28. Turnover rose 5.4 per cent to Tk 53.88 crore.

Among the traded stocks, 27 rose, 24 declined and 247 remained unchanged.

"Most of the stocks are not trading on most days because of a lack of buyers. It has been continuing since the floor price was introduced," said an asset manager.