Record stock fall sparks protests | The Daily Star
12:00 AM, December 20, 2010 / LAST MODIFIED: 12:00 AM, December 20, 2010

Record stock fall sparks protests

DSE down 551 points, biggest slide in history

Angry investors took to the streets in Motijheel for a second time in less than two weeks after the Dhaka Stock Exchange suffered the biggest crash yesterday in its 55-year history.
The DSE General Index nosedived by 551 points or 6.72 percent to 7,654 points at the close of a four-hour trading session.
Market capitalisation dropped by 5.5 percent to Tk 3,26,087 crore from Wednesday's Tk 3,44,958 crore, as all securities suffered a combined loss of Tk 18,871 crore in value.
Aggrieved investors set fire to wood and paper in front of the DSE building and blocked the road from Shapla Chattar to Ittefaq Moor. They chanted slogans against the top bosses of the premier bourse and market regulators, and demanded resignation of the central bank governor.
They pelted law enforcers with brickbats leaving a person injured.
Yesterday's fall in share prices was even greater than the market crash in 1996 when the stocks plunged by 6 percent on a single-day.
Market insiders blamed the recent fall on the central bank's measures to control the liquidity flow in the banking system.
In an effort to contain inflation, the central bank recently increased the Cash Reserve Ratio (CRR) for banks by 50 basis points to 6 percent. It was also aimed at stopping credit-flow to non-productive sectors.
The central bank also issued another directive asking financial institutions to adjust their stock investment exposure by this month.
From January, no institution will be allowed to invest more than 10 percent of its total liabilities in the stock market, and the exposure will be calculated based on market price, not cost price.
The International Monetary Fund's prescription to Bangladesh Bank for addressing the overexposure of commercial banks to the stock market also propelled the unprecedented fall.
The SEC's excessive initiatives to cool the market in a short time are also blamed for the crash.
“The measures and unexpected and unnecessary intervention of a donor agency took a big toll on the market,” said Akter Hossain Sannamat, managing director of Prime Finance and Investment.
“It is not the duty of the regulator to control the index…their responsibility is to check irregularities or manipulative transactions. Besides, donor agencies have nothing to do with our stock market,” he said.
Echoing him, SEC Executive Director Anwarul Kabir Bhuiyan said, “Institutional investors generally sell off their investments in this period to restructure their portfolios before the end of the year.”
Taken aback by the crash, the stock market regulator sat twice and took initiatives to help the market rebound.
The Securities and Exchange Commission suspended the computation based on net asset value (NAV) in providing share credit by lenders.
According to the NAV-based calculation, a merchant banker or a stockbroker gives loan on the basis of the value of a stock by adding the market value to NAV and dividing the sum by two.
The SEC increased the share credit ratio to 1:1.5 from 1:1. It means an investor will get a loan of Tk 1.5 against shares worth Tk 1.
The commission also withdrew a directive on members margin, which was to take effect from January 2 next year.
The SEC on November 25 asked the members or stockbrokers to double their deposits against any additional trade exposure to the capital market in a bid to control the liquidity flow.
The regulator also directed the bourses to put the stocks of Grameenphone and Marico Bangladesh back on public market or under normal trading system, instead of spot market transaction.
All changes take effect today.

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