The regulatory body Bangladesh Securities and Exchange Commission (BSEC) has introduced a new rule of circuit breaker (maximum limit of price increase or decrease) in case of reduction in the price of shares and units of listed companies in the stock market. As a result, no company’s share price can fall more than 3 percent in a day.
BSEC has issued an instruction in this regard on Wednesday (April 24). BSEC Chairman Professor Shibli Rubaiyat-ul-Islam has signed it. The new circuit breaker rules will come into effect from tomorrow Thursday.
According to the directive, the rule of circuit breaker in case of rise in share price on June 17, 2021 will remain unchanged. However, the maximum limit in case of price reduction will be 3 percent. This rule will be applicable to all securities other than securities at floor price.
The BSEC directive has mentioned that such a decision has been taken in the interest of investors and the stock market. However, stock market analysts say that this decision will not benefit the stock market. Rather, the normal demand and supply system of the market will be disrupted.
They say that before this the market was held back for a long time with the floor price. After much criticism, BSEC lifted the floor price. Now again a similar decision has been taken. This will not benefit the market.
Analysts also say that the stock market should be allowed to run at its own pace. Undue intervention of regulatory bodies in the market is not right. It is normal for the market to turn around at some point after the price correction. The regulatory body should take action against market irregularities rather than trying to block the index. At the same time, arranging incentives for investors in the system by communicating with various quarters of the government.
Abu Ahmed, a former professor of economics department of Dhaka University, told Jago News that it is not right to interfere in the market in this way. The market would go to one place and settle down. The previous rules are kept in case of increase in price, but cannot be reduced in case of decrease, this is another wrong decision as before.
He said, why is the BSEC so worried about the index? They should look at the irregularities in the market. At the same time, sit down with the Ministry of Finance and the National Board of Revenue to arrange whether some incentives can be given to investors in the system. Efforts should be made for this.
Professor Abu Ahmed also said that the regulation of circuit breakers in terms of price reduction will not benefit the market. It will hurt. Free demand-supply will create constraints in the market. After so much criticism, the floor raised the price, then went in that direction again. Reading cannot be forced. What will be read will be read.
BSEC’s former chairman Farooq Ahmed Siddiqui told Jago News that there is a kind of panic in the market. In this situation, in case of reduction in price for a temporary period, the rule of reduction of up to 3 percent can be given. There is no problem in giving it for 4-5 days. But it’s a problem if it continues week after week.
Before this, BSEC imposed a floor price on shares several times in the last four years without being able to stop the continuous fall in the stock market. The floor price was first imposed in March 2020 but was withdrawn in July 2021.
Then BSEC imposed floor price again in July 2022 due to Russia-Ukraine war. At this stage, if the share trading is greatly reduced, the regulatory body will be criticized. Recently, when there was a storm of criticism about the floor price, the floor price was removed from almost all the institutions.
In the third round, BSEC has lifted the floor price from three more companies. Similarly, it has been decided when the floor price of three more institutions will be lifted.
In the first round, on January 18, BSEC lifted the floor price from all the remaining companies, keeping 35. After 2 working days, on January 22, the floor price was removed from 23, leaving 12 out of those 35. After that the floor price was lifted from some other institutions.
After the floor price was lifted, the stock market fell sharply. However, the market turned around within a few working days. The controversial decision about Z Group was made just as the market was coming out of a slump. Which leads the stock market to fall again.
On February 15, the regulatory body BSEC issued a directive on the basis of which the listed companies will go to the Z group. The last point of the directive states that the directive will come into effect from the date of next dividend declaration or annual/interim dividend declaration of the issuer company.
Despite such instructions from the regulatory body, 22 companies were suddenly transferred from the Dhaka Stock Exchange (DSE) to the Z Group on February 18. Then comes the announcement that no more companies will be taken into the Z group. But later some other companies were taken to Z Group. In this way, after some companies were taken to the Z group, the stock market fell in price.
The recent rise in bank interest rates and the Iran-Israel issue accelerated the stock market decline. In such a situation, the new rule of circuit breaker was introduced so that the share price does not fall again.
MAS/KSR/GKS
