Introduction:

Stock market is one of the most important financial institutions of any economy as well as Bangladesh. It opens door for companies to raise huge amount of capital from a lot of individual investors inside & outside of a country. Hafer and Hein (2007) pointed that growth of new businesses or our economy would not be possible without availability of stocks and development of financial markets. Here investors participate voluntary to buy ownership of a company in the public market. It is said that stock market is an intermediary institution to adjust a gap between surplus units and deficit units of an economy. In these days for millions of middle class educated people in Bangladesh investing in stocks is more popular than investing in any other investment sectors. For an investor, stocks are more liquid than any other investment sources as it gives ability to sell and buy ownership anytime without any hassle. DSE is the largest stock in Bangladesh.

An overview of Dhaka stock exchange:

There are 238 members and total 507 listed securities in Dhaka Stock Exchange. The working days of DSE is 5 days in a week without Saturday, Sunday public holidays & other government holidays. The trading time is from 11:00 am to 15:00 pm (local time). Investment options for an investor in this market are ordinary share, Debenture, Bond & Mutual funds. As mentioned by Fellowes (2008), Every stock market has its indices to show move -ments in the market as a whole. In the beginning DSE had only one index. However, now there are three different indices which are DSI (All share), DGEN (A, B, G & N) and DSE 20.

Scope and methodology:

We mainly collect data from the secondary data sources. Relevant data and information were collected from DSE Web site, annual reports of Dhaka Stock Exchange, Dhaka stock exchange library, and different theories written by scholars, economists and writers, Text books, investigation report, Journals, Wikipedia newspaper, literature review in this context, indices data and electronic sources. For evaluating the DSE performance, five years data has been collected from DSE Web site and DSE library.

Objectives of the study:

1. 2. 3. 4.

To present an overview of Dhaka stock exchange To appraise the performance of Dhaka stock exchange To identify the problems of Dhaka stock exchange To suggest suggestions for the development of Dhaka stock exchange

Limitations:

We faced lots of problem to complete this term paper. Collecting information from DSE library is very much tough, not only that we spent most of our time to prepare this term paper so that, it looks better and also error free. The employees of the DSE Library were not very friendly to give information. Some of their information really puzzled us. As it is our part of courses, sometimes we may fail to collect adequate data but we tried our best to complete the term paper very carefully. We had time limit. Yet we hope and believe that we have succeeded in making standard term paper.

Appraisal of Dhaka stock exchange Historical background

The Dhaka Stock Exchange was incorporated in 1954, and formal trading began in 1956. Originally, the exchange was called the East Pakistan Stock Exchange Association Ltd, and in 1962 the name was revised to East Pakistan Stock Exchange Ltd. Two years later, on Feb. 22, 1964, the name was changed to current day Dhaka Stock Exchange Ltd. The Dhaka Stock Exchange is registered as a Public Limited Company and is regulated by the Bangladesh Securities and Exchange Ordinance of 1969, the Companies Act of 1994 and the Securities and Exchange Commission Act of 1993. In the beginning DSE was a physical stock exchange and used to trade in the open out-cry system. After that to secure smooth, timeliness & effective operation on the market, DSE uses automated trading system. The system was installed on 10th August, 1998 and was upgraded time to time. The latest upgrading was done on 21st December, 2008. 15 Trading on the Dhaka Stock Exchange is conducted in four sessions: enquiry - brokers can log on to the system but no orders can be submitted; opening - all buy and sell orders are compared to calculate the open-adjusted price (no trades are executed during this session); continuous trading - orders are submitted for immediate execution; and enquiry - the market is closed and closing prices are calculated and published.

Functions of Dhaka stock exchange:

Dhaka Stock Exchange is the first & biggest stock exchange of Bangladesh. It plays an important rule to improvement our capital market and Economy. The major functions are: Listing of Companies (As per Listing Regulations). Providing the screen based automated trading of listed Securities. Settlement of trading (As per Settlement of Transaction Regulations). Gifting of share / granting approval to the transaction/transfer of share outside the trading system of the exchange (As per Listing Regulations 42). Market Administration & Control. Market Surveillance. Publication of Monthly Review. Monitoring the activities of listed companies (As per Listing Regulations). Investors grievance Cell (Disposal of complaint by laws 1997). Investors Protection Fund (As per investor protection fund Regulations 1999). Announcement of Price sensitive or other information about listed companies through online.

Performance evaluation of Dhaka stock exchange:

No. of Listed securities in DSE

Year No of Securities Growth 2007 350 10.69% 17.71% 2008 412 2009 415 0.73% 7.23% 2010 445 2011 501 12.58% During 2007 to 2011, every year listed securities increase in dse. The highest growth is in 2008. In 2009, the growth rate was lower than other years. If we see that in 2011, the growth is almost double from 2010. It indicates that more and more companies enlisted in the DSE.

Trading Volume

Year 2007 2008 2009 2010 2011

Trading volume (In No.) 2831.23 4605.38 7973.08 16974.52 16967.15

Growth % 58.96% 62.66% 73.13% 112.90% -0.04%

Above table of trading volume reflects that trading volume increased every year gradually but in 2011 to is drastically reduced by -0.04%. There is reason behind this reduced. Recent share market crash is one of the reason for this reduced. People loose their faith on share market as a result the number of trading volume drastically reduced in 2011. Year 2007 2008 2009 2010 2011
Trading volume(in value)(TK mn)

growth 101.68% 106.89% 120.87% 171.80% 61.07%

322867.07 667964.82 1475300.88 4009912.67 1560912.09

Above table shows that trading volume in million taka increased every year.it exceptionally increased in 2010.but in 2011, it decreased from previous years. The rate increased in 2007 to 2010 indicates that people invest more and more money in the stock market. It also indicates that the growth of dse increased except in 2011.

Market capitalization:

Year

Market Capitalization(in TK mn) 742195.87 1043799 1903228.1 3508005.8 2616730.54

% of Annual Growth

2007 2008 2009 2010 2011

135.28% 40.64% 82.34% 84.32% -25.41%

During 2007 the market capitalization exceptionally increased. After 2007, the market capitalization gradually decreased from 2008 to 2010 and in 2011 it drastically reduced by 25.41%.evecn though growth rate fluctuate from 2008 to 2010 which is 40.64%, 82.34%, 84.32%. It exceptionally reduced in 2011.

All share price index (DSI): Year 2007 2008 2009 2010 2011 All share price index (DSI) 3017.21 2309.35 3747.53 6877.66 4383.94 Growth % 128.33% -23.46% 62.27% 83.52% -36.25%

Above table shows that all share price index (DSI) exceptionally increased from 2006 to 2007.it increases by 128.33%.but in the year of 2008 it drastically reduced by 23.46%.it

happens because of share market crash. Although it recovers in 2009 by 62.27% but it is not much compare to previous year increment. Year General Index 3017.21
2795.34 4535.53 8290.41 5257.61

Growth %

2007
2008 2009 2010 2011

87.46%
-7.35% 62.25% 82.78% -36.58%

Above table shows that DSE general index increased much more higher from 2006 to 2007. Because of share market crash in 2008 DSE general index drastically reduced.it increases from 2009 to 2010 by 62.25% and 82.78%. again it drastically decreased in 2011.

Year 2007 2008 2009 2010 2011

DSE 20 Index 2485.87 2328.71 2613.49 5204.98 3910.33

Growth % 76.76% -6.32% 12.22% 99.15% -24.87%

From above table we can see that DSE 20 index increased from 2006 to 2007 by 76.76%.but it is started to fall in 2008 by 6.32%.although it increased in 2009 by 12.22%, it increased much more in 2010 by 99.15%. Again it drastically decreased by 24.87% in 2011.
Year 2007 2008 2009 2010 2011 Market PE ratio 17.28 22.80 18.44 24.08 16.55 Growth % 25.48% 31.94% -19.12% 30.58% -31.27%

Above table shows that price earning ration increased by 25.48% in 2006.it also gradually increase by 31.94% in2008. But in 2009 it exceptionally reduced by 19.12%.it again increased in 2010 though it decreased by 31.27% in 2011.

year 2007

Category of share A B Z N

Number of share

growth

2008

2009

2010

2011

Problems of Dhaka stock exchange:

i. A scrutiny reveals that - most of the investors are not educated enough concerning the pattern of market; meaning investors lack the knowledge to verify quality shares based on fundamentals and consequently carrying the transaction or trading based on speculation or rumor only. The market practice suggests flow of information is not asymmetric to all the investors at a time resulting into an advantage to a group of investors acquiring the information early ahead to make an abnormal profit. Another issue is the inequality between demand and supply of shares in the market. Lack of quality shares instigates instability in the market. Religious sentiment forces some not to keep their money in the bank as they believe interest rate to be forbidden in Islam. And for this, they invest in stock market sometimes in poor quality shares mostly which again increases the demand against the supply of quality shares resulting into abnormal increase in price. Further the approval of 0% income tax on Capital Gain encourages investors to invest in the market which increases the demand where as the supply remains the same. Disclosure is the publication of information about a company. Disclosure of information contributes to broader and deeper understanding of a companys achievement, problems and opportunities and potentials. But most of the enlisted company could not published full disclosure of information. There is no prescribed for preparation of profit and loss account under the companies Act in the country. As a result, there is much scope for hiding diversity in practice and much scope for hiding full disclosure. Companies in the country tend to disclosure less information. Sometimes even ambiguous information relating to accounting policies, description, assumption, measurement and valuation bases.

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Development of Dhaka stock exchange:

The authority has introduced several awareness campaigns to enlighten the investors which was also helpful for improving the market efficiency as the investors become capable of making sensible decision and started relying less on speculation and rumor amid more on market information and financial analysis. Finally a significant number of quality shares have been introduced in the market over last couple of years which diversified the investment portfolio. As a result pressure on a specific

group of quality shares decreased which helped in the process of equitable of the market. Since DSE is not efficient even its weak form. Therefore a need exists to take proper actions to improve the efficiency of the market. It is important to ensure asymmetric information among all the investors. In addition to the existing awareness creation policy it is important to improve it on continuous basis to enlighten the investors about market structure, trading pattern, financial solvency and financial analysis of the enlisted companies. Proper implications of the rules of regulatory commission is also needed to be ensured so that there will not be any scope to violate the market structure to gain abnormal profit.it is also important so that the regulatory commission enforce policies to ensure improved quality of enlisted shares in addition to the initiative to encourage new companies to be enlisted in the stock market. Finally to make the market more efficient it is expected that the authority of the market would introduce sophisticated means of investment and tools in the near future.