FE Report (January 20, 2011)
The securities regulator Wednesday imposed a circuit breaker on the DSE general index (DGEN) for the first time in an effort to rein in volatile trading at the country's premier capital market.
Under the latest Securities and Exchange Commission decision, trading at the DSE will come to an automatic halt for the whole session if the DGEN - the main market barometer -- gains or loses 225 points.
The move backfired on the first day of its introduction as trading of Dhaka shares ground to an automatic halt just 86 minutes after share transaction begun in a truncated session.
"The SEC has taken the decision at the meeting of its market monitoring committee," its executive director Anwarul Kabir Bhuiyan said at a press briefing in the city. "It will remain in action until further order."
The SEC said trading at the smaller Chittagong Stock Exchange (CSE) will also be suspended automatically for the day when DSE stops its trading.
Officials said the move aimed at "curbing volatility and the tackling abnormal ups and downs" in the plunging market and bring confidence back among millions of investors
The market, however, lost for the fifth day Wednesday, shedding nearly 800 points or more than 11 per cent. The fall sent thousands of investors on to the streets as they clashed with police to vent their anger.
"We imposed the circuit breaker to put a brake on volatile behaviour of the trading. We hope it will bring sanity back into the market," another SEC official said, adding the move was taken as a "desperate" attempt to restore order.
Officials said the DGEN could dive deeper or gain further than the circuit breaker i.e. 225 points after adjustments of the day's trading. On Wednesday, the DGEN fell as much as 237 when the circuit breaker comes into effect.
According to the SEC calculation, the lower limit of the circuit breaker is 225 points. And the upper limit can go as high as 249, depending on the adjustments.
Normally, the DSE adjusts its indices after every five minutes. If the DGEN stands at 224 points and hits the circuit breaker moments later, the benchmark index can go as high as 237 points when the next adjustment is made.
Officials said the circuit breaker was introduced after consultations with the Finance Minister AMA Muhith, who flew back to the country Tuesday night, after a visit to London.
SEC Chairman Ziaul Haque Khondker, its member Muhammad Yasin Ali and the Bangladesh Bank governor, Atiur Rahman attended the meeting held at the residence of Finance Minister.
Experts slammed the imposition of the circuit breaker, saying the move will create more volatility in the market.
"It is not a permanent solution. It can create panic in the market. Every time the circuit breaker halts trading, it can send more protesters on to the streets," ex-DSE chief executive Salauddin Ahmed Khan said.
"The SEC should have addressed the main problems of the market first before adopting this measure," he said, adding the market has been on a free-fall because "the banks' hands are tied up and they are not buying anything."
The securities regulator Wednesday imposed a circuit breaker on the DSE general index (DGEN) for the first time in an effort to rein in volatile trading at the country's premier capital market.
Under the latest Securities and Exchange Commission decision, trading at the DSE will come to an automatic halt for the whole session if the DGEN - the main market barometer -- gains or loses 225 points.
The move backfired on the first day of its introduction as trading of Dhaka shares ground to an automatic halt just 86 minutes after share transaction begun in a truncated session.
"The SEC has taken the decision at the meeting of its market monitoring committee," its executive director Anwarul Kabir Bhuiyan said at a press briefing in the city. "It will remain in action until further order."
The SEC said trading at the smaller Chittagong Stock Exchange (CSE) will also be suspended automatically for the day when DSE stops its trading.
Officials said the move aimed at "curbing volatility and the tackling abnormal ups and downs" in the plunging market and bring confidence back among millions of investors
The market, however, lost for the fifth day Wednesday, shedding nearly 800 points or more than 11 per cent. The fall sent thousands of investors on to the streets as they clashed with police to vent their anger.
"We imposed the circuit breaker to put a brake on volatile behaviour of the trading. We hope it will bring sanity back into the market," another SEC official said, adding the move was taken as a "desperate" attempt to restore order.
Officials said the DGEN could dive deeper or gain further than the circuit breaker i.e. 225 points after adjustments of the day's trading. On Wednesday, the DGEN fell as much as 237 when the circuit breaker comes into effect.
According to the SEC calculation, the lower limit of the circuit breaker is 225 points. And the upper limit can go as high as 249, depending on the adjustments.
Normally, the DSE adjusts its indices after every five minutes. If the DGEN stands at 224 points and hits the circuit breaker moments later, the benchmark index can go as high as 237 points when the next adjustment is made.
Officials said the circuit breaker was introduced after consultations with the Finance Minister AMA Muhith, who flew back to the country Tuesday night, after a visit to London.
SEC Chairman Ziaul Haque Khondker, its member Muhammad Yasin Ali and the Bangladesh Bank governor, Atiur Rahman attended the meeting held at the residence of Finance Minister.
Experts slammed the imposition of the circuit breaker, saying the move will create more volatility in the market.
"It is not a permanent solution. It can create panic in the market. Every time the circuit breaker halts trading, it can send more protesters on to the streets," ex-DSE chief executive Salauddin Ahmed Khan said.
"The SEC should have addressed the main problems of the market first before adopting this measure," he said, adding the market has been on a free-fall because "the banks' hands are tied up and they are not buying anything."
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