A Report On Microstructure of Dhaka Stock Exchange

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A Report

On

Microstructure of Dhaka Stock Exchange

 

History & Background

The necessity of establishing a stock exchange in the then East Pakistan was first decided by the Government when, early in 1952. It was learnt that the Calcutta stock exchange had prohibited the transactions in Pakistani shares and securities. The provincial industrial advisory council soon thereafter set up an organizing committee for the formation of a stock exchange in East Pakistan. A decisive step was taken the second meeting of the organizing committee held on The 13th March, 1953. In the cabinet room, eden building, under the chairmanship of Mr. A. Khaleeli, Secretary Government of East Bengal, Commerce, Labor and Industries department at which various aspects af the issue were discussed in detail. Then, Central Governments proposal regarding the Karachi Stock Exchange Opened a Branch at Dhaka, did not find favor with the meeting who felt that East Pakistan should have an independent stock exchange.

It was suggested that Dhaka Narayanganj chamber of commerce & industry should approach its members for purchase of membership cards at RS.2000 each for the proposed stock exchange. The location of the exchange it was thought should be either Dhaka Narayanganj or Chittagong. An organizing committee was appointed consisting of leading Commercial and industrial personalities of the province with Mr. Mehdi Ispahani as the convener in order to organize the exchange.

The chamber informed its members and members of its affiliated associations of the proceedings of the above meeting, requesting them to intimate whether they were interested in joining the proposed stock exchange. This was followed by a meeting, At the chamber of about 100 persons interested in the formation of the exchange on 07.07.1953. The meeting invited 8 gentlemen to become promoters of the exchange With Mr. M Mehdi Ispahani as the convener and authorized them to draw up the Memorandum and article of association of the exchange and proceed to obtain register under the companies Act.1913. The other 7 promoters of the exchange Were Mr. J M Addison-Scott, Mr. Mohammed Hanif, Mr. A C Jain, Mr. A K Khan, Mr. M Shabbir Ahmed and Mr. Sakhawat Hossin.

It was also decided that membership fee was to be Rs.2000 and subscription rate at 15 per month. The exchange was to consist of not more than 150 members. A meeting of the promoters was held at the chamber on 03.09.1953 when it was decided to appoint Orr dignam & Co., solicitors to draw up the memorandum and articles of association of the stock exchange based on the rules of stock exchange existing in other countries and taking into account local conditions.

The 8 promoters incorporated the formation as the East Pakistan stock exchange association Ltd. on 28.04.1954. As public company on 23.06.1962 the name aws revised To East Pakistan stock exchange ltd. Again on 14.05.1964 then name of East Pakistan Stock Exchange Limited was changed to “Dhaka Stock Exchange Ltd.”

At the time of incorporation the authorized capital of the exchange was Rs. 300000 divided into 150 Shares. Of Rs. 2000 each and by an extra ordinary general meeting adopted at the extra ordinary general meeting held on 22.02.1964 the authorized capital of the exchange was increased to Tk. 500000 divided into 250 shares of Tk. 2000 each. The paid up capital of the exchange now stood at Tk.390000 dividend into 195 shares of Tk. 2000 each. Although incorporated in 1954, the formal trading was started in 1956 at Narayanganj after obtaining the certificates of commencement of business. But in 1958 it was shifted to Dhaka and started functioning at the Narayangonj chamber building in Motijheel C/A. On 1.10.1957 the stock exchange purchase a land measuring 8.75 Kattah at 9F Motijheel C/A from the Government and shifted the stock Exchange to its own location in 1959.

THE ISSUE IN BRIEF

We want to accomplish the report for this purpose:

To know the working process of DSE

To know the transaction procedure of DSE

To know how to invest in DSE

To know about the participants of DSE

To know how to be a member of DSE

To know about Central Depository Bangladesh Limited (CDBL)

To know about brokers’ execution in DSE

To know about the scope of foreign investments

Overall we have tried to explore how an investor can invest and execute the transactions in DSE.

we can see DSE is very organized and well managed organization though it has some limitations. DSE has been upgrading its system day by day. In this flow, automation has been included and TESA is being used in the transaction process of DSE. Though DSE is becoming a more competent and strong financial institution with the flow of international economy, some internationally recognized procedures yet to be introduced in DSE. We hope that the modernization of the DSE will be continued and it will continue its contribution to the economy.

EXPECTED OUTCOME:

By accomplishing the report we can :

know the working process of DSE

know the transaction procedure of DSE

know how to invest in DSE

know about the participants of DSE

know how to be a member of DSE

know about Central Depository Bangladesh Limited (CDBL)

know about brokers’ execution in DSE

know about the scope of foreign investments

JUSTIFICATION OF THE OUTCOME:

DSE is very organized and well managed organization though it has some limitations. DSE has been upgrading its system day by day. In this flow, automation has been included and TESA is being used in the transaction process of DSE. Though DSE is becoming a more competent and strong financial institution with the flow of international economy, some internationally recognized procedures yet to be introduced in DSE. We hope that the modernization of the DSE will be continued and it will continue its contribution to the economy.

METHODOLOGY:

A) Variables identified in time with the objectives

Performance of DSE:

Listed issues

Issued capital and debenture

Market capitalization

Turnover of listed securities:

Total security issue and daily transaction

IPO&

Over subscriptions times

B) Analytical tools:

C) Expected parameter

D) Source and nature of data

-Data’s are collected from DSE annual report and internet

STRUCTURE/BODY of THE REPORT

Legal control of DSE:

The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its activities are regulated by its Articles of Association rules & regulations and bye-laws along with the Securities and Exchange Ordinance, 1969, Companies Act 1994 & Securities & Exchange Commission Act, 1993.

Function of DSE:

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 bye laws 1997).

-Investors Protection Fund (As per investor protection fund Regulations 1999)

-Announcement of Price sensitive or other information about listed companies throughonline.

Listed security: There are 304 listed securities in the DSE. They are categories as follows.

Banking industries (34), cement (8), ceramic (4), engineering (22), food & allied (37), fuel & power (7), insurance (31), investment (14), information &technology (7), jute (4), paper & printing (8), pharmaceuticals & chemicals (25), services & real estate (5), tannery (8), textile (39), Miscellaneous (13), debenture (8), treasury bond (28).

The whole list has been given in the appendix.

DSE AUTOMATION

Globally the developments in information & communication technologies (ICT) have created a new instance in the securities market operations. Stock Exchanges all over the world have realized the potentiality of ICT and inclined electronic trading systems. It was understood by DSE that technology would ensure transparency, timeliness and satisfaction in customer service. Considering these DSE has introduced Automated Trading System on 10th August 1998, brought the trading floor close to the investors. In other words, the trading floor has moved right into the member’s office premises where an investor can place buy/sell orders. After Automation more desired efficiency and transparency have come in trading and settlement operations of the Exchange. Several parts of automation are discussed below.

a. Hardware: DSE Automated Trading System is running on fault tolerant, high available, scalable and maintainable Mainframe Server. DSE established the TANDEM Nonstop K204 System on September 1998 and on August 2005 it was replaced with highly scaleable HP NONSTOP S7802 Server that is also fault tolerant to the fact that no single component failure will halt the system. Its constituent parts are hot swappable and upward compatible; components can be added or removed while the system is running and any compatible new upgraded will work with the system. All disk drives are mirrored so, if any of the disk crashes the exact copy of the data is available on-line. Moreover the connecting path for every disk whether it is primary or mirror is also redundant. In every cases minimum two peripherals exists. All the components are working active load balancing in the system. To ensure better power quality UPS’s and two instant backup generations are installed.

b. Network (LAN/ WAN): Here all the Member’s (230 members) Server Application (MSA) are connected with Nonstop HP S-Series Server through DSE LAN and WAN connectivity and member’s Trader Workstation (TWS) are connected with MSA through LAN and WAN connection. It is well known that under WAN expansion project recently the ICT division of DSE has given permission to the three well reputed ISP vendors (Metro Net, DNS, X-Net), by which members can establish a main office or branch office to their remote location and can trade smoothly by using different media ADSL, Optical fiber, Radio Link and V-Sat within Dhaka City and outside of Dhaka city such as Gazipur, Narayanganj, Comilla, Hobiganj, Chittagong, Sylhet, Khulna, Barisal, Rajshahi, Bogra at the same time.

DSE LAN/WAN Expansion within Dhaka City:

DSE LAN/WAN Expansion Outside of Dhaka City:

In case of trade interruption due to serious hardware, software, network failure or telecommunication disruption at the Brokerage houses, there is a provision to allow traders to trade at DSE Contingency trading floor.

c. System software:

The system software is HP Proprietary NONSTOP KERNEL and includes the database as part of the operating system thereby eliminating the layer typically found in most Database Management Systems (DBMS). The Database functionalities are handled by NONSTOP SQL, which is simply a different operational session for the operating system. The proprietary nature of the system software arguably enhances system security.

Operating system is HP’s proprietary Nonstop Kernel DBMS handled by Nonstop SQL.

The system software treats all its hardware resources as objects and is thus entirely message driven. This then allows application software to be deployed using client / server architecture providing shared data processing between the central server and the user workstation. The central trading system resides in the Stock Exchange premises, which is running 24 hrs in a day & 365 days in a year.

d. Application software:

The application, which runs in DSE for trading, is called TESA (The Electronic Securities Architecture). TESA has two parts: MSA (Member’s Server Application) & TWS (Trader workstation). MSA is the “Gateway” between the traders and the Stock Exchange, which manages all the transactions and database operations between the traders and the Trading Engine. TWS is the Front-end Application closer to investors, where they can submit Buy/Sell orders for their desired securities.

TESA (The Electronics Securities Architecture) is the Trading software (Based on HP proprietary/S&DBMS). It has developed in view of Distributed Database system In the client site it is being using SQL as local Database Trading Software is MSA & TWS

In STSD (Signal trader Single Database) system both MSA & TWS are running on a Windows 2k Professional /XP Professional workstation and for MTSD (Multiple trader Single Database) MSA install in a Windows 2k Server & the TWSs are in different Windows 2k Professional /XP Professional workstation-using members in house LAN.

e. TESA architecture:

TESA software is built for the global securities markets. It uses fault tolerant computers, intelligent workstations and client / server design techniques. This provides co-operative processing, high message integrity, continuous operation and fully automatic recovery. This co-operative mechanism enables very high speed processing which is essential for today’s electronic markets. TESA’s Application Programmatic Interface (API) is the gateway to the TESA system from the outside world. All external devices connect through the API. The API provides the translation between external devices and internal processes. This means that a new process does not need to be written to support each new device, only the API needs to be modified.

f. Solution benefits:

The TESA application suite derives significant advantages from being implemented on the HP Nonstop platform. The HP Nonstop customers have benefited from these advantages.

Fault Tolerance: One of the most important automation requirements for any stock exchange system is continuous system availability. With most systems Fault Tolerance is created at the application level. Fault Tolerance is a fundamental design feature of the HP Nonstop architecture.

Data Integrity: Data integrity is an integral feature of HP architecture. TESA employs standard HP tools to achieve exceptional data integrity.

Scalability: The ability of an exchange to accommodate extraordinary increases in transaction volumes without loss of its Capital investment in automation is very important. The HP Nonstop Server is massively scalable due to Parallel processors.

g. TESA’s principal trading functions:

Market Information: Supplying all market information is needed to formulate the buy and sell decisions.

Order Management: Accept, validate and store orders and quotes from broker workstations and / or systems.

Order Execution: Automatically executes orders when buy and sell prices match.

Trade Reporting: Trade execution reports are provided to each trade participant, to the settlement system and / or the depository and to the market.

Index calculation: Calculates and publishes market indices (DSE General Index & Weighted Average Index.)

Market Access: Provide exchange members with efficient affordable GUI-based tools for accessing the market

h. market control:

The Market Control Workstation allows the exchange administrative staff to control the operation of the market, e.g.

Session Control: Opening and closing the market via interactive control or by preset timers.

Validation Parameters: Setting and viewing parameters that control the trading engine validation e.g. tick size, Circuit Breaker, Circuit Filter, Market lot, Price protection Percentage.

Messaging: Allows the dissemination of company announcement data and general market administrative massages.

i. Market information:

Market Information is a real-time market data system. It collects, manages, generates and stores information relating to trade instruments and issuing companies. Market Information is responsible for,

Collecting Real-Time Market Information: Bids, offers, last sale (i.e. most recent trade price and volume), book and other data are gathered via the trading engine. It supports TESA’s automated and manual trading modules and can process the trades of external and off-market systems.

Collecting company Information: All information supplied by the listed companies is maintained in the TESA database.

Generating Market Statistics: TESA generates market indices on a real time basis. It generates other statistical information such as Price.

j. Broker support (Research and Enquiry): This module provides brokers access to the local Broker Support and TESA databases for enquiries and research purposes. The multi-windows environment allows users to simultaneously view orders, market and trades. Broker Support offers Stock Exchange members two configurations; standalone and multi-user. Both configurations maintain a database consisting of information generated by the TESA Server and the local system.

Trading sessions:

There was five trading sessions in the DSE but with the introduction of automation in DSE two sessions have been introduced as enquiry in the both side of opening and ending and it becomes seven trading sessions. The functions of each trading session are followings:

(a) Enquiry: In this session Brokers can logon to the system. No order will be submitted in this session. No trade will be executed. Only previous orders can be withdrawn in this session

(b) Pre-opening session :- This is the session during which members are allowed only to enter orders and indicate their willingness for buying and selling of various securities. Orders made during this session are held in the system and not forwarded to the execution engine. The previous days closing price and index of different securities shall be made available in this session to the members for trading.

(b) Opening session: – The opening price of securities are calculated in this session. The calculation is made on the basis of orders entered in the system during the Pre-opening session. The opening price of securities is established in this session. Where there is no trading of securities, the last closing price of that security shall be its opening price. No entry order shall be allowed or permitted in this session.

(c) Continuous or Regular trading session: Entry of orders, deletion and modification of orders can be made in this session. Orders are executed in this session and where any order or part of any order is not or can not be executed, such order or part thereof will be stored separately to be carried forward in the next following such session.

(d) Closing session: – During this session the system stops receiving orders. The closing price for a security shall be determined as per the weighted average price of all the trades in the last 30 (thirty) minutes before the closing session. If there is no trade during the above specified time, the weighted average price of maximum 20 (twenty) number of trades preceding the above 30 (thirty) minutes shall be taken for determination of closing price. If there has been no trade in the security during the continuous trading session the opening price of the security shall be treated as the closing price. Pending orders executable at closing price and orders ‘match at closing price’ are executed in this session. All other pending orders are carried forward to the Post-closing Session.

(e) Post-closing session:- This session allows traders to execute their remaining orders and the fresh orders entered during this session. However, the trading engine accepts orders at closing price only during this session. All trades are executed at the closing price. No quotes are accepted during this session

(g)Enquiry: Market will be closed in this session & other facilities like the previous enquiry session

Order:

In order to invest in a stock market, it is necessary for an investor to know about different types of order and rules & regulations regarding order placement, withdrawal & modification etc. These are discussed below.

.Type of orders: According to the regulation of the DSE, orders may be grouped or categorized based on the following, namely:-

(a) Price

(b) Volume and

(c) Validity.

Based on price, orders may be of the following categories, namely:-

Limit order – Limit order must have a price limit which ensures that the order shall be traded at the price equal to or better than the limit price.

Market order – Market order is the order to be executed at the touchline price. A market order is matched immediately on arrival in to the trading engine at the touchline price. To avoid the possibility of the market order being matched at ridiculous rate, this is protected by a price protection percentage as determined by the Council. If there is no touchline price then the market order shall be rejected.

.Most of the transactions in DSE is executed in market order but some transactions are sill executed in limit order.

Based on volume, orders may be of the following categories, namely:-

Partial fill – A partial fill (PF) order signifies that as much possible of the order quantity shall be executed as soon as the order is submitted to the trading engine. If the order is not fully executed the remaining order quantity shall be stored which shall be visible to the market.

Partial fill and kill – A partial fill and kill (PFAK) order signifies that as much as possible of the order quantity shall be executed as soon as the order is submitted and the remaining order quantity shall be returned to the trader who entered the order.

Full fill or kill – A full-fill or kill (FOK) order signifies that either all of the orders quantity shall be executed as soon as the order is submitted to the trading engine or the entire order shall be rejected and returned to the trader.

Based on validity, orders may be of the following categories, namely:

Good till day – By default, all orders shall be valid till the end of the current trading day.

Good till date – The trader can specify the date till which the order should remain active

in the market. The order validity date can be a date which is up to a maximum of thirty days from the current trading day.

Drip order: It is a technique used by some brokerage firms to stabilize the price of securities. A member (broker) who receives a buy order of a large number of securities may use drip order system. In that case the broker shows the total number of securities he wants to buy in his member broker order book, but does not show in public order book. As a result, the price will not go up. For example, a broker receives a buy order of 1lakh securities of a company; in that case the broker shows the total number of securities in broker order book but shows only small number (such as 100 or 1000) in the public order book.

Stop-loss orders-here the investor place a limit on the selling price which is below the current market price. If the price drops to the specified level then the stop-loss order becomes the market order. The order won’t be executed unless the price drops to that level.This is not formally established in the DSE. Placement of this kind of orders depends on the relationship between the brokerage firms and investors.

Stop-buy order means placing a purchase price above the market price, when the price rises to that level then it becomes the market order otherwise not. This is also not formally established in the DSE. Placement of this kind of orders also depends on the relationship between the brokerage firms and investors.

Matching of orders:

– All orders with price equal to or better than the opening price will match automatically.

– Orders which are at the most favourable price, that is, at the lowest selling or highest buying price, shall be executed first. If two or more orders are listed in the order book at the same price, the oldest order shall be executed first.

Queue priority:

– Orders that cannot immediately be executed shall be queued for future execution in a specific order of priority mainly based on price and time of entry.

– In case an order is executed partly, the remaining part of such order shall not lose its priority.

– The queue priority shall be determined by the system through an interactive process and the order of priority displayed by the system of conclusive.

Disclosed and Undisclosed volume:

– An order may specify the total and lesser volume of securities for disclosure to the market. The disclosed volume shall not exceed the total volume.

– Total and disclosed volume of an order must be of a market lot.

– An increase in disclosed volume shall change in the queue priority but a decrease in disclosed volume shall not change in queue priority.

Order modification:

Orders submitted to the system can be modified anytime before execution. Only the price, quantity and validity date of an order active in the system can be modified. Modification of price and quantity results in requeuing the order. If only the validity date is modified then the order’s position in the queue shall not be disturbed.

Order withdrawal:

The trader can withdraw his orders anytime before execution.

Trade confirmation:

For every successful match, a trade with a unique contract number is created and the counter parties to the trade are notified by means of a trade confirmation. The security, the trade quantity, the howla type and price at which the trade occurred shall broadcast to all trading workstations which can be seen on the market ticker. The trade confirmation shall be seen on the trade ticker on the trading workstations of both the counter parties to the trade. The traders can view the trade details in the trade view and also have it printed.

Crossing report:

Crossings are traders in which the buy side member is the same as the sell side member. A situation may arise in a member where one of the customers of the member wants to buy a quantity of a certain security and at the same time another customer of the member wants to sell a certain quantity of the same security. In such cases, the member can use the crossing reporting facility to match the two orders and report the trade to the DSE. The price of execution for cross deal is the touchline price of buy or sells side in the public order book based on the demand and supply situation.

If the total buy quantity (i.e. demand) is greater than the total sell quantity (i.e. supply) then the buy side touchline price shall be taken as the price at which the crossing is transacted and if the total buy quantity (i.e. demand) is less than the total sell quantity (i.e. supply) then the sell side touchline price is taken as the price at which the crossing is transacted. These trades shall be executed through the system as part of normal trading activities which shall be excluded from calculating index, opening, closing or average price of the concerned security.

Order Book:

There are two types of order books used in DSE. First one public order book and the other is broker order book.

Public order book is decorated by DSE and its form, structure and style are fixed by DSE. At first a broker places an order from his broker order book to public order book. Then DSE inquiries the order, if it decides to accept the order, DSE allows the order to be placed in the public order book.

A specimen copy of Public order book is followed.

Broker order book is used by brokerage firms. When a broker receives order from an investor, the order is shown in the broker order book. This book is internally used by only brokerage firms. Its shape and style and structure are also decorated by brokers. It is not publicly accessible.

A specimen copy of broker order book is followed.

Members:

In placing an order of stock market transaction, brokerage firms (members) are inevitable. They serve as financial intermediaries among buyers and sellers in the secondary market. In most of the established stock exchanges in the globe like New York Stock Exchange (NYSE), National association of Automated Quotation (NASDAQ), there is various types of brokers exist such as floor brokers, market makers, specialists etc. but in Dhaka Stock Exchange members are not classified in that way, they are only called broker or dealer. Currently, in DSE there are 230 members exist who are authorized by SEC as a stock broker or dealer. But we are informed that only 207 are active now. Each member is given work station (one or more). By using work station members place order to DSE. There is a recentrequirementthat every member be a limited firm. The members list is given in appendix.

Remuneration of intermediation: We know that brokers charge fee for their intermediation among buyers and sellers in various form. In DSE the form is imposing a rate as commission over buying and selling volume. According to the information provided by the LankaBangla securities the commission rate is usually among .35% to .55%. Simply the commission implies as result of the usual factors such as order cost, inventory cost, risk, competition, volume etc.

Classification of markets:

Four types of market at DSE are followings:

Public Market: In this market instruments are traded in normal volume. – Matching in this market is automatic based on the touchline prices which follow normal settlement procedure

Spot Market: Instruments are traded in normal volumes under corporate action if any. Matching in this market is also automatic, settlement of which follows procedure for spot transactions. The Management Team may put an instrument on compulsory spot to curb volatility in prices of the instrument.

Odd lot Market: Odd lots of all Instruments are trade in this market. Odd lot shares are traded in this market on automatic matching with equal quantity and best price (all or none condition) basis.

Block Market: Instruments are traded in bulk volume. This is the market for bulk selling and buying on automatic matching with equal quantity and best price (all or none condition) basis. Orders entered in this market are immediately flashed on all trading workstations. The minimum amount for a bid of bulk lot for a certain security shall be Tk. 0.5 (point five) million at market price unless otherwise fixed by the Council from time to time with the approval of the SEC.

Classification of Share: Share can be classified into two ways.

on the basis of performance

On the basis of document.

According to the performance of the companies, shares in the DSE are classified as A, B, G or Z group.

Group A: Companies which are regular in holding the current annual general meetings and have declared dividend at the rate of ten percent or more in the last English calendar year are in this A group.

Group B: Companies which are regular in holding the annual general meetings but have failed declare dividend at least at the rate of ten percent in the last English calendar year is in this B category.

Group G: Companies who have not started production before approaching into the market ate in this G group.

Group Z: Companies which have failed to hold the current annual general meetings or have failed to declare any dividend or which are not in operation continuously for more than six months or whose accumulated loss after adjustment of revenue reserve, if any, is negative and exceeded its paid up capital are in this Z group.

According to the basis of documents, shares are divided into materialized form and dematerialized form.

Materialized Securities: Before the launching of CDBL all stock was materialized stock, which were in paper document. Currently 200 securities are in the materialized form that means they are in the form of paper document.

Dematerialized Securities: After the introduction of CDBL, many companies transform their securities into electronic form. These electrronic form of securities are called demat securities. Under the heading of CDBL we will discuss details about dematerialized securities.

Transaction of different categories (clearing & settlement):

The Clearing and Settlement module provides the management of trade from the point of entry into the Settlement Pool trade database until it has been delivered and settled and removed from the Settlement Pool. It consists of three major business processes.

Clearing means participant trade reporting and affirmation, billing, assigning settlement instructions.

Settlement is the process of overseeing that delivery of all instruments to the buyer and payment of all moneys to the seller has occurred before removing the trade from the settlement pool.

In our Clearing and Settlement System, new netting system was being followed from 2nd July 2000. Some of the listed instruments had been placed in non-netting group and others were in netting group. The “day netting” system was continuing for the netting instruments. Non- netting group, which is in compulsory spot market, the transactions are not netted. The transactions are settled by depositing all the shares sold and paying full amount for the shares purchased.

The recent amendment in regulation 4 of the Settlement of Stock Exchange Transactions Regulation 1998 has been given effect time to time. Further new directive was made by SEC dated on 18th March 2003 “Adjusted due position mechanism for settlement of scrip only as provided by regulation 4(1) of settlement of Stock Exchange Transaction Regulations, 1998 shall remain suspended from 19th March 2003 until further order”.

There is a complete picture of the settlement system for all of our 267 Instruments in four groups in the four markets.

A Group: Number of Instruments are 168 (125 + 8D + 11M + 22TB) , Here D for Debentures, M for Mutual funds & TB for Treasury Bonds (Trading in Public Market with trade for trade settlement facility for scrip only through DSE Clearing House on T+1, T+3 basis). “A” and “DA” is marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading Software.

The above cycle is valid for A, B & G category instruments traded in Public, Block & Odd-lot market

B Group: Number of Instruments are 36 (Trading in Public Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). “B” and “DB” is marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

G Group: Number of Instrument is 1 (Trading in Public Market with trade for trade settlement facility through DSE Clearing House on T+1, T+3 basis). “G” and “DG” is marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

Z Group: Number of Instruments are 90 (Trading in Public Market with trade for trade settlement facility through DSE Clearing House on T+4, T+7 basis). “Z” and “DZ” is marked in BASES columns for Non-Demat & Demat instrument respectively in our TESA Trading software.

This cycle is valid only for Z group instruments traded in Public, Block & Odd-lot market

Instruments Of All Groups Traded in Spot Market:

The above cycle is valid for A, B, G & Z category instruments traded in spot market

Remarks: If any instrument declared as Compulsory Spot then Trades of Block and Odd-lot of that Instrument will be settled like Spot Market

SETTLEMENT FOR DIFFERENT CATEGORIES INSTRUMENTS

01) For A group Instruments

Market name Trade for Trade System

(for scrip only)

Settlement & Settlement Period
Public Trade for Trade * T+1 & T+3
Spot Trade for Trade T+0 & T+1
Odd + Block Trade for Trade T+1 & T+3

* * As netting system for shares has withdrawn for A group instrument, member will have to deposit the full shares at the DSE on T+1 after selling the shares, In case of purchasing such shares, the buyer will have to deposit the Balanced (Netted) money at the DSE on T+1.

02) For B group Instruments:

Market name Trade for Trade System Settlement & Settlement Period
Public Trade for Trade ** T+1 & T+3
Odd + Block Trade for Trade T+1 & T+3
Spot (Before

Book-closer)

Trade for Trade T+0 & T+1

** Under the Trade for trade settlement system, member will have to deposit the full money at the DSE on T+1 after purchasing the shares, In case of selling such shares, the seller will have to deposit the full shares at the DSE on T+1.

03) For G group Instruments:

Market name Trade for Trade System Settlement & Settlement Period
Public Trade for Trade ** T+1 & T+3
Odd + Block Trade for Trade T+1 & T+3
Spot (Before Book-closer) Trade for Trade T+0 & T+1

** Under the Trade for trade settlement system, member will have to deposit the full money at the DSE on T+1 after purchasing the shares, In case of selling such shares, the seller will have to deposit the full shares at the DSE on T+1.

04) For Z group Instruments

Market name Trade for Trade System Settlement & Settlement Period
Public Trade for Trade ** T+4 & T+7
Odd + Block Trade for Trade T+4 & T+7
Spot (Before Book-closer) Trade for Trade T+0 & T+1

** Under the Trade for trade settlement system, member will have to deposit the full money at the DSE on T+4 after purchasing the shares, In case of selling such shares, the seller will have to deposit the full shares at the DSE on T+4.

DEMATE SHARE:

All selling shares have to transfer (Pay in) to the clearing account of selling Brokers from concerned BO account within settlement period. Regarding the cash payment the procedure will remain unchanged as mentioned above.

Central Depositor Bangladesh Limited (CDBL) was incorporated as a public limited company on 20th August 2000 to operate and maintain the Central Depository System (CDS) of Electronic Book Entry, recording and maintaining securities accounts and registering transfer of securities; changing the ownership without an physical movement or endorsement of certificates and execution of transfer instruments, as well as various other investor services including facilitation of the secondary market trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank.

A depository is like a bank for shares instead of money. Instead of holding shares in the form of certificates, investors have accounts in the depository and are able to move securities and settle stock exchange transactions by an electronic update of their accounts.

Virtually all established markets have depositories including India, Japan, Malaysia, Pakistan, Sri-Lanka and Thailand, UK and USA. The core service of a depository is the efficient delivery, settlement and transfer of securities through a computerized book entry system.

The need for a depository arose from shortcomings in the present settlement system, resulting in:

Lengthy delays in delivery settlement and transfer of securities;

Tedious procedures for verification of securities and transfer deeds;

Considerable time involved in dispatching cash dividends and bonus shares;

Risk of damaged, lost, forged and duplicate securities;

Serious problems associated with physical custody;

Tedious procedure involved in pledging of physical securities to raise capital.

Central Depository Bangladesh Limited (CDBL), a joint venture company setup by banks, stock exchange, Asian Development Bank and other institutions operates the Central Depository System (CDS) in Bangladesh.

CDBL, by converting physical certificates into electronic form, will eliminate the risks of damaged, lost, forged and duplicate share certificates. The instantaneous delivery through electronic book entry will result in immediate transfer of ownership, which presently can take over a month. CDBL, in the long term, will also reduce the costs of the investing public.

Some important aspects regarding CDBL are followed.

Dematerialization (demat): Dematerialization is a process by which physical certificates are converted into electronic form for credit to the investors account in the depository. Once a security is eligible for holding in CDBL then all stock exchange trades must be settled through the depository. This means that sellers must have securities in the depository (i.e. the securities must have been dematerialized) before the broker can execute the sale order. To dematerialize securities investors should take their share certificates to a participant.

The participant will request the investor to complete a dematerialization request form. The participant will take the documents to the issuer who (if the certificate is valid) will update the register by moving the securities from the certificated portion of the register to the depository portion. The issuer will then confirm the dematerialization to the depository and the depository will credit the securities to the investor’s account. The participant will be able to see the balances in all the accounts that he controls through a computer link with CDBL. Investors do not need to wait until they wish to sell to dematerialize their holdings. Once a security is eligible, investors may open accounts and lodge securities at any time.

Opening an account and Cost: One needs to open an account through a participant unless one wishes to open a Direct Account at CDBL. The cost will depend on which participant you use. The amount the participant will charge you is not fixed by the Law or the Regulations. One can open a joint account but one will need to agree with your participant whether both signatures and only one are required on any instructions affecting the account.

Direct account: CDBL is offering a service to investors who wish to hold their securities in dematerialized form but do not wish to use a stockbroker or a bank to do so. Investors will be asked, by CDBL, to complete an account opening form. They will then be able to dematerialize existing holdings by giving the certificates to CDBL or to their stockbrokers and completing the dematerialization request form. When they wish to sell their securities they should instruct CDBL in writing to transfer the required number of securities to the stockbroker. When they buy they should instruct their stockbroker to transfer the securities to the Director Account on the settlement day. It is not necessary, in this case, to instruct CDBL. CDBL will not handle funds and investors must make arrangements to settle payments directly with their stockbrokers. CDBL will issue statements directly to the account holder on a monthly basis, if there are any movements and on a quarterly basis, if there are no movements.

Buying and selling under CDBL: The introduction of CDBL does not make any difference to the process of buying and selling although it does make a difference to the settlement of such trades. Where investors have a CDBL account through their broker then the act of giving a sell order to the broker also authorizes him to move Sucrets from the account to settle the sale. The broker will move the securities when he enters the order into the market. If the order is executed then the securities are used to settle the sale. If the order is not executed then the broker will move the securities back to the investor’s account. Where investors have a CDBL account through a custodian (who is not a broker) then they must advise their custodian that they have sold as they do for physical securities. However, the securities must be in a CDBL account before they are sold and the broker may wish to check this fact with the custodian before executing the order.

On the settlement date of a bough trade the broker will move securities to the account of the buying investors (provided the investor has paid). Investors may leave the securities in their account (ready for sale when they wish to sell or to avoid the need to hold certificates) or they may request the participant to rematerialize the securities.

Rematerialisation (remat): To rematerialize securities that are in a CDBL account the account holder must instruct the participant through which he holds his account by completing a rematerialisation request form. The participant will instruct CDBL and the securities will then be debited from the account upon confirmation by the issuer. The issuer will transfer the holding from the depository portion of its register to the certificated portion of its register.

The issuer will provide the investor with a share certificate within 30 days of a rematerialisation request.

Broker: All brokers must have access to the system (either directly or indirectly) to settle stock exchange transactions. However, only some brokers, upon obtaining certificate of registration from the SEC, will become full service participants and will be able to manage accounts on behalf of customers Contact CDBL for an up to date list of full service participants. Not only broker but also financial Institutions may become participants to manage the securities they hold. In addition banks, who offer domestic, regional and global custody services, may also become participants. Contact CDBL for an up to date list of custody participants.

Safety: CDBL has to keep satisfied the Securities and Exchange Commission that it has implemented a system that is safe and secure. In addition the Commission has ongoing regulatory responsibility for CDBL. All messages between CDBL and the participants are encrypted and CDBL has a hot standby site so that all data is duplicated. The Law makes CDBL responsible for compensating investors if they suffer loss as a result of the negligent actions of CDBL or its employees.

Voting rights and dividend: The Law requires companies to treat depository account holders as members of the company for all purposes, obviously in voting also. The Law requires companies to treat depository account holders as members of the company for all-purpose. In most cases you will receive your dividend from the company in the same was you do today. However the regulations permit companies to use facilities offered b CDBL to distribute dividends if they wish to do so.

Owners of CDBL: The Depository Regulations, 2000 requires that the sponsors of any depository be a

Financial institution;

Bank;

Stock exchange;

Body corporate established or formed under any law;

Company listed with any stock exchange; or

Other national or international institution specified by the SEC.

Accordingly the stakeholders of CDBL, numbering over 70 institutions are:

Nationalized Commercial Banks;

Provide Commercial Banks;

Foreign Commercial Banks;

Insurance Companies;

Dhaka Stock Exchange;

Chittagong Stock Exchange;

Investment Corporation of Bangladesh;

Listed Companies; and

The Asian Development Bank

This wide spread of ownership demonstrates the support of the financial market in Bangladesh for the development of a Central Depository System (CDS).

Participants of CDBL: The following types of organizations may become CDBL participants:

1. Stock brokers/dealers (members of the Dhaka and Chittagong Stock Exchanges);

2. Banks. 3. Financial institutions. 4. Insurance companies. 5. A statutory organization. 6. Merchant bankers. 7. Asset managers. 8. Custodians and 9. Another capital market intermediary registered with the SEC.

Categories of participants:

Trading Participant

May only settle stock exchange trades and cannot maintain accountson behalf of customers;

Full Service Participant

This is a stock exchange member who may hold shares and operate accounts on behalf of customers;

Custody Participant

May hold shares and operate accounts on behalf of customers but is not a stock exchange member;

Settlement Agent Participant

May settle stock exchange trades on behalf of stock exchange members.

Technology of CDBL: Main Data Centre of CDBL is equipped with HP9000 rp7400 Enterprise Class Servers, HP Sure Store E Disk Array FC60 Controller, HP Sure Store E DLT Library 4/40 Desk side and ancillary equipment.

Disaster Recovery Backup Centre of CDBL is located at Grameen IT Park, Mirpur and equipped with another set of the same equipment as the Main Data Centre.

Data update is every fifteen minutes via radio link using Cisco Aironet 350 devices.

Software application (Versatile Engine for Depository Accounting System) is built on three tier architecture, with Visual Basic as the Front End, TUXEDO as the middle tier transaction manager, and Oracle 8I as the Back End Centralized database.

The list of the different types of participants and securities under CDBL is given on appendix.

Some important rules and regulations:

Market control parameters:

The Council from time to time as it think fit, shall regulate the market control parameters, such as followings-

Tick size: Smallest increment of the currency for specifying the price for an order.

Market lot: Smallest tradeable unit for security except in the odd lot market.

Minimum block size: Minimum quantity allowed for block orders expressed in lots

Maximum block size: Maximum quantity allowed for block orders expressed in lots.

Minimum order size: Minimum quantity for a public order or a spot order expressed in lots.

Closing price minutes: Closing price will be calculated taking into account the trades which occurred during this time before the closing time.

Closing price trades: The number of trades which shall be taken into account for calculating the closing price.

Circuit breaker: The maximum permissible deviation of the price from the circuit breaker base price for that security.

Circuit filter: The maximum permissible deviation of the price of an aggressor order from the last trade price.

Market protection percentage: A fixed percentage of the touchline price to avoid the possibility of market orders being matched, during continuous trading, at ridiculous rate.

Index calculating frequency: Interval at which index shall be calculated.

Provided that the system shall automatically enforce the price limit regulations/orders which shall reject any order beyond the price limit set under the price limit regulations/orders.

A specimen of DSE circuit breaker is followed.

CIRCUIT BREAKER

(Applicable for 17.10.2008)

Trd_code Breaker % Tick Size Base Price Lower Limit Upper Limit
1STBSRS 20.00 0.25 84.25 67.50 101.00
1STICB 10.00 0.25 2760.00 2484.00 3036.00
2NDICB 15.00 0.25 800.00 680.00 920.00
3RDICB 15.67 0.25 478.75 403.75 553.75
4THICB 16.30 0.25 460.25 385.25 535.25
5THICB 17.50 0.25 266.00 219.50 312.50
6THICB

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