BSEC steps in to stop stocks’ free-fall

The Bangladesh Securities and Exchange Commission (BSEC) has lowered the circuit breaker limit to 2% from 10% in a bid to rein in a massive collapse in share prices and thereby curb further losses of investors.

The decision will come into force today as the securities regulator yesterday issued instructions to the Dhaka Stock Exchange and the Chittagong Stock Exchange to this effect.

DSEX, the key index of the Dhaka Stock Exchange, has fallen by 589 points over the past two weeks in the wake of the Russia-Ukraine war. The BSEC has set new circuit breakers to protect ordinary investors from this sudden collapse in share prices.

Besides lowering the circuit breaker limit, the securities regulator has asked the concerned to invest Tk100 crore from the Capital Market Stabilisation Fund to provide liquidity to the stock market. This money has been being invested through the Investment Corporation of Bangladesh (ICB) since Tuesday.

While addressing a press briefing yesterday, BSEC Commissioner Shaikh Shamsuddin Ahmed said ordinary investors are thoughtlessly selling shares out of baseless fear of war and rumours, causing the index to fall.

The commission has stepped in to save investors in such a situation like always, he added.

He also expressed hope that this move by the BSEC would help the stock market index bounce back.

Abu Ahmed, honorary professor at Dhaka University, however, told The Business Standard, this type of intervention does not help in market development because it is unscientific.

"This type of circuit breaker creates obstacles to the demand and supply chain in the market. This will hurt the margin account holders," he maintained, adding forced sales caused by margin loans were responsible for the recent market collapse.

He said the BSEC should reduce investors' reliance on margin loans, create large investors, and ensure quality stock listing.

Earlier, in 2020, the BSEC had fixed the floor price of the stock to prevent a massive fall of the index amid the coronavirus pandemic. As a result, shares of most of the companies on the stock exchange were stuck on the floor price. This prevented the fall of the index, but the transaction was much reduced. Later, the regulator withdrew the floor price.

However, the removal of the floor price system was followed by a massive fall in share prices again, making the BSEC lower the circuit breaker limit to 2% from 10% on 66 companies.

The recent fall in stock prices

The country's stock market started witnessing a bearish trend even before the breaking out of the Ukraine-Russia war.

The DSEX stood at 7,043 points on 16 February this year, which dropped by 589 points to 6,456 points on 7 March.

According to Central Depository Bangladesh Limited, all the shares held by 43,755 beneficiary owner (BO) accounts were sold during this period.

Analysts said supply disruptions caused by the war are pushing the prices of crude oil, wheat, and many other important commodities higher and higher, which has already begun to hurt consumers and might leave an adverse impact on the overall corporate profitability.

Since there is no clear sign of the Ukraine war being a short-lived one, cautious investors are increasingly preferring to stay on cash than hold falling stocks and that is a reason why price fall was getting deeper.

Nevertheless, the DSEX turned around a bit and rose 17 points on Tuesday, which is attributable to the injection of the Capital Market Stabilisation Fund into the market.