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SEC constitutes body on market-making system

Move to ensure trading of good scrips, boost confidence

Star Business Report
In a bid to re-establish Investor faith in the country's capital market and ensure trading of scrips with good fundamentals. the Securities and Exchange Commission (SEC) last month constituted a three-member committee to suggest steps for Introducing the market-making system in the stock exchanges.
The committee has been asked to submit its report to the SEC by the end of this month.
The mores followed a suggestion of the Investment Corporation of Bangladesh (1CB) which in a meeting with the Parliamentary Standing Committee on the Finance Ministry said that such market makers should be allowed lo
ensure trading of good shares.
The ICB said that the increase in trading volumes on the exchanges was not always reflected in liquidity of all the listed shares.
The SEC officials also agreed to the ICB proposal and constituted the committee. The Commission said there are a number of listed companies that are not actively or frequently traded in the stock exchanges although many of them have their own fundamental strengths and intrinsic values.
"The introduction of the market-making system could be a possible means to infuse liquidity into such shares," the official said.
Market-making firms In
most of the markets around the globe operate under the obligation of offering two-way quotes on a continuous basis -- meaning the firm will continuously quote prices at which it is willing to buy shares side by side offering their respective selling
"They are required to carry an inventory of stocks, which implies commitment of capital and exposure to market risks. An intermediary naturally seeks adequate compensation if it chooses to act as the market maker for a share." said the official.
Market-making is allowed in specific shares and one gets the registration for acting as a market maker from the regitla-
tors only after fulfilling certain prescribed conditionalities.
In Its first meeting last month, the committee decided to review the existing practices In the neighbouring countries and conduct a detailed study of the active securities, taking Into account their per earning ratio and net trading worth during the period of December 1999 to February 2000.
The committee also decided to list the companies which had not been traded for a single day during this three-month time.
It also suggested sending the SEC, CSE, DSE and ICB representatives to India with a view to studying the market-making system there.