In die wake of bullish trend in stock market, the stock market * regulator yesterday warned of actions including cancellation of licence of the merchant banks if they fail to bring in new issues to pull the overpriced stock market down.

"The present market is overpriced, no one will disagree with me, and to cool down the market new' issues need to be brought into the market. But, it is not up to the commission, it s up to the stock exchanges and merchant banks," said Faruq Ahmad Siddiqi, chairman of Securities and Exchange Commission (SEC).

“We see the merchant banks are engaged in trading in secondary market rather than bringing new issues," he said, adding that law's will be amended if necessary' to force the merchant banks to bring new issues into the market or they will face cancellation of licence.

The SEC chief was addressing the inauguration ceremony of a five-day training on financial derivatives, jointly organised by the Chittagong Stock Exchange (CSE) and National Stock Exchange (NSE) of India, in Dhaka yesterday.

Talking about derivatives, a financial product of the stock

market, Siddiqi said introduction of such products would help prepare the local market operators to get accustomed to new products in the developed markets.

"And this would surely help in bringing product diversification to our market and offer investors with investment options," he said.

The SEC chairman said new financial instruments are increasingly important vehicle for unbundling risks, adding that the instruments enhance the ability to assess and differentiate risk and allocate it to those investors most able and willing to take it.

This unbundling of risk improves the ability of the market to bring about a set of product and asset prices far more calibrate to the value preferences of investors than is possible before derivative markets are developed. The derivatives product and asset price signals enable entrepreneurs to finely allocate real capital facilities to produce tliose goods and services most valued by investors, a process that has undoubtedly improved national productivity growth and standards of living, the SEC chairman noted.

Ramakrishna Srinivas Lyengar of National Stock Exchange of India, an expert

on financial derivatives instruments, which became popular on the bourses of the foreign countries as a risk management tool, will conduct the training course.

A total 40 participants are taking part in the course to be concluded on June 9.

Speaking at the function, CSE President Nasiruddin Ahmed Chowdliury said there are demands for good instruments in the market with a very limited supply. "As a result, we experience that too many investors running after limited number of securities, leading to an unhealthy price competition in tlie market," he said.

"Our investors are paying prices for securities that are several times more than what these securities are expected to fetch. The concept of Book Building, however, solve this problem to some extent,” he observed.

AB Siddique, chief executive officer of CSE, said the derivative products, which do not exist at all in Bangladesh's stock markets, are the most popular investment instruments for the institutional as well as individual investors in both developed and developing countries such as India and Pakistan.

CSE Vice-President Fakhor Uddin Ali Ahmed also spoke at the function.