The stockmarket regulator has asked the Dhaka Stock Exchange to explain at a hearing set for tomorrow why the prime bourse went for trade before transaction hours while absorbing fresh companies.

The DSE will also clarify its position on flawed computation in indices as per a show-cause notice served on it recently.

A senior official of the Securities and Exchange Commission said, “The commission has served notice on the bourse asking it to explain its grounds on non-compliance with securities laws over the execution of trade and calculation of index."

Earlier, the SEC in an investigation found that the bourse executed trade of Grameenphone shares at 10:59:17am on November 16 last year. The exchange also executed another trade of AIMS Mutual Fund at 10:59:12am on February 25.

But the trading session starts at 11am sharp and as per Dhaka Stock Exchange Automated Trading Regulations, 1999 no entry order is allowed or permitted before the opening of the trading session.

The SEC in another move found that the DSE violated a regulator's directive on index calculation while incorporating the newly listed issues like Grameenphone and Marico Bangladesh.

The DSE counted the index on the first day adjusting market capitalisation for the concerned securities multiplying the face value with outstanding shares instead of previous day's closing price.

On the other hand, incorporating new securities under direct listing rules, the DSE did not also follow its own method of calculation of index.

Jamuna Oil Company shares were

first traded on January 9,2008, but were included in the benchmark index on January 13, the third trading day. Similar thing happened in the case of ACI Formulations and Shinepukur Ceramics, and these two were included in the index on their fourth trading day.

In contrast, Meghna Petroleum and Navana CNG were included in the index on their debut day.

The DSE activities appeared to the commission as 'deliberate and clear contravention' of securities rules.

The flawed calculation in indices came to the light through media reports in January this year following the trade debut of Grameenphone shares on the stockmarket on November 16,2009.

On the day, the benchmark index of the DSE skyrocketed by more than 764 points.

This abnormal jump, which created confusion in the market, was due to faulty index counting. DSE adjusted the index from the first day of Grameenphone's trade based on the face value of Tk 10 each.

The SEC opened an investigation into the matter and directed the two bourses to start counting index points from the second day of a company's trade, as the debut day does not reflect the real picture.

Until the GP debut, the DSE was following lOSCO-recommended guidelines in index counting, while the Chittagong Stock Exchange was following the Laspeyres index calculation method.

Meanwhile, the SEC has initiated a move to introduce a common index of stocks so that accurate picture of share transactions would be reflected.

The new indices would be introduced in the next four months that will replace the indices currently in place in the country's two bourses.

sarwar@thedailystar.net