The stockmarket is now in a record-braking mood, proving that the regulator's price curbing measures have failed to cool down the market, which hit a new high at 6,575 points on the last trading day - - Thursday.
The regulator stepped in at least four times during the last two months, but failed to put a long-term effect on the market, except for a few short-term impacts.
Each time the market reacted negatively to the cooling measures with record-level falls, and recovered the losses soon.
Such a failure or the rising trend only reminds that no measures can calm down the market in absence of new issues.
The measures that were taken three times for tightening share credit can be a weapon for a day or two, but not for a long period, as the market is facing a dearth of new securities, said analysts.
They also said neither the regulator nor the government is taking appropriate steps.
"The way they [the regulator] are regulating the market is not right, when the market is being heated due to a dearth of new shares," said Salahuddin Ahmed Khan, a former chief executive of Dhaka Stock Exchange.
Restricting margin loans cannot be the only option to control the market, he said, adding: "Special drive should be launched immediately to bring new issues."
"If necessary, the existing rules should also be amended or relaxed so new companies become interested to join the market," he said, referring to the existing IPO rules.
The existing IPO (initial public offering) rules allow a company with at least Tk 40 crore paid-up capital, including the IPO offer size, and no company will be allowed to offer shares less than 40 percent of its paid-up capital.
Many companies are interested to come to the market, but cannot due to the IPO conditions, said issue managers.
"We are working with a company that wants to float shares equivalent to 25 percent of its paid-up capital and we also requested the regulator to relax the rules. But, neither the company is increasing the IPO size, nor the regulator is relaxing the rules," said an issue manager.
The result is the market will be deprived of a new security, the issue manager added.
The government initiative to offload the shares of state-owned enterprises (SoEs) also hangs in the balance.
The government announced to offload its stake in 26 SoEs within June this year. But the step made no headway yet.
The market regulator, Securities and Exchange Commission (SEC), said the moves were taken to bring back stability and confidence in the market, as it believed the
margin loan ratio factor increased liquidity and made the market more volatile and riskier for small investors.
But, it was seen that the market went down every time, reacting to the regulatory measures, but bounced back within a short time.
On June 15, the SEC tightened the margin loan criteria for equity securities by resetting the PE (price-earnings) ratio at 40, down from50PE.
On the following day, the market went
down by more than 80 points, but bounced back a day after.
On July 8, the SEC cut the margin loan ratio to 1:1 from 1:1.5 in a bid to reduce liquidity flow in the market. The margin loan is the credit provided by merchant banks against securities held by investors.
The 1:1 ratio means an investor is allowed to getTk 1 against his/her holding securities worth Tkl.
Reacting to the measure, the market nosedived by more than 120 points on July 11, but rose the next day.
On July 14, the SEC asked the merchant banks and some top stockbrokers to send to it the portfolio statement of their respective top 50 big individual clients.
This time the market totally ignored the steps and continued to rise on the following days.
The regulator once again moved on July 21 to calm down the market. That time, the SEC tightened share credit by limiting it for all the clients of merchant banks and brokers.
In line with the measure, merchant banks are not allowed to provide more than Tk 10 crore in margin loans to a single client, while the stockbrokers cannot provide more than Tk 5 crore in credit to a single client exposure.
Even if the investors are allowed to get more credit as per the existing 1:1 margin loan ratio, they cannot receive loans beyond the permitted limits.
However, the single client credit exposure for the stockbrokers was increased to Tk 10 crore on July 25.
The SEC also decided that directors of merchant banks and stockbrokers will not receive any credit for share purchase from their own firms.
The SEC at first set August 31, and then reset September 30 as the deadline for adjusting the margin loan for those clients whose credit exposure is over Tk 10 crore. The directors of merchant banks and stockbrokers will also have to adjust their loans within this time.
After the measure, the market sank by around 300 points in the following two days, but bounced back heavily and continued the gaining streak since then.
sarwar@thedailystar.net