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The reason behind the recent Bangladesh share market:

There is a lot of reason behind the recent share market crash in Bangladesh. There are

so many reasons for the fall of 2010 share market in Bangladesh. The major and

most critical reasons was stock price manipulation, spilt stock, asset revaluation,faulty methods of IPO, charges high premium for issuing stock, illegal private

placement. Increase the number of brokerage house in whole county more than

530 braches. Lack of cooperation among the regulatory body, corruption of

regulatory authority , venal money, central bank decision, unnecessary comments

from the different higher personnel of government, rumor, illiterate and

inexperienced investors, unethical approaches by the businesses and brokerage

houses, large amount invested by commercial banks, gamlers, asymmetry of

information. Wrong signals from responsible quarters since the care taker

government caused the asset price bubble.

Dramatic increase in stock holder is another major reason for recent share market

crash. As the individual investor increases in the market so the demand for share

increase but with that demand capital market fail to fulfill the demand of investors.

As we know if the demand goes up and the supply does not match up with that its

called bubble. So it is another most critical reason for recent share market fall.

As we know in term of caretaker government everybody felt fear to invest because of

different circumstance has taken by caretaker government against investors as well as

black money holders. So share became a place for all kind of investor to invest

especially for black money holder. As the investors invest more in capital market then

the demand increase dramatically as a result the price of share started to increase at

that time. As the price started to increase so the general investors especially

individual investors started to enter in capital market.

Another major reason of recent capital market crash is the illegal private placement.

As we know the in the time of private place only the institutional investor remain

present and it is possible manipulate the price. Because in the bulk building method

the institutional investors are the main character who set the price of IPO. So

institutional investors and the issuing company has taken the illegal mechanism which

increase the price of IPO. As result the authority ban the bulk building method forissuing share in certain period.

Regulatory failor is the vital reason for recent share market crash. As a highest

regulatory of capital market the SEC totally fail to maintain their activity. There was

no combination among the capital market regulatory agency for example Bangladesh

bank take so many action without taking any recommendation and any kind of

suggestion from SEC. on the other hand sec took so many action without taking any

consideration of DSE and CSE.

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Banks and other financial institutions have increased their participation directly n the

markets and also through loaning money to BO a/c holders for trading on margins.

They and also many brokerage houses have been allowed to open brokerage houses in

divisional and district hqrs making it easier and attractive to trade in shares. As a

result the number of BO accounts shoot up to 33 lakh from below five lakh. These BOa/c holders also acted as intermediaries of their friends and relations from all corners

of the country as they were given promises of higher returns compared with savings

a/cs in banks and bonds. Behaviorally human beings are attuned to act in a manner

that is called as herd mentality like cattle. The lure of making a fast buck always

attracts people and like in 1996 they rushed in thousands.

The upsurge began a year or so back when Grameen Phone offered a large IPO (over

4000 crore) with much higher values over the face value of Tk. 10 only. Even then the

issue was only about 10% of the total capital of Grameen Phone. When trading began

with such higher value and it was included in the DSE index for the entire capitalvalue of Grameen there was a big jump in the index about 1000 points. So the faulty

index gave wrong signal to investors and the upward rise never stopped there after.

When the index reached 6000 or so from under 3000 journalists asked the finance

minister about it and he quickly dismissed that the market was not overheated.

Around the same time some foreign firms set their feet into the market and created

further push up. Since there was no capital gain tax on the earnings and no restrictions

were placed by Bangladesh Bank on transferring their capital plus gains they took

advantage of super returns and transferred money out of the country by buying dollars

from the curb markets.

The book building method was allowed to raise prices of IPOs by using faulty

accounting practices and many low earning companies took advantage of the system

in private placements and then going to market with much higher valued IPOs

without due regard to P/E ratios. Some fifty or so companies were waiting to join the

game as the president of DSE charged about weak accounting in a press conference

just the day before the mayhem. In a country where accounting figures are regularly

changed to suit purposes of the business firms and audits are done to satisfy mere

formality use of book building method of price discovery was not appropriate and

manipulation were common.

Combination of wrong information to the investors, illegal participation of banks and

institutions in the stock markets, weak accounting functions are at the core of the

crisis that saw billions of taka wiped out.

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the immediate reason for this crash was the policy of the regulators of themarket who laid down a limit for investment by the banks and otherfinancial institutions in the stocks. This was done in order to avoid themarket being overvalued. As the banks and other big investor institutionswithdrew the capital from the market, the panic ensued.

Current Bangladesh share market can experience huge decline becauseof: a) Most of the share prices are very high (lack support offundamentals). B) People who are involved in the market has egger tomake quick profit by short trading only. Most of them do not want to holdshares for little long. C) Excess liquidity in the market also pushing shareprices without solid reason (only speculation).Manipulators are active! d)Our banking other financial institutions has exposed it selves to verymuch risk (By involving speculative share trading now).When the marketwill down turn or crash they will in serious trouble (Bangladesh Bankmust see this matter).

Because of power and infrastructure shortages most entrepreneurs could not invest in

the real sector (meaning industries).

Bangladesh was having current account surpluses (thanks to huge remittance flows).

S0 more money was coming in than going out.

Interest rates went down.