Ease of price restriction fuels block trade in large-cap stocks

Large-cap stocks have been dominating block board transactions since the regulator in November eased price restriction allowing buy-sell of shares at prices up to 10 per cent lower than the floor price on the platform.
The same securities have seen investors reluctant to buy shares at the floor price in the main market.
The completely opposite trend becomes apparent from the transaction volumes of stocks, such as Grammenphone, Renata, Square Pharma and Brac Bank on the main board and on the block board.
Gramephone has been confined to the floor for more than a year in the main market.
The daily average turnover of GP between August 2022 and July this year was recorded at less than 0.30 million in the main market. On the other hand, turnover on the block board was more than Tk 15 million a day on an average during the period, according to the DSE data.
The telecom company that has the highest market value saw only six sessions with more than 100 trades in the main market after the imposition of floor price. But before the enforcement of the lowest price, GP saw 2,000-3,000 trades daily.
Transactions of stocks, such as GP, got a boost on the block board during the floor price regime mainly after the restriction was relaxed for the platform.
On Sunday, trade in GP shares at Tk 261.60 each was worth around Tk 2 million on the block board while transactions in the main market involved only Tk 0.20 million at Tk 286.60 each share.
Trade in BAT Bangladesh amounted to more than Tk 4.24 million at Tk 479.80 each share on Sunday on the block market, while turnover of the stock in the main market was only Tk 0.59 million at Tk 518.70 each share.
Several other big cap stocks, including Walton, United Power, Renata, Brac Bank and Beximco, have continued to trade at a 10 per cent discount on the floor price, while a dearth of buyers of the stocks resulted in a liquidity crisis in the main market.
This is the backdrop to turnover in the main market plunging 36 per cent year-on-year to Tk 1,814 billion in the 12 months through July this year, while block market transactions jumped 23 per cent to Tk 162 billion.
The matter of concern is that the opportunity to buy shares at cheaper prices drove away large and institutional investors to the block board, diminishing whatever possibility was there of the recovery of the main market.
In consequence, retail investors have continued to suffer from illiquidity of their investments in large stocks, while the main market becomes a battleground for gamblers to suck out profits by artificially increasing prices of small-cap stocks.
Retail investors being treated unfairly
The market has been in the bear grip since the regulator imposed the floor price in July last year.
Many institutional investors criticised the regulator for making the move as they were unable to sell shares even on the block market. A mounting pressure then forced the regulator to instruct stock exchanges to push the bar down for share transactions in the block market.
Small investors cannot buy-sell shares on the block board as each transaction should be worth at least Tk 0.5 million on the platform.
The block market is meant for trading in large volumes at negotiated prices without affecting the index.
The rising turnover in the block market brings no cheer to small investors because the main market is still highly illiquid, said Prof Abu Ahmed, a former chairman of the economics department of the University of Dhaka.
"The problem facing small investors would not be solved until the floor price is lifted from the main market," added Prof Ahmed.
The unfair rules created an opportunity for big investors to make capital gains even in the bearish market. They can buy shares in a big lot at a discounted price on the block board and then sell those in the main market.
Md Sajedul Islam, senior vice-president of the DSE Brokers Association of Bangladesh, said stocks having a higher foreign stake usually had increased block transactions, a sign that overseas investors had been leaving the market.
Meanwhile, the persisting illiquidity of stocks and heated up consumer market have been compelling small investors to sell shares even at 20 per cent discounted prices through an unofficial arrangement.
In such cases, buyers and sellers negotiate the share volume to be exchanged and the price. After the transaction is done in the main market at the floor price, the seller pays back the excess cash to the buyer depending on the price agreed outside the market.

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