SEC suspends financial adjustment facility for 'A'-group shares
Tuesday, 31 July 2007
The Securities and Exchange Commission (SEC) Monday suspended the financial adjustment facility for the quality or 'A'-group shares to rein in a lingering surge in the prices of stocks and liquidity flow on bourses, reports bdnews24.com.
The directive will be effective from today (Tuesday).
The SEC expected that the measure would help cushion the market from the risks of overheating, created by high demand. The move is also meant to cut the risks of huge losses. The intervention will also help curb liquidity flow in the market, the capital market regulator said.
The SEC, however, did not rule out the possibility of a negative impact on the market, but said, "It won't affect the normal market trend in the long run."
The financial adjustment facility, effective from early 2005, had earlier allowed the investors to buy another share the same day with proceeds from the sold share.
With the facility suspended, the investors have to wait until the fourth day for transaction settlement. The SEC expected that the suspension of the facility would help reduce liquidity flow, which resulted in high demand and price spirals of issues.
"We would not have intervened in the market if all of the investors had been experienced enough, and invested considering fundamentals of the companies," SEC chairman Faruq Ahmad Siddiqi said.
"I think the market is overheating and tilting toward volatility. If we allow the trend to continue, the small and inexperienced investors will suffer huge losses (when prices are corrected)," he said.
The regulator's latest move came a day after it suspended the financial adjustment facility for 'B', 'G' and 'N'-groups of shares amid a steady surge in the share prices since early May. On July 29, it also asked the merchant banks to send details on which ratio they provide credit for their clients.
The DGEN on the Dhaka Stock Exchange (DSE) climbed 35.50 points or 1.48 per cent to 2,425.99 Monday. Buoyed by a surge in prices due to soaring demand, the DGEN or general index added 300 points or 14.28 per cent to 2,400 points in the month to July 25.
On June 25, the DGEN topped 2,100 points. The daily average turnover also touched an all-time high of Tk 2.23 billion last week from Tk 2.13 billion a week ago.
The SEC chairman said, "If we had waited and taken the step much later, more people would have been affected." Siddiqi said, a rise in liquidity pulled demand amid the shortage of supply of quality shares.
"We are trying to increase the supply of new shares. But it will take time. It is difficult to bring new issues to the market right away," he said.
SEC Executive Director Farhad Ahmed, referring to a recent rally in the market said, they had earlier talked to the market players. "We have also warned the small investors earlier," he said.
"It's not a better way of controlling the price hike. A better option is to increase the supply of stocks which the government can do easily," said Abu Ahmed, teacher of Economics at Dhaka University.
The directive will be effective from today (Tuesday).
The SEC expected that the measure would help cushion the market from the risks of overheating, created by high demand. The move is also meant to cut the risks of huge losses. The intervention will also help curb liquidity flow in the market, the capital market regulator said.
The SEC, however, did not rule out the possibility of a negative impact on the market, but said, "It won't affect the normal market trend in the long run."
The financial adjustment facility, effective from early 2005, had earlier allowed the investors to buy another share the same day with proceeds from the sold share.
With the facility suspended, the investors have to wait until the fourth day for transaction settlement. The SEC expected that the suspension of the facility would help reduce liquidity flow, which resulted in high demand and price spirals of issues.
"We would not have intervened in the market if all of the investors had been experienced enough, and invested considering fundamentals of the companies," SEC chairman Faruq Ahmad Siddiqi said.
"I think the market is overheating and tilting toward volatility. If we allow the trend to continue, the small and inexperienced investors will suffer huge losses (when prices are corrected)," he said.
The regulator's latest move came a day after it suspended the financial adjustment facility for 'B', 'G' and 'N'-groups of shares amid a steady surge in the share prices since early May. On July 29, it also asked the merchant banks to send details on which ratio they provide credit for their clients.
The DGEN on the Dhaka Stock Exchange (DSE) climbed 35.50 points or 1.48 per cent to 2,425.99 Monday. Buoyed by a surge in prices due to soaring demand, the DGEN or general index added 300 points or 14.28 per cent to 2,400 points in the month to July 25.
On June 25, the DGEN topped 2,100 points. The daily average turnover also touched an all-time high of Tk 2.23 billion last week from Tk 2.13 billion a week ago.
The SEC chairman said, "If we had waited and taken the step much later, more people would have been affected." Siddiqi said, a rise in liquidity pulled demand amid the shortage of supply of quality shares.
"We are trying to increase the supply of new shares. But it will take time. It is difficult to bring new issues to the market right away," he said.
SEC Executive Director Farhad Ahmed, referring to a recent rally in the market said, they had earlier talked to the market players. "We have also warned the small investors earlier," he said.
"It's not a better way of controlling the price hike. A better option is to increase the supply of stocks which the government can do easily," said Abu Ahmed, teacher of Economics at Dhaka University.