Brokers advise against labelling of stocks

Brokers of the Dhaka bourse have demanded the removal of the existing categorisation of securities, saying it creates scope of manipulation in the secondary market.

The DSE Brokers Association (DBA) on Monday sent a letter to the Bangladesh Securities and Exchange Commission (BSEC) in this regard.

In its letter, the DBA points to fraudsters' tendency of artificially increasing prices of some B stocks.

Many companies, which are listed in the B category, distribute nominal dividends to shareholders to maintain the status even though their financial performance does not support dividend payments.

Weak companies' stocks become overvalued in the guise of good stocks, brokers said.

Stock price manipulation makes the market volatile and general investors suffer because of this.

Presently, companies are listed under five categories -- 'A', 'B', 'G', 'N' and 'Z'.

Any company is downgraded to 'Z' category for failing to pay cash dividends for two consecutive years.

A company is labelled as 'A' stock if it provides 10 per cent or higher dividends - cash or stocks or cash plus stocks -- annually, while 'B' category stocks are those that pay less than 10 per cent dividends, again cash or stocks or cash plus stocks.

Experts say the current system of categorising stocks does not reflect companies' business performance and that it should be revised. They also say companies' performance and the size of their capital should be taken into consideration.

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