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Regulator brings back floor price for 169 stocks despite concerns over asset illiquidity

FE REPORT | March 02, 2023 00:00:00

The securities regulator has re-imposed floor price on the 169 listed securities that had the price restriction withdrawn in December last year.

As per the new directive issued on Wednesday by the Bangladesh Securities and Exchange Commission (BSEC), the opening prices of the securities will be set at the floor price determined in July 2022, or the average of the closing market prices in the last four sessions through Wednesday, whichever is lower.

For example, the floor price of Savar Refractories was set at Tk 261.10 as per the previous directive issued on July 28, 2022. The company's average closing price of the last four sessions stands at Tk 215.55.

So, the revised floor price will now be Tk 215.55.

The other conditions, including the upward price increase limit at 10 per cent a day, will remain unchanged.

The regulatory decision came after the stakeholders' insistence that all stocks should be subject to same policies, said Mohammad Rezaul Karim, a BSEC executive director.

The floor price had been replaced by a downward circuit breaker in December allowing the stocks to fall up to 1 per cent in a single trading session.

Mr Karim said a large number of the securities had seen price erosion and dropped to the level of margin call since December.

"That's why the floor price has been re-imposed in the interest of investors."

As of Wednesday, 128 of the stocks, which were subject to the partial removal of floor price, lost their market value, 14 saw price rise marginally while 26 remained stuck at floor price.

For example, Shyampur Sugar eroded 36 per cent, Rahim Textile 35 per cent, Imam Button 35 per cent, Sonargaon Textile 34 per cent, and Safko Spinning Mills 31 per cent.

Of the securities that gained on the bourses, Monno Agro & General Machinery surged 33 per cent and Dhaka Insurance 30 per cent.

Md. Moniruzzaman, managing director at IDLC Investments, said the market had almost absorbed the impact of the floor price withdrawal.

"So, the decision could remain unchanged as the 169 companies are small-cap, having no significant influence on index," he added.

Md. Ashequr Rahman, managing director at Midway Securities, argued that the mechanism to control stock prices is not capital market friendly.

The move turned stocks into illiquid assets, he said. "This policy may be acceptable for the investors who will hold shares for a long time, but not for the traders."

Floor price helps contain panic. Many shareholders think that the market will see erosion without the intervention in place.

But if the price controlling policy stays for long, even long-term investors will start realising its fallout, Mr Rahman added.

The downward price movement restriction was first imposed on March 19, 2020, setting the average prices of the preceding five days as floor prices to stop the index from falling amidst the pandemic.

The measure was criticised by most analysts and foreign investors, prompting the regulator to start moving away from it in phases from April 2021.

Again macroeconomic adversities following the Russia invasion in Ukraine induced a bearish sentiment in the capital market, which propelled the stock market regulator to re-impose the restriction in July last year.

The policy was withdrawn for 169 companies in December last year as the securities had long been languishing at the floor prices and investors were unable to sell shares.

One of those, closed-end NLI First Mutual Fund, however, had already been delisted.

The relaxation of the price restriction was expected to boost liquidity flow.

Meanwhile, the Bangladesh stock market is treated as a special case by Morgan Stanley Capital International since February 7; the global index provider conveyed that the illiquidity issue of the market deprives investors of exit opportunities.

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