Investors are hesitant to buy even good stocks while stuck at floor prices because they wait for further price corrections, market operators say.
Price correction and appreciation are the key part of transactions, a senior official of a merchant bank said, requesting anonymity.
Buyers want to purchase securities at lower prices, but when regulators stop stocks from going down a certain level by imposing rules, the demand dissipates, he added.
On July 28, 2022, Bangladesh Securities and Exchange Commission imposed a price restriction for the second time to contain free fall of listed securities after the broad index dropped below 6000-point mark.
The normal 10 per cent limit remains effective when stocks move up, but the market prices of the listed securities are no way allowed to go below their respective floor prices, the average values of the market prices observed in the previous five consecutive sessions.
Market operators have mixed opinions regarding the outcome of floor prices.
Meanwhile, a majority of the listed securities have remained stuck at floor prices, with no buyers interested to invest in them.
Of the companies having good fundamentals, British American Tobacco Company and Heidelberg Cement had no buyers on Sunday.
"The mechanism was right in the context of the market scenario. At the same time, it's also true that many good companies have been suffering from a dearth of buyers", said Golam Rabbani, chief executive officer of the Modern Securities, as investors seek out for price corrections before making a purchase.
The securities regulator earlier said it was not in favor of imposing the restriction on price movement, but felt compelled to do so to rein in the falling of stock prices in the interest of individual investors.
Such rules have been put in place in other countries as well.
In January, 2018 the Nigerian Stock Exchange implemented pricing rules and the Karachi Stock Exchange imposed an emergency price restriction in August, 2008 to contain the market's decline.
The Karachi's KSE-100 index gained 0.6 per cent, or 58.85 points, after imposing the floor prices, according to marketwatch.com.
The exchange's then managing director told a news conference that the floor would not be removed until a support fund was in place, according to the global news agency reuters.
A study report published in papers.ssm.com, however, spoke about the adverse impacts of the floor prices imposed by the Karachi Stock Exchange.
The stock prices plunged following the removal of the floor, it said, adding that the market liquidity had also gone worse following the relaxation of the floor prices.
At the DSE, a majority of listed securities, whose market prices are above the floor prices, are small cap companies.
Of the large companies which got stuck at floor prices include Robi Axiata, Square Pharmaceuticals, BATBC, RAK Ceramics (Bangladesh), and IDLC Finance.
Mohammad Rezaul Karim, spokesperson of the securities regulator, said investors lost confidence witnessing the downward trend of the market.
"Investors who purchase securities taking margin loans become affected due to trigger sales executed by lenders. The floor prices were imposed considering such issues," Mr Karim said.
He ruled out the possibility of a decline in turnover due to floor prices, pointing out the recent average market turnover of Tk 10.46 billion.
Over the buyer crisis, Mr Karim said the regulator would observe the situation before taking any measure.
The stock market has recently seen large price corrections on the rumour of withdrawal of the regulatory measure, but the fear was dispelled by the BSEC.
Both the bourses set floor prices for all the listed securities for the first time on March 19, 2020 to contain abnormal price fall of stocks amid bleak economic prospects triggered by the Covid outbreak.
Later, the restriction was lifted gradually, and the stocks were allowed to move up and down as usual since June 17, 202.
Meanwhile, the trading at the premier bourse on Sunday remained closed for one and a half hours as the operations department mistakenly lifted the circuit breaker for all listed securities.
The circuit breaker does not apply for a company the day after it makes corporate declarations.
