Regulatory measures have become frequent phenomena for the capital market since March 2020, either to prevent it from cascading down or to keep it upbeat, but experts say such interventions do not have positive outcomes in the long run.
Bangladesh Securities and Exchange Commission imposed the floor price for the first time on March 19, 2020, after the market suffered a plunge in 11 consecutive sessions losing 863 points.
The move helped the market gain back 371 points to 3974 within a day. By March 25, the premier bourse crossed 4000-mark.
The restriction on index movement was withdrawn in June 2021 before it was reimposed in June this year. Still effective, the price restriction has kept the market steady, but as a result, 277 stocks have remained stuck at the floor - some for weeks while some for months.
Therefore, the market has lost its driving force determined by demand and supply.
Nizam U Ahmed, a former senior official of the Dhaka bourse, said the capital market always has ups and downs, and it should be allowed to decide its own path through efficient price discovery.
After the floor price, the BSEC has taken other measures and revised them on several occasions to prevent price corrections as it watched mounting selling pressure from panic-driven investors.
"Frequent interventions intended to control parameters are sending cautionary signals to investors," said Mr Ahmed, who also served a foreign stock exchange.
For example, in the absence of price movement, many investors are reluctant to put in fresh funds fearing that stocks would have further price corrections if the floor price was withdrawn.
On the other hand, in this scenario sellers cannot offload their holdings.
In more than two years, the market recovered approximately 60 per cent, or 2368 points, to settle at 6353 points on Thursday as the BSEC has imposed policies one after another to control the downward movement of the indices.
However, experts think the measures will not help attain a sustainable development of the capital market.
"The market is affected at the end and many foreigners try to exit the market," said Ahsan H Mansur, executive director at the Policy Research Institute (PRI).
DSE data reveals that foreign investors have been mounting a selling pressure in the last two months. They sold securities worth Tk 6.68 billion and Tk 3.33 billion in August and September while their purchase volume dwindled from Tk 8.62 billion to only Tk 440.26 million during the time.
In September 2020, the BSEC increased the credit ratio against the broad index. Lenders were allowed to disburse loans at a ratio of 1:1 if the broad index was within 4000 points. The ratio was set at 1:0.75 for the DSEX hovering between 4001-5000 points, at 1:0.50 for 5001-6000 points and at 1:0.25 when the bourse crossed 6000 points.
Earlier, the securities regulator had enforced a single credit ratio.
In March 2021, the securities regulator adjusted floor prices with corporate declarations of stock dividends or rights issue.
A month later, the BSEC increased index-based credit ratio when investors' selling pressure led to the DSEX shedding 182 points to 5088 points.
The move was taken to facilitate liquidity flow into the market.
Later in the same month, the securities regulator reduced the price erosion ratio for 66 companies to stop further price corrections of their stocks.
On June 17, 2021 the DSEX went past 6000 points encouraging the securities regulator to restore the normal price movement up to 10 percent on both directions - fall or rise.
After the withdrawal of the floor price for all listed securities, the country's stock market exhibited a normal trend. The DSEX stayed above 6000 points and settled at 6623 on August 11, 2021.
The first regulatory measure in 2022 was to limit the downward price movement of stocks to 2 per cent which was later extended to 5 per cent. The regulatory move came as the market took a downward flight again amid the looming global economic tension rendered by the Ukraine-Russia war.
The war began on February 24 and the DSEX lost 492 points to 6474 points on March 8, 2022.
On May 22, the DSEX lost 464 points to 6142 points prompting the regulator to come up with another move the next day to extend the credit ratio to 1:1 to enhance liquidity flow in the market.
The same day, the government unveiled a refinancing scheme worth Tk 10.09 billion facing the demand of the stakeholders. The following day, the DSEX rose 119 points from the previous session to 6261 points.
Just after two sessions, the securities regulator again reduced the lower circuit breaker to 2.0 per cent for all listed securities to stop the persistent fall of the market.
The floor price was reintroduced in July when the DSEX sank below 6000 points, which is effective to date.
Asked about the repeated interventions, Dr Shaikh Shamsuddin Ahmed, a commissioner of the BSEC, said the authorities were compelled to interfere with the market time and again even if they did not want to.
A majority of the investors are retailers and the number of listed companies is limited, he said, adding that support from other regulators, such as the National Board of Revenue is also not up to the mark.
"We are trying our best to overcome the existing shortcomings for the sake of normal movement of the capital market," said Mr. Shamsuddin Ahmed.
Ahsan H Mansur said the securities regulator should forgo the tendency to frequently intervene in the market.
The price discovery is affected due to the regulatory measures including the implementation of floor prices, he said. "The age of the market is around 70 years and it should be allowed to determine its own strength for the sake of development."
