The Bangladesh stock market has lots of abnormalities, the unusual rise in the prices of junk shares being one.
The non-performing stocks or junk shares are placed in the 'Z' category for trading on the bourses. The companies that fail to pay dividends to their shareholders or hold annual general meetings for a certain period are placed in that category.
Obviously, there should be no reason for investors to show interest in a junk stock or prices of the same to go up unless the company concerned makes some positive disclosures.
But in Bangladesh market, prices of junk stocks go up for no reasons. This is more or less a permanent phenomenon here. The trend, usually, gets pace when the market is dull and drab.
The securities regulator, the Bangladesh Securities and Exchange Commission (BSEC), penalised a number of stock brokers, financially, for extending financial help to a section of investors to put in money in junk stocks. But the problem is still there. Even during the recent market rally, the prices of a few junk stocks had also gone up.
A small section of investors and some stock brokers are involved in the manipulative hike in prices of 'Z' category stocks. The relationship between the two groups is clearly symbiotic.
The investors in question are involved in daily stock trading. On a particular day they do target one or two junk issues and transact over the same among themselves through a number of brokerage houses. They select the junk stocks because those are cheap and trading over those does not involve sizeable funds.
Moreover, a number of unscrupulous brokerage firms provide loans and netting facility to so-called investors trading in junk shares. Share netting is a financial adjustment facility that allows investors to buy and sell shares of the same company on the same day. The loans are being given in violation of a BSEC directive issued in 2009. The BSEC had asked the brokerage houses not to extend loans for buying Z-category shares with a view to stopping any abnormal rise in prices of these stocks.
The truth is that a small group of investors are involved in gambling over junk shares. Informed investors, consciously, avoid it. At times, some uninformed investors step into the trap and suffer losses.
At the end of every session, some of the junk-share traders earn a little profit and some others suffer loss. This has been more of a routine practice. The stock brokers involved in the malpractice earn commission on transactions and interest on the loans they offer to traders.
What is more worrying is that the stock transaction-related figures do not portray the actual situation prevailing in the bourses since those include both volume and turnover involving junk shares. One can have a clear picture only by deducting both from the total daily transactions.
One cannot also rule out manipulation by the companies placed in the Z category to make money out of nothing by spreading rumours. A section of investors are very much prone to believing rumours despite the fact they had suffered a lot, financially, in the past paying heed to rumours.
The Bangladesh stock market had all the potential to develop and become a dependable source for fund mobilisation by entrepreneurs. But it could not emerge so because of problems created, deliberately or otherwise, by most stakeholders barring investors.
In 1996, the market got the first and the most severe jolt at its fledging stage. It took nearly one and a half decades for the market to recover. But yet another shock came in 2010. Almost all know about the perpetrators. Yet they have gone unscathed.
The opportunity to get away with the crime has turned the Bangladesh stock market a hotbed of irregularities. The regulator, obviously, wants to put the market on track again and restore investors' confidence in it, but success is likely to elude it (regulator) for some more time.
Since the collapse of market in December 2010, the market has shown the sign of making a comeback on a number of occasions. There were market rallies, but those did not hold for a long period. There was strong suspicion that surges were artificial and some manipulators were behind those.
Compared to other irregularities, the ongoing practice over junk share trading might appear less harmful. But, it is not, for the offence is being committed on every trading day. It only highlights the weaknesses of both bourses and regulator. The management of the two bourses and the BSEC must take decisive actions against the brokerage houses involved in such manipulative trading that hurts the image of the stock market of the country.