The Bangladesh Merchant Bankers Association (BMBA) has sent a proposal to the Bangladesh Securities and Exchange Commission (BSEC) for setting up a special fund of Tk10,000 crore for intermediaries of the stock market.
According to the proposal, the merchants' body can raise funds in the name of the Capital Market Stabilisation Fund (CMSF) through the issuance of bonds.
The proposal, signed by BMBA President Sayadur Rahman and Secretary Riyad Matin, was sent to the BSEC chairman on Monday.
According to BMBA leaders, the funds, raised through bonds issued in the name of CMSF, could provide long-term loans to market intermediaries at low-interest rates. Special credit facilities will increase the capacity of the intermediaries. So that they can deal with the pressure of panic selloffs by ordinary investors.
The proposed letter said that despite many initiatives taken by the BSEC, the market has been volatile recently which increased the pressure on investors. Adequate cash assistance is needed to restore normalcy in the market in this situation.
However, the predominance of small investors in the stock market is a big concern. In addition, the participation of foreign investors is low and the investment of institutional investors including dealers is also very fragile. Because the market intermediaries have limited means of raising money, the letter said.
On the other hand, the market condition is deteriorating due to some external changes. As a result, small investors are panicking and increasing their selloffs. If this trend continues, the marginal lenders will have to adjust their margin ratio by selling shares which will further plunge the stock market, it added.
If the funds are properly invested by the market intermediaries, then the panic selloff issue will be solved and the market liquidity crisis will be alleviated, the BMBA said in the letter.