In just one month, the Bangladesh Securities and Exchange Commission (BSEC) has reset the lower circuit breaker from 5% to 2% again to protect investors from further capital erosion due to the ongoing bearish run.
The BSEC has put the floor under stocks after the index benchmark of the country's premier bourse – Dhaka Stock Exchange (DSE) – lost 511 points in the last 11 days.
The new circuit breaker will be effective from Thursday, the BSEC said. As a result of the new circuit breaker, the share price of a company can be reduced by a maximum of 2% in one day. However, in case of an increase in share price, the 10% limit will remain unchanged.
BSEC Spokesperson and Executive Director Rezaul Karim told The Business Standard, that such a decision has been made to protect small investors in the stock market.
Faruq Ahmed Siddiqi, former chairman of the securities regulator, strongly opposed the idea to intervene in the market so frequently.
"It is ruining the predictability of the regulator, hurting the confidence of investors who prefer to see the bourses as a free market," he told TBS.
Investors who need to sell get entrapped due to such disruptions that drastically decrease liquidity added Siddiqi.
The way the market sharply soared in fiscal 2020-21, a correction was natural, he said, adding that the global and local macroeconomic situation added to the selling pressure.
AB Mirza Azizul Islam, a former caretaker government adviser, however, is ready to accept the regulator's interference considering the unusual situation, especially when the market has already come through a correction phase for several months.
On 8 March, the commission had earlier reduced the maximum limit from 10% to 2% to deal with the negative situation in the stock market. Which was changed to 5% on 20 April.
From January to 25 May of this year, DSEX decreased by 666 points. Of these, 511 points have decreased in the last 11 days.
Commodities prices hike, volatile exchange rate, and the Russia-Ukraine war effect is causing the country's stock market to fall, market participants believe.
According to them, in the current financial situation of the country, most investors are selling shares. Due to the fall in share prices, there is selling pressure from the margin borrowed accounts. According to the Central Depository of Bangladesh (CDBL), all the shares have been sold in the last 11 days from about 37,000 beneficiary owner (BO) accounts. But new investments are not coming.
In this situation, BSEC has increased the margin loan facility from 1:080 to 1:1 to increase the liquidity flow in the market. In other words, investors will now get a loan of Tk100 against Tk100 shares.
In addition, initiatives have been taken to increase the deposit of the Investment Corporation of Bangladesh (ICB).
Even Finance Minister AHM Mustafa Kamal has instructed not to count the loans taken by ICB within the bank exposure limit. So that ICB can increase investment in the stock market.
The finance minister also asked the central bank governor to take necessary steps to increase the investment of banks.
Meanwhile, both the country's stock market indices fell on Wednesday. On the day, the benchmark index DSEX of the DSE lost 23 points to close at 6,187.
On this day, the index fell at the beginning of the transaction. However, it was on an upward trajectory from 11:30 am to noon. But then under the selling pressure, the index dropped again.
And with the fall of the index, the share prices of 250 companies decreased, while the prices of 76 companies increased.
Besides, the turnover on the DSE has decreased by 22% to Tk513 crore as compared to the previous day.