Why these 3 new platforms are performing poorly on bourses
The Dhaka Stock Exchange (DSE) has launched three new trading platforms in the past 19 months with different purposes – providing small firms with opportunities to raise capital, trading treasury bonds, and allowing trading of non-listed securities, among others – to make the capital market vibrant.
However, despite their promising potential and hype, the platforms have failed to live up to expectations and are making a poor show on the bourses.
The Small-Cap Platform or the SME Board, which went live in September 2021, aimed at helping small firms raise capital and trade their shares. Having around a dozen companies onboard, the DSE SME Board observed too volatile investors' response, mainly depending on the speculative funds flow. Whenever a possibility of the retail investors' entrance emerges, price and turnover increase there which reverses course in a short time.
The second platform, launched in October 2022, allowed for the trading of treasury bonds. But, due to a lack of supply, only Tk60 lakh worth of bonds have been traded in the last six months while the older alternative platform by the central bank settles treasury bonds' trading worth several thousand crores of taka every month.
On the other hand, the Alternative Trading Board (ATB) was launched in January 2023 aimed at trading non-listed securities.
However, poor demand for non-listed scrips has resulted in less than sterling performance.
Why exchange trading of treasury bonds stumbled
The launch of treasury bonds on the Dhaka and Chattogram bourses was expected to mark the beginning of a new era in the capital market. However, the much-anticipated treasury bond market has failed to gain momentum and remain vibrant, unlike most other global markets.
During the October-December period last year, the DSE Treasury Board witnessed trading only in 11 sessions, and since then, not a single treasury bond has been traded as of 26 March 2023. The situation is reminiscent of the early 2000s when the DSE introduced treasury bonds, and after their debut trades, there zero transactions until a separate platform onboarded 251 government bonds.
Experts have attributed the lack of interest in bonds to a lack of financial literacy and awareness regarding stable income investments like bonds.
People here prefer capital gains over fixed income or dividends and the high tax on the incomes is a major reason behind that, said Bangladesh Merchant Bankers' Association President Sayadur Rahman.
This is not the sole reason, according to bankers who said inconvenient process, not enough buyers and sellers, and the cost of trading also are the discouraging factors of trading treasury bonds in the bourses.
They said around 95% of the treasury bonds worth nearly Tk3.5 lakh crore are being held by banks, non-bank financial institutions, and insurers as they are compelled to park some of their funds in the government securities by regulations while many people park even more due to the lucrative returns.
A top official of a commercial bank told TBS that when the banking sector has been in a tighter liquidity condition, they could have freed some cash by selling some of their treasury bonds to other investors in the bourses. But that has not been the case due to the almost non-functional exchange trading ecosystem, he added.
Brac Bank Deputy Managing Director and Head of Treasury and Financial Institutions Md Shaheen Iqbal said, "When an investor tries to buy treasury bonds through the stock exchanges, they barely find sellers. Also, the exchange trading of bonds is yet to be a choice for sellers amid the absence of buyers."
Nowadays, some high net-worth individuals are buying treasury bonds with the help of banks from the central bank's platform because they could not do so through their stock market brokers.
The treasury head of another commercial bank said the banks are not calling their stockbrokers to sell treasury bonds on the platform and are instead continuing the trades in the central bank platform like before.
"Taking the hassles of requesting the Bangladesh Bank to transfer my bond holding data to the stock market accounts does not make sense when I have to pay the broker Tk110 to trade treasury bonds worth Tk1 lakh and it is free of cost in the central bank platform," he added.
Moreover, the bourses take two days to settle a transaction while the central bank platform does it on the same day, he added.
"Taking so much hassle and waiting for two days did help us get some higher prices in the DSE once, but it went away due to the brokerage commission there," he said.
DSE Acting Managing Director M Shaifur Rahman Mazumdar said, the new capital market ecosystem for treasury bonds is synced with that of the Bangladesh Bank and all the supply has been concentrated in the central bank ecosystem that needs to gradually shift to the stock exchange platform.
The central bank still asks for instruction from the users of its own platform before sharing their data with the stock exchange, he said.
Alternative Trading Board: Only one instrument in three months
The ATB at the DSE was launched on 4 January this year to facilitate only the secondary trading of non-listed companies, corporate bonds, open-ended mutual funds, and exchange-traded funds.
On debut, a leading brokerage firm, Lankabangla Securities Limited, and a corporate bond called Pran Agro Bond were set to start trading in the ATB, but only Lankabangla Securities managed to begin while having no sellers, the bond was yet to be traded.
Since the ATB does not allow any entity to raise fresh capital from investors, it only lets existing investors offload some preannounced number of securities through the process of direct listing.
More than 14 scrips including Bengal Meat, healthcare firm AFC Health, and a corporate bond by Jamuna Bank were in the pipeline to start trading in the ATB.
However, even after three months, no new scrip entered the ATB.
Meanwhile, the only tradable ATB instrument – equity shares of Lanka Bangla Securities barely see more than 20 trades a day while it clearly suffers from the lack of buyers.
Moreover, the brokerage firm was yet to fulfil its preannounced 10% share offloading target within the stipulated time due to the low appetite of buyers, according to DSE information.
According to the ATB rules, for equity securities, the primary shareholders including sponsors and directors of the company shall offer for sale at least 10% of the company shares within the first 30 trading days while the most they can offload is 49%.
DSE source said, Lankabangla Securities managed to offload 9.54% of shares in 53 working days and it needs to offload eight lakh shares more to fill the target. The poor show was due to low demand.
BMBA President Sayadur Rahman was not surprised as the ATB was not offering quick capital gain opportunities.
"There are not enough investors who are ready to wait for three months to sell a stock, especially during the dull condition of the overall capital market," he said.
DSE's Shaifur Rahman Mazumdar said the ATB was neither for raising fresh capital nor for making quick bucks through short-term trading.
Instead, it ideally acts as a matchmaking platform between existing investors of non-listed securities and the new investors who want a stake to hold onto for a considerable period, he told TBS.
The platform also offers a convenience for existing investors of a non-listed company, compared to the hassles of finding buyers and spending more to transfer shares privately, he added.
Lankabangla Securities shares having a face value of Tk10 apiece had an opening price of Tk15.4 on debut. From there, it jumped 88% to Tk28.9 and came down to Tk19 on Thursday to reflect the fact that the stock did offer some trading opportunities already.
However, stock investors barely took note of it because any capital gain from selling an ATB instrument within three months of the entry would go to the DSE investor protection fund, instead of the investor's own account.
The regulation was intended to discourage speculative short-term trading in the less regulated scrips at the ATB, said Bangladesh Securities and Exchange Commission (BSEC) Executive Director Rezaul Karim.
Ahmed Rashid Lali, former president of the DSE Brokers Association recently said the restriction was enough to discourage investors in the ATB.
The DSE Acting MD too admitted the fact and said this is also a major reason behind the lack of investors in the ATB. His office sent a proposal to the BSEC to relax the rule at least for the general investors.
Rezaul Karim of the BSEC said the regulator would review if the regulations were the key reason behind the lacklustre trading in the ATB and if any change was needed the regulator was always open to considering.
"ATB is less regulated by nature and it is riskier for the retail investors and that was why the regulations were tight so that small investors do not burn their fingers in any speculative or manipulative rallies," he added.
As per the ATB Regulations 2022, apart from the open-end mutual funds, no ATB scrip is eligible for margin loans. No minimum paid-up capital is required for listing on the ATB.
ATB firms must disclose all their price-sensitive information and financial statements to be disclosed on a yearly basis.
SME platform looks for retail scapegoats
The BSEC has been struggling to hold back small retail investors from trading shares of low cap SME companies as their prices are easier to manipulate and also the small or young companies listed there are less stable by nature in terms of business growth and profitability.
It changed the mandatory minimum capital criteria for entering the SME trading board several times up on requests from the bourses for the sake of making the platform vibrant or later reversing the course due to the insane speculation that followed relaxations.
Whenever the minimum threshold is higher SME board stocks face a selloff and vice versa, reflecting the trading there has been significantly fuelled by speculative fund flow.
How much of the retail investors' capital might be allowed or allured to flow into the small-cap scrips seems to have become the biggest speculation in the SME platform as reflected by the price movements there in relevant events.
Ironically, a retail investor even filed a writ petition last year, asking for equal rights to his large counterparts and he was yet to win the legal battle.
Not too unexpected?
Stock market expert Abu Ahmed, former professor of economics at Dhaka University, said the flop shows in the new trading platforms were not unexpected as the main stock market was too dull amid poor confidence while floor price restriction kept three-fourths of the listed scrips out of trading.
"When investors' funds are stuck, how can they try for new investment in new securities?
"Making some money from your existing investment, you may look for the next opportunity or option," observed professor Abu Ahmed.