Efficient Online Trading & its Importance for the Developing Country like Bangladesh.

Efficient Online Trading & its Importance for the Developing

Country like Bangladesh.

By

Md. Fatha Alam Sakir ID: 0720597

An Internship Report Presented in Partial Fulfillment Of the Requirement for the Degree

Bachelor of Business Administration (BBA)

INDEPENDENT UNIVERSITY, BANGLADESH

Internship Report on

“Efficient Online Trading & its Importance for the Developing

Country like Bangladesh.”

SUPERVISED BY Mr. Md. Shoaib Ahmed Senior Lecturer, in Finance

School of Business

PREPARED BY

Md. Fatha Alam Sakir ID: 0720597

School of Business

Independent University, Bangladesh.

September 6, 2012 To

Mr. Md. Shoaib Ahmed Senior Lecturer, Finance,

Independent University, Bangladesh

Subject: Submission of Internship Report- Summer, 2012. Dear Sir,

It is my great pleasure to submit my internship report titled “Efficient Online Trading & Its Importance for the Developing Country like Bangladesh” as a partial requirement of BBA program.

I tried my best to gather relevant information for constructing a complete report as outlined. The preparation of this paper enables me to a great extent to complement my theoretical knowledge with practical analysis. I would like to express my profound gratitude for your kind and conscious guidance in preparing my report in the given time.

I sincerely believe that you will find this study very interesting, informative and enlightening. The information of this report came from database, online, print sources, and interviews. I shall be glad to clarify any discrepancy on the report.

I look for your kind appreciation.

Sincerely Yours:

__________________________________ Md. Fatha Amal Sakir

Acknowledgement

While conducting this study I was supported and encouraged by many. I would like to express my heart-felt gratitude to them.

First of all, I would like to express my heartiest gratitude to my honorable teacher and supervisor of this study Mr. Md. Shoaib Ahmed Senior Lecturer, in Finance, School of Business Independent University, Bangladesh. I was enriched by his kind encouragement and cooperation. It would have been impossible for me to complete this study successfully

without his responsible guidance, instruction, persuasion and advice.

I also pay my regard to my organizational supervisor was Mr. Saiful Wadud Chief Executive Officer Anchor Securities Limited (ASL) for his kind and sincere guideline. Thanks to all of my friends who have worked for ASL and tried hard for me to collect these data‟s.

Executive Summary

Capital market of Bangladesh has seen tremendous development in last couple of years. Number of investors has increased significantly. Large state owned and public organizations are offloading their share in the market. People with every profession, every age, are found involved in capital market. So a study on the characteristics of operational activities is very much important.

I was determined to do my BBA Internship in a brokerage house. I felt very lucky when I got response from ASL, the topmost brokerage house in Bangladesh. I began only with the few basic concepts of Investments that I had learnt in my Bachelors. But while working, I learnt lots of new things which improvised my thought capacity more than ever and I found myself gradually turning from an amateur to a professional.

As I had some objectives and had quite little ideas on the issues, I started working with all of them at once and soon found myself completely engrossed in books, magazines, newspapers, etc, not being pressurized by the tough objectives, but to douse my curiosity for learning more about the market every moment.

This Report investigates the operational activities of a brokerage houses in the case of Anchor Securities Limited (ASL). For this purpose this report focuses on Trading system, Accounts Department, actually overall operational activities of Anchor Securities Limited (ASL). The key findings of this investigation are: (1). Here we have to gather knowledge about

operational activities of Anchor Securities Limited (ASL). (2).This analysis shows that the trading mechanisms of Dhaka Stock Exchange (DSE). (3).The report also evaluates the opportunities and the obstacles of the updated software of DSE named MSA plus.

TABLE OF CONTENTS

Topic

Page No.

01. Introduction

1-5

02. Company Profile

6-8

03. My Work Experience at Anchor Securities Limited

9-11

04. Development History of Online Trading

12

05. Statistics on Online Trading

13-15

06. Market Structure for Online Trading

16-29

07. Regulation of Online Trading

30-32

08. Obstacles to And Prospects For Online Trading

32-35

09. Methodology

36

01. Introduction

B

angladesh capital market is one of the smallest in Asia but the third largest in the south Asia region. It has two full fledged automated stock exchanges namely Dhaka Stock

Exchange (DSE) and Chittagong Stock Exchange (CSE) and an over-the counter exchange operated by CSE. It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capital market. It consists of Central Depository Bangladesh

Limited (CDBL), the only Central Depository in Bangladesh that provides facilities for the settlement of transactions of dematerialized securities in CSE and DSE. Dhaka Stock Exchange was setup on 28th April, 1954 that started formal trading on early 1956. Post– independence government did not promote a capital market during the first five years, and it was activated again in 1976 with 9 issues on board. In 1995, a second bourse, the Chittagong Stock Exchange, was setup with sophisticated logistic support and modern management.

1.1. Mission:

T

o create an efficient and transparent Market facilitating entrepreneurs to raise capital, so that it accelerates industrial Growth for overall benefit of the economy of the country.

1.2. Vision:

I. Regulating the market structure through proper rules and strict compliance by members.

II. Expansion of CSE trading network to cover 504 thanas.

IV. Introducing derivative market

V. Continuous promotion of stock investment throughout the country. VI. Create opportunity to cross border trading with SAFE countries. VII. Introduce Global Depository Receipts( GDR)

1.3. Objectives:

I. Develop a strong platform for entrepreneurs for raising capital; II. Provides an investment opportunity for small and large investors; III. Develop a transparent market ensuring investor's interest;

IV. Provide a fully automated trading system with most modern amenities to ensure: quick, easy, accurate transactions and easily accessible to all;

V. Attract non-resident Bangladesh is to invest in Bangladesh stock market; VI. Attract foreign institutional investors to invest in Bangladesh;

VII. Collect, preserve, disseminate data and information on stock exchange.

1.4. Function: Securities & Exchange Commission (SEC):

I. Registering and regulating the business of stock exchanges, stock brokers, merchant bankers and managers of issues, trustee of trust deeds, underwriters, portfolio managers and other intermediaries in the securities market,

II. Promoting investors education and providing training for intermediaries of the securities,

III. Prohibiting fraudulent and unfair trade practices relating to securities trading in any market.

1.5. Functions: Dhaka Stock Exchange Ltd. (DSE) & Chittagong Stock Exchange Ltd. (CSE):

I. Listing of securities and ensuring compliance by the issuers,

II. Trading provisions for listed securities through efficient trading platform (Online screen based trading system),

III. Over the counter market (OTC) & Internet based trade facilities provide by CSE, IV. Real-time online market Surveillance of trading and regular monitoring and

compliance in section of trading operations, V. Clearing and Settlement of executed trades, VI. Management of the Members.

1.6. Functions: Central Depository Bangladesh Ltd. (CDBL):

I. Operate and maintain the Central Depository System (CDS) of Electronic Book Entry. II. Recording and maintaining securities accounts and registering transfer of securities III. Changing the ownership without any physical movement or endorsement of

certificates.

IV. Execution of transfer instruments, as well as various other investor services including providing a platform for the secondary market trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank.

1.7. Categorization of listed company: Category: A, B, N & Z Category DSE A 154 B 44 N 11 Z 34 Debenture (A category) 8 Treasury Bonds 221 Mutual Funds 41 Grand total: 513 1.8. Criteria of the share Category:

 “A” Category Companies: Companies which are regular in holding the Annual General Meetings (AGM) and have declared dividend at the rate of 10 percent or more in a calendar year. (Mutual fund, debentures, and bonds are being traded in this category).

 “B” Category Companies: Companies which are regular in holding the A G M but have failed to declare dividend at least at the rate of 10 percent in a calendar year.  “G’’ Category Companies: Greenfield companies.

 “N” Category Companies: All newly listed companies except Green field companies will be placed in this category and their settlement system would be like B- Category companies.

 “Z’ Category Companies: Companies which have failed to hold the AGM or failed to declare any dividend or which are not in operation continuously for more than six months or whose cumulated loss after adjustment of revenue reserve, if any is negative and exceeded its paid up capital.

Sector Wise Company Name Quantity 1 Bank 30 2 Cement 6 3 Ceramics Sector 5 4 Corporate Bond 3 5 Debenture 8 6 Engineering 23 7 Financial Institutions 22

8 Food & Allied 16

9 Fuel & Power 14

10 Insurance 45

11 IT Sector 6

12 Jute 3

13 Miscellaneous 9

14 Mutual Funds 41

15 Paper & Printing 1

16 Pharmaceuticals & Chemicals 20 17 Services & Real Estate 4

18 Tannery Industries 5

19 Telecommunication 2

20 Textile 26

21 Travel & Leisure 3

22 Treasury Bond 221

02. Company Profile

A

nchor Securities Limited Brokerage House has been developed to ensure development of sound capital market and to provide higher, better and diversified services to a wide range of customers. Anchor is offering high quality services at a competitive rate. Anchor Securities Ltd Brokerage House offers qualified international standard brokerage service with no margin loan facility. They are also a full service Depository Participant (DP) of Central Depository Bangladesh Ltd. (CDBL). The brokerage service is designed to provide customers with necessary support profitably in the stock market. Anchor is dedicated to provide high level of professional and personalized services to its domestic and international clients at a reasonable cost. Anchor‟s services are comprehensive in nature, including brokerage, CDBL facilities, and research and custodian needs of customers.

2.1. At Anchor Securities, They:

I. Do business in professional and courteous manner,

II. Work with our clients to fully understand their needs,

III. Provide our clients with expert advice (Technical Analysis),

IV. Give our clients a fair price,

V. Handle our clients‟ order promptly and accurately,

VI. Provide support, as required, to assure total satisfaction,

2.2. Mission:

I. Endeavor to reach at the doorstep of every client irrespective of their location, II. Help maximize clients most valued investment with all our resources,

III. Serve clients with our motto „low charge but quality service‟, IV. Create „the most‟ investment friendly environment,

V. Finding ways to create new windows of opportunities,

VI. Contribute positively to the National Exchequer and Economic Development of the country.

2.3. Vision:

A

nchor‟s vision is to be an exceptional organization that unites our clientele in order to be able to succeed through high-end customer service, prompt & accurate information and best available use of technology. We also inspire our people to bring best out of them every day and finding ways to enhance investor‟s confidence and support.

2.4. Goals of Anchor Securities Limited:

T

o lead by example through a commitment that empowers the organization at every level to strive for the highest levels of quality, customer care and stakeholder value. To be the most sought after facilitator in creating wealth. To optimize the value of being our Customer, Shareholder or Employee. To establish strong regional presence.

2.5. Anchor’s Services:

I. Real Time Online Trading in Bangladesh for the very first time. II. Full Service Depository Participant.

III. BO Account Opening.

IV. Separate Telephone trading terminal.

V. Trade facilities for Non Residence Bangladeshi. VI. Highly Developed Back office Software.

VII. Large Monitor Trading Screen.

VIII. Prompt, Reliable, and Friendly Client Services. IX. Highly Skilled Management.

X. Well equipped trading house with sophisticated technologies. XI. Daily email all of clients: Portfolio, Ledger, Confirmation note etc.

03. My Work Experience at Anchor Securities Limited

3.1. Daily Accounts Related Activities:

 Collect daily bank balances and prepare cash flow statement.  Maintain petty cash account.

 Settle all Investors Owed Utilities (IOU) slip of payment.  Collect all fills from concern persons within month‟s end.  Maintain cash book.

 Prepare cheque.

 Arrange cheque and cash deposit in the bank within banking hour.  Record various office expenses and bills.

 Prepare Profit and Loss (P/L) account and balance sheet. 3.2. Client Service:

 Cheque and cash received from the client.  Cheque payment to the clients.

 Provide financial and other related information to the clients.  Client‟s signature to be verified as when required.

 Authorized signature to be verified.

3.3. Trade Execution Service:

 Execute clients order through DSE and CSE terminal.  Execute clients order under ASL trading rules.

 Collect buy/sale order and pay-in slip from the clients, submit it to Manager Operation and file the order & pay-in slip properly.

 Communicate with the clients and inform market scenario.

 Communicate with the clients retarding cheque and stocks for timely deposit.  Before executing order, confirm whether sufficient matured stocks have or not. 3.4. Review Client Position Regular Basis:

 Collect clients stock and fund position form the back office.

 Review the client‟s status and inform the management regarding client‟s status.  Before handling over the stock, check the client balance.

 Confirm all stock receipts and payments have been posted before taking print out. 3.5. Other Routine Work:

 Observe all incoming opening form.  Filed all clients‟ account opening form.

 Preserve blank account opening form, authorization form. 3.6. A Buy\ Sale order contains following data:

 Trading date,

 Client code-The account number given by the brokerage firm against a BO number,  Name of the security or securities,

 Buy\ Sell rate,  Client signature,

 Authorized signature-Signature of the trader who executed the order.

3.7. Transaction Instruction Form (Pay-In) Slip contains the following data:  Security Account number i.e. Client code

 BO ID

 Name of the Account holder

 Brokerage firms DSE/CSE clearing account number  Signature of the client

 Depository participant seal

04. Development History of Online Trading

D

haka Stock Exchange (Generally known as DSE) is the main stock exchange of

Bangladesh which was incorporated in 1954 and started formal trading in 1956. In 23 June 1962 it was renamed as East Pakistan Stock Exchange Ltd. From 1971 the trading was discontinued for five years. Finally in 1976 trading restarted in Bangladesh, on 16 September 1986 Dhaka Stock Exchange (DSE) was started as a public limited company which is formed and managed under Company Act 1994. In August 1998, Dhaka Stock Exchange started offering the automated trading services to the existing & other brokers entered the market in the same year and started trading on 1 January 2001. Security and Exchange Commission Act 1993, Security and Exchange Commission Regulation 1994, and Security Exchange (Inside Trading) regulation 1994 allow investors to place orders through electronic channels. The Dhaka Stock Exchange (DSE) introduced the much- talked online trading using MSA-Plus (Member's Server Application) software on June 10, 2012. After the introduction of MSA-plus software, the investors got trading access to the DSE by using individual password provided by brokerage houses concerned from anywhere in the country and across the globe through the Internet. MSA-Plus will allow stock investors to place buy or sell orders online on the internet from any location. It means stock investors would not have to place buy or sell orders with authorized traders. Currently 217 Member House Server connected to the central MSA-Plus network. It will ensure transparency and accountability in the stock market and prompt transparent trading activities.

05. Statistics on Online Trading

O

nline trading value increased substantially by 8000percent or 80 times from Tk.233 million in July 2004 to Tk.18874 million in July 2010. It then fluctuated sharply in November 2010 and continuing till now, influenced by the change in the overall market sentiment. The market share of automated trading, however, increased quite steadily from its launch in 2001 until November 2010. Since the last quarter of 2010, the market share has started declining slightly. One possible reason may be the stimulation of security concerns among investors, especially after a report on our countries banking sector‟s liquidity. In July 2004, the automated trade volume was 8641; with an increase of 2340% or 23.4 times trade volume sets a record to 21084 in 2010. But from the beginning 2011 the number of trade volume decreases & in 30 July 2012 came down to 83849.

On the other hand the General index which is included A & B category of shares has been in a bullish trend till 2010. In 2004 the general index was 1319, in 05 December 2010 it sets a new record by heating 8919 points, at present the DSE general index is around 4100 points and it is fluctuating sharply. At the beginning stage after automated trading was introduced in 2001, the market capitalization significantly increased for both new listed companies & the increase in the prices of existing shares. During July 2004 the market capital was calculated TK.136641 million. In 05 July 2010 the market capital has increased by 26 times from 2004 & sets a new benchmark of TK.3680714 million. In July 2012 the market capital was in TK. 2359553 million.

Statistics (DSE)

Highest Records

Values Date Total Number of Trades 389310 05-12-2010

Total Trade Volume 242856735 21-07-2011 Total Traded Value in Taka(mn) 32495.756 05-12-2010 Total Market Capital in Taka(mn) 3680714.195 05-12-2010 DSI Index 7383.93657 05-12-2010 DSE General Index 8918.51346 05-12-2010 Date Total Trade Total Volume Total Value in Taka(mn) Total Market Cap. in Taka(mn)

DSI Index DSE Genera

2004-06-30 8641 2519627 232.979 136640.924 0 1318.91983 2005-06-29 8447 2490281 267.844 222045.576 1310.62244 1713.17356 2006-06-29 10057 2137900 219.503 215421.866 1040.46889 1339.52254 2007-06-28 35517 17695463 1342.597 475855.370 1764.18283 2149.3174 2008-06-30 64224 21364228 3309.622 931025.238 2588.02902 3000.49773 2009-06-30 174977 43254081 9421.982 1241338.962 2520.14972 3010.26379 2010-06-30 210841 66436389 18873.757 2700744.561 5111.63121 6153.67737 2011-06-30 207052 95849733 9548.435 2853892.240 5093.18868 6117.23401 2012-06-28 83849 60091155 2999.978 2491612.943 3877.64059 4572.87836

STATISTICS & FINDINGS (2004-2012) Date Total Trade Total Volume Total Value in Taka(mn) Total Market Cap. in Taka(mn)

DSI Index DSE General % In Total Value in Taka(mn) % In Total Market Cap. in Taka(mn) % In DSE General 6/30/2004 8641 2519627 232.979 136640.924 0 1318.91983 0 0 0 6/29/2005 8447 2490281 267.844 222045.576 1310.62244 1713.17356 15% 63% 30% 6/29/2006 10057 2137900 219.503 215421.866 1040.46889 1339.52254 -18% -3% -22% 6/28/2007 35517 17695463 1342.597 475855.37 1764.18283 2149.3174 512% 121% 60% 6/30/2008 64224 21364228 3309.622 931025.238 2588.02902 3000.49773 147% 96% 40% 6/30/2009 174977 43254081 9421.982 1241338.962 2520.14972 3010.26379 185% 33% 0% 6/30/2010 210841 66436389 18873.757 2700744.561 5111.63121 6153.67737 100% 118% 104% 6/30/2011 207052 95849733 9548.435 2853892.24 5093.18868 6117.23401 -49% 6% -1% 6/28/2012 83849 60091155 2999.978 2491612.943 3877.64059 4572.87836 -69% -13% -25%

06. Market Structure for Online Trading

T

he online trading process in Bangladesh is not a completely “straight through” process. Some online brokers still require manual rein put for their online orders received. The trading mechanism is described below, followed by the functions of application software Member's Server Application (MSA) plus, and description of the business practice of online brokers.

6.1. Member's Server Application (MSA) Plus:

O

n 10th August 1998, Automated Trading System was introduced further up gradation of hardware in DSE automated trading system was done in August 2005 & continued till 2010 at Dhaka Stock Exchange Ltd. At the same time a major change done in the application software to incorporate facilities to trade from all over the country through dedicated WAN (wide area network) connectivity. DSE took the initiative for upgrading existing MSA PLUS client application MSA to MSA Plus and a work order was given to the existing vendor Cambridge Solution Ltd. in May 2010. This up gradation will provide platform for enabling Internet trading in near future.

Member's Server Application (MSA) Plus is now a Web Based Application. The hardware infrastructure for MSA Plus solution in a Brokerage House will consist of an Application Server, a Database Server & a Web Server component instated of earlier restricted single server facilities. In present solution users have to type URL on the web browser instead of clicking the program or software installed in the terminal.

6.2. Trading mechanism:

A

n online order input by a client is routed to the broker‟s online system for primary checking on login identity and then to the broker‟s workstation terminal for approval. In near future most online brokers enable auto approval for online orders that are below the fixed credit limit on the client. For orders exceeding the limit, the broker may reject the order or may approve the order manually on a case by case basis. Online brokers that require manual re input of online orders normally do not have the facility for auto approval in their system. After approval, orders will be transmitted through a closed network to the Automatic order Matching and execution System (AMS) trading system to Member's Server Application (MSA) Plus system for auto matching & execution. The MSA Plus system also sends out order confirmations and trade reports to brokers. The broker will then notify the client of the transaction after receiving the trade report.

6.2.1. The basic features of upgraded MSA Plus Solution are as follows:

I. „Thin Client Architecture‟ (web based application) instead of existing Thick Client Architecture (desktop application).

II. Investors would be able to submit order via Internet to the respective broker houses. III. All workstations, which are now called „Terminals‟, will be connected to the member

web server using suitable browser through network (Intranet / Extranet / Internet). IV. Pre-validation feature will be adopted; this will empower the brokerage houses to pre

revalidate clients buy (cash limit) and sell (share limit) orders.

V. Instrument‟s buy/sell can be restricted individually. Can stop either buy or sell. VI. Intraday graph for price movement of each instrument.

VII. BO ID to be made mandatory during client registration. BO ID field will not be allowed for modification.

VIII. Client type (normal, foreign, dealer, corporate & others) could be defined at the time of client registration.

IX. Instrument category & sector parameter has been incorporated.

X. No local installation for trader work station will be required, since it is a web based application.

XI. Number of Traders per broker will be open.

XII. Export / Import facilities with a required new file format based on BO ID & ISIN will be available in MSA Plus to interact with broker‟s back office System as well as CDBL.

6.2.2. Terminals are as follows:

I. Broker Terminal: Broker would establish connection with trading engine, thus enabling all users under the broker to connect.

II. Admin Terminal: Administrative functions within the Broker are carried out from the admin terminal. There will be more than one Admin terminal to perform specified roles

III. Trading Terminal: Traders are users who trade on behalf of client. Traders connect to the MSA Plus and then login remotely to the Trading Engine.

IV. Dealer Terminal: Dealer activities are performed here.

V. Investor Terminal (new): Clients/Investors are allowed to place local orders through Internet (as per Client/Investor registration on Brokerage House).

VI. iTrader Terminal (new): iTrader user manages Investor orders.

VII. View Terminal: View Terminal users can locally login into MSA Plus application and access the information available locally.

6.2.4. Principal Functions OF Member's Server Application (MSA) Plus:

M

arket Information is a real time market data system. It collects, manages, generates, and stores information relating to trade instruments and issuing companies. Market Information is responsible for,

Collecting Real Time Market Information: Bids, offers, last sale (most recent trade price and volume), book, and other data are gathered via the Trading engine. It supports MSA PLUS's automated and manual trading modules and can process the trades of external and off market systems.

Collecting company Information: All information supplied by the listed companies is maintained in the MSA PLUS database. A link was added with the respective summary of company‟s financial performance, by clicking the given link anyone can visit the website of the company and gather details information.

Generating Market Statistics: MSA PLUS generates market indices on a real time basis. It generates other statistical information such as Price, NAV, P\E, EPS etc.

Providing Market Information: By gathering all market information‟s needed, investors took the decisions of buy and sell. Through MSA Plus the DSE provides the change in price, total volume, yesterday close price, dividend declared, dividend yield, total amount of taka traded etc.

Order Management: Accept validate and store orders and quotes from broker workstations and systems. The orders are automatically arranged on the basis of investors broker house ID.A snap of company information is given in reference.

Order Execution: Automatically executes orders when buy and sell prices match. If the desired purchasing order price matched with the current market price the order will

automatically executed by the MSA Plus Software. A snap of company information is given in reference.

Trade Reporting: Trade execution reports are provided to each trade participant, to the settlement system and the depository and to the market. After execution of each and every placed order, the share and money will be shown to the respective investors account. Index Calculation: Calculates and publishes market indices (DSE General Index & Weighted Average Index).

Index Calculation Algorithm (according to IOSCO Index Methodology):

Yesterday's Closing Index X Current M.Cap Current Index = ---

Opening M.Cap

Yesterday's Closing Index X Closing M.Cap Closing Index = ---

Opening M.Cap Current M.Cap = ∑ (LTP X Total no. of indexed shares) Closing M.Cap = ∑ (CP X Total no. of indexed shares)

Abbreviations and Acronyms

M.Cap – Market Capitalization, DSE – Dhaka Stock Exchange, IOSCO – International Organization of Securities Exchange Commission, LTP – Last Traded Price‟s-Closing Price. Market Access: Provide exchange members with efficient affordable GUI based tools for accessing the market. GUI based tools helps serve the purpose of automating the testing process of software with graphical user interfaces.

6.2.5. Comparison:

C

omparison between existing MSA and upgraded MSA plus Solution

.

MSA & TWS MSA Plus 1. Desktop Based Application: Thick

client application thus prompting for more system resource to run efficiently

Web Based Application: Thin client application and requires minimum system resource to run efficiently. 2. No Internet Accessibility: Investors

cannot place order through Internet

Order submission through Internet: Investors can submit order via Internet to the respective Broker Houses. 3. Pre-validation of cash: Possible

(Validate the consolidate / buy / sell trade value limit).

Pre-validation of share: Not available

Pre-validation of cash, improved: Possible, clients buy (cash limit). Pre-validation of share: client‟s sell (share limit) orders.

4. Trader Restriction: Instrument‟s buy/sell cannot be restricted individually

Trader Restriction: Instrument‟s buy/sell can be stopped either buy or sell or both for specific Trader. 5. Number of Workstation: Trader work

stations are limited by numbers.

Number of Workstation: Trader work stations are virtually unlimited (necessary hardware should be scaled as per volume requirement)

6. Network Infrastructure: Trader

workstations are connected to the member web server using suitable LAN or WAN (Point to point or Routed

Network Infrastructure: All workstations, (Trader, Dealer, View, iTrader, Admin terminal etc.) will be connected to the member web server

using suitable browser through network

(LAN / Intranet / Extranet / Internet). 7. Instrument graph: not available. Instrument graph: Intraday graph for

price movement of each instrument is available.

8. Client type: cannot be defined during client registration

Client type: normal, foreign, dealer, corporate & others client type is available during client registrations 9. Instrument category & sector

Parameter: not available.

Instrument category & sector parameter: available in all market books.

10. Software Installation: Installation & configuration is required up to trader workstation level.

Software Installation: Installation & configuration is not required up to trader workstation level. It is done centrally at the MSA Plus Server. 11. Maintenance: Deployment and

maintenance procedure is cumbersome; it is distributed up to workstation level.

Maintenance: Deployment and maintenance is easier and centralized. MSA Plus software maintenance is not required at workstation level.

6.2.6. TRADING SESSIONS (MSA PLUS):

M

SA PLUS conducts trading in-5-phases.

Enquiry: In this session Brokers can logon to the system. No order will be submitted in this session. No trade will be executed. Only previous orders can be withdrawn in this session. Opening: The Opening is a pure, single-price auction. All buy and all sell orders are compared and calculate the open-adjust price. No trades will be executed in this session. Continuous Trading: During this phase, participants enter orders and immediate execution or for inclusion in the book. Automatic matching and execution takes place based on best price first in, first out trading rules.

Closing: Closing prices are calculated and disseminated to market participants.

Enquiry: Market will be closed in this session & other facilities like the previous enquiry session.

6.3. Online brokers:

I

n Bangladesh brokerage (Broker house) industry is dominated by domestic brokerage firms. Many local firms maintain extensive branch networks throughout Bangladesh. As of 2001, there were 58 brokers throughout Bangladesh with no branch offices. At that time there were no facilities of online trading in Bangladesh and automated trading was just about to launch. After the year 2005 the DSE and CSE started giving the facility to the brokers to trade throughout Bangladesh. That was the first revolution in this industry, the number of broker houses rise up to 117 and among them almost 30 broker houses start working on opening branches in Dhaka city as well as in other districts. However, the total number of brokers jumps for the second time in 2007-2008 when the stock market continues with an upward trend. Between that times the number of brokers stood almost 200 with a number of 250

branches throughout Bangladesh particularly in Sylhet, Bogra, Rajshahi and Chittagong. Finally in 2010, it reaches on its highest number of 220 broker houses with almost 400 branches. Today the numbers of broker houses are 238 with only around 200 branches and sub branches. It just became of the downward trend of the market.

The business practices of online brokers in Taiwan are discussed below. 6.3.1. Business practices:

A

stock or bond broker is an agent who acts as a mediator for personal or fund investing, being paid a commission based on the amount of trading. Small, or discount, market brokers generally facilitate trades without providing input. The last quarter of the 20th century saw a large number of discount brokerage firms and internet trading sites that allowed a wider segment of the population to get involved with trading with smaller commission prices.

I. At sale limit order is an order with a specified price. An at sale limit order with a specified price at or more competitive than the final Indicative Equilibrium Price (IEP) (in case of buying, the specified price is equal to or higher than the final IEP or in case of selling the specified price is equal to or lower than the final IEP) may be matched at the final Indicative Equilibrium Price (IEP) subject to availability of eligible matching order on the opposite side.

II. Online brokers are offering low fees at about half the price for offline trading in order to capture market share in a short period of time. Many online brokers are still not making money in their online business.

III. A limit order will allow matching only at the specified price. The sell order input price cannot be made at a price below the best bid price, if available whereas the buy order input price cannot be made at a price above the best ask price if available.

IV. Online brokers also compete by offering quality customer services. They usually set up a customer service hotline to serve online investors. They also offer a personalized online interface and more functionality with investment and analysis tools.

V. A direct business transaction refers to the business transacted by an Exchange Participant who acts for both the buyer and the seller whether as principal or agent.

VI. A non-direct business transaction refers to the business transacted by two Exchange Participants one as buyer and the other as seller.

VII. Online brokers usually promote online business aggressively to attract new customers and build up reputation, even though the profitability of online trading is currently compressed by the low price and low user acceptance. This is to prepare for the future when online trading is expected to become the mainstream.

VIII. A pre-opening trade is a trade concluded before the commencement of the Preopening Session, including that concluded on the previous day but not recorded in the

Automatic order Matching and execution System (AMS).

IX. However, online brokers usually don‟t promote online trading services to their large customers. Instead, they usually assign a designated account executive to handle accounts of large investors in order to build a stronger bond with them.

6.3.2. Percentage share of online investor accounts among brokers:

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he percentage share of online investor accounts is determined in a few online brokers because the present condition of Bangladesh‟s stock market is not good. Investors are losing their money & courage, and this expression of investors are negatively impacting the market & as well as the broker houses. The top five online brokers already share half of the market

total, leaving 212 online brokers to fight for the remaining market share .These top-five brokers are all major domestic securities firms. Their names are ICB(Investment Corporation of Bangladesh) , LankaBangla Securities Ltd., AB Bank Foundation (ABF), IDLC Securities Ltd. (ISL), DBL Securities Ltd. They have a long history and well-established brand name in Bangladesh. In addition, they maintain extensive branch networks as their main service distribution channels.

07. Regulation of Online Trading

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o accommodate the development of online trading, the relevant rules and regulations have been amended since 1994. In 2001, the Securities and Exchange Commission (SEC) issued sets of guidelines for automated trading of securities and also in 2012 for the firms or brokers who offers online trading services. The key provisions in the regulations and guidelines on automated and online trading are summarized below.

1. Foreign Exchange Regulation (FER) Act, 1947 (Act No. VII of 1947) enacted on 11th

March, 1947 in the then British India provides the legal basis for regulating certain payments, dealings in foreign exchange and securities and the import and export of currency and

2. Now, therefore, in exercise of the power conferred by section 34, sub-section (4), of the Securities and Exchange Ordinance , 1969 (XVII of 1969), the Securities and Exchange Commission hereby directs both Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd. to amend relevant provisions of the said Regulations of the exchanges for completing the settlement and clearance of each executed transaction in securities under „A‟-category

companies on the „Trade+4‟, (T+2&T+4 respectively) basis, in place of the existing „Trade+5‟, ( Trade+3 & Trade+5 respectively) basis, which shall be effective from the first trading day commencing on the 20th March 2004.

3. In case of a company already placed in „A‟ or „B‟-category, its share shall be placed in „Z‟- category from the next day of submission, or expiry of the date of submission, of the requisite compliance report to SEC, if it is found that the company has failed either to pay off the declared dividend or to submit the said report thereon within the time limits prescribed in the erstwhile CCI‟s Notification No. SRO.385-Law/91 dated 15th December 1991, read together with section 2G of the Securities and Exchange Ordinance, 1969 (XVII of 1969), for

whatsoever reason.

4. Authorized Dealers (ADs) in foreign exchange are required to bring the foreign exchange regulations to the notice of their customers in their day-to-day dealings and to ensure

compliance with the regulations by such customers. The ADs should report to the Bangladesh Bank any attempt, direct or indirect, of evasion of the provisions of the Act, or any rules, orders or directions issued there under.

5. This publication summarizes the instructions issued under the FER Act as well as the prudential instructions issued by Bangladesh Bank (as of 31 May, 2009) to be followed by ADs and Money Changers in their day-to-day foreign exchange transactions.

6. List of required information/documents for seeking permission to act under section 18A and 18B of Foreign Exchange Regulation Act, 1947 and (iv) Guidelines to be followed to act as an agent (as Satellite Channel Distributor) of foreign principal(s) under section 18A of Foreign Exchange Regulation Act, 1947.

7. Terms having a special meaning for the purpose of the FER Act are defined under Section 2 of the Act. However, for the purpose of this publication and the instructions issued by the Bangladesh Bank from time to time, the following terms as defined below shall be used in addition to those defined under Section 2 of the FER Act, 1947.

8. The existing board of directors of the issuer company of a listed security which remains in the said „Z-category‟ for the staid period shall be reconstituted by holding extra-ordinary general meeting within six months from the date of:

(a). publication of this notification in the official gazette, in respect of the security already in „Z-category‟ for a period exceeding one year, Or (a). Expiry of the continuous one year period after placement of the security in the said „Z-category‟.

Type or Category of Share

Share Type Definition

A Category Company Declares minimum 10% Dividend a year. B Category Company Declares up to 9% Dividend a year. Z Category Company Declares no Dividend in a year. N Category New Listed Companies.

08. Obstacles to and Prospects for Online Trading

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n Bangladesh, the online share trading in total market turnover and the amount of investors who are online investors remains very low. In this section I have summarized the major obstacles to the development of online trading and then discussed the prospects for online trading in Bangladesh.

8.1 Major obstacles:

I. Unsatisfactory acceptance by investors: As many brokerage firms maintain

excessive branch networks, investors can easily find a branch near them. Investors can also place orders conveniently by offline methods likely by phone, by sms, by mailing etc. As a result, investors have low motivation and reasons to switch to the new trading method. In addition, similar to other cities like Sylhet, Khulna, Chittagong Bangladesh‟s Internet population consists mostly of young people, while they are not showing their interest in this sector.

II. Conservatism of brokers: Although online brokers usually make big efforts to promote their online trading business, they still prefer to maintain a strong presence in traditional business. These online brokers do not encourage existing customers to switch to online trading and still run a large number of branches throughout

Bangladesh. Because, brokers have to maintain dual accounts and it will be an extra burden to the brokers. Another reason may be the internal resistance from account executives whose income is based on commission. Customers switching from account executive based traditional trading methods to online trading would seriously affect account executives‟ income.

III. Security concerns: Although securities firms are required to fulfill with the DSE‟s standards about network security, there are still reports of people being defrauded through their respective brokers. Such reports adversely affect the confidence of investors and make investors hesitant to engage with their brokers.

IV. Wrong Information: Sometimes brokers provide wrong information‟s about different stocks or instruments for the sake of their own trading turnover. In the case of online trading investors are suffering and losing their money and patients, because, the investors has less opportunity to discuss and justify the accuracy of the brokers information.

V. Miss-Management: In automated trading software the brokers miss usages their power in case of setting their commissions rate also DSE doesn‟t issue any specific rules on it. In some brokers house the commission rate is 0.20 per cent to 0.60 per cent. This commission rate depends on investor‟s amount of investment.

VI. Unable To Know Account Updates: Due to continuous upgrading of MSA Plus software investors who are trading online are unable to check their own account information‟s like balance of money, matured no. of shares, unmatured no. of shares, receivable of dividends, dates of AGM, trade summary etc. For this information‟s investors have contact their brokers and receive the information‟s manually.

VII. Failure of CDBL: On July 30, 2012 Monday, there was a technical issue on CDBL that prohibited DSE & CSE to settle some last hour transition of trade of the day. As a result, SEC had to suspend trade of the following day (July 31, 2012 Tuesday) in DSE and CSE. To find out the proper reason of that occurrence and if there was any foul play behind it, SEC formed a committee to investigate the whole incident on Monday. Official delegate of Security and Exchange Commission (SEC) investigated the incident of Central Depository Bangladesh Limited (CDBL). Primarily, they have

identified technical fault as the main reason for the accident of that compelled CDBL to stop their operation. Server problem, though rare, but occurred in many countries, halting share transactions for hours to days. They have recommended

increasing answerability and liability among technicians and officers in charge of CDBL.

8.2. Prospects:

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number of potential developments in Bangladesh and its brokerage industry may directly or indirectly support the growth of online trading. The growing Internet penetration in

Bangladesh is also expected to have positive effect on online trading. This section attempts to discuss the prospects for online trading in Bangladesh in the light of such changes.

I. Low cost-saving incentive to investors for online trading: Under the keen market competition, the order handling fees for traditional trading are already very low. The room for attracting investors to trade online by price-cutting is quite limited. People are being less hesitated through online trading. Investors have enough time to think before sell and buy or take decisions of trading. Although the software have a low maintenance cost.

II. Opportunities to expand domestic the online customer base: Internet penetration in Bangladesh is deepening. As of JULY 2012, 3.7% of the total Bangladesh populations have access to the Internet and the numbers of broadband users are very low, up to .37% in 2006. Although the penetration rate for Bangladesh is relatively low when compared with some other Asian countries, given the sizable population in Bangladesh, the increasing number of Internet users should provide opportunities for Bangladesh online brokers to expand their business. In addition, one major online

broker believes the usage of online trading will be higher when more young people, who are heavy Internet users, hit the investment age.

III. Enhancements in brokers’ online systems to attract new customers: In

Bangladesh, the broker houses start opening the branches domestically after 2005. This industry makes a revolutionary growth after local merchant banks start opening branches globally. Also on the other hand foreign securities firms and companies like Citi Bank NA, Lanka Bnagla enters the domestic retail market which is currently dominated by domestic firms. To face the challenge, Bangladesh local brokerage firms would have to increase their competitiveness. One way is internal technological advancement to increase operational efficiency. Online brokers tend to introduce continuously new investment management systems and enhance their existing in-house trading systems. Such systems move towards a straight-through trading process, with a more user-friendly interface, and more functionality for online trading. Such enhancements are expected to stimulate more investors to trade online.

IV. Globalization for online brokers: Bangladesh brokers are eager to expand their businesses overseas. Given the similarities in culture and language, the two major overseas markets are China and India. In fact, Bangladesh brokers have already been in few markets for a past few years and are now expanding their online brokerage business here. Such expansion is expected to benefit the domestic online trading industry as NRB‟s can trade into our Dhaka & Chittagong Stock exchanges through online trading system. SEC has some specific rules and regulations on the investment of NRB‟s. They can also apply for the Initial Public offering (IPO).

09. Methodology

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o do my research, I have to make a design on model to do it. I have designed my report on exploratory research method. First of all, I made a fame work for the proposed work. Then I start collecting data. To do my report I used secondary data source. Internet Blogs, News papers, Websites, Library were the source of my data collections. I also gather Experiences by observing and taking of many investor of my broker house. In my report these is a mixture of raw data and my gathered experiences. I also explain the online trading process, rules, and regulations of Securities and Exchange Commission (SEC), online business practices and the prospects and obstacles of online trading. Basically, I have tried to explore all the basic elements and systems of online trading function in Dhaka Stock Exchange (DSE). I also used qualitative research system foe exploring the data‟s.

10. Conclusion

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here is a saying that “The stock market is the pulse of the economy.” It is natural from micro point of view that an individual will plan his investment on the basis of fiscal policy, from the macro point of view; it is important to through light on future national economic policy by means of budget. In the developed world, how the stock market is doing is not only a matter for prime-time news bulletin but also a matter of public interest on an hourly-basis. Well-functioning and developed capital markets augments the process of economic

development, efficiency welfare through different ways such as encourage savings, draw more savers and users into the investment process, draw more institution into the

intermediation process, help mobilization of non financial resources, attract external

resources, discipline sick organization and investments organizing production of goods and services and creating employment opportunities. So it can be said that “In an economy, the capital market plays a vital role in the efficient allocation of scarce resources.” Though the MSA Plus online trading software has been installed and brokers starts working on it although it fails to create buzz in the market. The biggest reason is the present condition of the stock market is not in investors favor. Investors are losing their capital in every minute & every hour of a single day because the government has taken some risky decisions included the reduction of interest rate, imposing tax on Government Saving Certificates, providing facilities to enter black money in the stock market and so on. On the other hand, Bangladesh Bank increased Cash Reserve Requirements (CRR) from 5.5% to 6.00% and Statutory Liquidity Ratio (SLR) from 18.5% to 19.00% the obvious result of which was the liquidity crises. As a result a huge sales pressure helped the acceleration of the pace of the slump of capital market. Keeping conspiracy theory aside, instability, or extreme volatility of a capital market may suggest weaknesses in the market. As an important part of the economy of the

country, well-functioning of the capital market is a must for the Industrialization process of an un-industrialized country like Bangladesh but un-stability in the same may negatively affect the total financial system. Therefore, all related corners including Government, Regulatory bodies, Listed Companies, Brokerage houses, institutional investors, and retail investors should act rationally to maintain the stability in the capital market for the greater interest of the country.

References

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10. “Monthly Review”- of Dhaka Stock Exchange Ltd. 11. Bangladesh Bank Websites

12. http://www.stockbangladesh.com/omos/index 13. http://bangladesheconomy.wordpress.com/2009/11/04/dse-to-introduce-online-trading/ 14. http://www.free-press-release.com/news/200903/1236866143.html 15. http://www.dsebd.org/ 16. http://www.dsebd.org/by_industrylisting1.php 17. http://www.idlc.com/files/Monthly%20Business%20Review.pdf 18. http://www.demotix.com/news/550674/more-demonstrations-share-prices-fall 19. http://www.thefinancialexpress-bd.com/more.php?page=detail_news&date=2012-04-26&news_id=127878 20. http://www.newstoday.com.bd/?archive_date=2012-07-30