Their extended closure could prove to be detrimental in the long run
After cash -- which refers to money that is readily available for use -- the stock is the most liquid asset in terms of ease conversion. However, over the last one month, the two stock exchanges suspended trading, settlement, and other activities completely to prevent the spread of the coronavirus pandemic.
On March 25, the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) both passed the last trading day in line with the government’s general holidays announcement. We don’t know whether the government will extend the time furthermore.
However, we think that the bourses should re-open immediately because no stock markets around the world are remaining closed for such a long period. In this crisis moment, retail investors or even institutional investors have the right to liquidate their assets amid the right price. If the investors value liquidity more than the right price, they should not be blocked and eventually, investors have the right to sell-off their shares.
Meanwhile, some investors may speculate it’s the right time to buy the shares due to the lower price and expecting the high percentage of capital gain in the future. That’s how the demand-supply is created in the market and the stock market runs. On the other hand, if the stock market remains closed, it gives a negative signal to the foreign investors that their investment is blocked.
In Bangladesh, most of the foreign funds are coming through different foreign asset management companies (AMCs) and those (AMCs) are bound to comply with strict compliance rules and regulations while investing in the frontier market like Bangladesh where the liquidity of the assets is the most vital part to invest in any country. As a result, the stock markets should not be closed for an uncertain period. Otherwise, foreign investments will not come to our country.
Apart from the Philippine Stock Exchange Inc which suspended the operations for two days amid the coronavirus pandemic on March 17, all other major bourses ie the New York Stock Exchange (NYSE), London Stock Exchange (LSE), or even our India’s Bombay Stock Exchange Ltd (BSE) are running their full operations. Not a single stock market around the world is closed.
Thus, the government of Bangladesh should re-open the stock markets immediately for the betterment of more than 1 million directly and 3 million indirectly -- involving investors' faith, and for the stakeholders of the capital market ie, brokerage houses, merchant banking and portfolio managers, asset management companies, mutual funds, etc.
At the same time, the government should declare a stimulus package for the affected investors and the stakeholders of the capital market for a short and long term basis due to losses amid the coronavirus pandemic. Many stock brokerage houses are already in deep crisis due to huge losses. They have shut down their branches and laid off employees. If the government doesn’t come up with an incentive package such as low-cost margin loans, tax benefits, many companies will have to shut down completely.
On March 19, the Bangladesh Securities and Exchange Commission (BSEC) implemented a new circuit-breaker rule and set a floor price for every stock which has both positive and negative sides in the industry. The positive side of the rule stops the free fall of share prices and the forced selling of shares has come down. The protection is basically to identify the fair value of the stock prices.
The negative side has a higher weight than the positive side. Due to floor price, there is a liquidity crisis in the market, and the seller could not sell the shares due to the absence of the buyer with the floor price. The original supply and demand price does not match with the equilibrium point; thus the turnover sharply decreases. It’s not the right tool to implement in the stock market because we can’t even control the commodity market by ceiling the floor price. So how could we control the artificial prices in the financial markets?
There is a valid argument of the health threat. The bourses may resume trading and other activities with shortened trading hours. Usually, during the holy month of Ramadan, the trading time is curtailed by one hour. However, fixing hours in line with the business hours of the scheduled government banks should not be a big deal.
Our trading platforms and settlement systems so far are not fully automated. DSE, the premier bourse, has a hundred percent real-time trading platform (Flex-Trade) which allows real-time trading through mobile, laptop, or desktop from anywhere in the world. However, the conventional investors are not used to such types of devices -- rather they are more familiar with the traditional over-the-counter platform and prefer to buy/sell through telephone.
Merely 5-6% trade has been executed with the online platform, whereas the strategic partner of DSE, Shanghai & Shenzhen Stock Exchanges, has more than 95% online trading. Due to the coronavirus pandemic, it’s the right time to focus on automation in every sphere in the trading platform as well as the settlement system. If online trading takes place more prominently, then only a few key people can ensure other trading activities and IT infrastructure functions.
The coronavirus pandemic is driving an upheaval in every human realm. There can be no doubt that the primary mission is to control the spread of the disease and develop a vaccine as soon as possible. However, a close secondary critical mission is to protect our economy and stock markets are an integrated part of the economy.
M Shahriar Azad Bhuiyan is the Head of Internal Control & Compliance, UniCap Securities Limited (a wholly-owned subsidiary of Union Capital Limited). He can be reached at: [email protected].