Brief Investment Guide for Trading in the Stock Exchanges

What is stock market?

A stock Market is place where stocks (shares) can be bought and sold



What is quoted company

A quoted company is company whose shares are traded on the stock Exchanges



What type of instruments are traded?

The following type of instruments are traded at Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) (a) Equity Shares (b) Debentures (c) Mutual Funds (d) Corporate bonds



What is DSE All Share Price Index? How does one read the index?

The DSE All Share Price Index is a market capitalization weighted index comprising all listed companies. Each stock has been given a weight in the index equivalent to its market capitalization. The base was at 100. Daily price change in index securities is captured in the market capitalization figure and reflected in terms of index movement. The index value compares the days market capitalization vis-a-vis base capitalization and indicates how prices in general have moved over a period of time.



How many brokers operate on DSE and CSE?

The Dhaka Stock Exchange (DSE) has 195 SEC registered trading members/brokers and the Chittagong Stock Exchange (CSE) has 124 registered brokers. Many of these registered brokers have authorized representatives operating on the floor on behalf of the concerned brokers of DSE or CSE. You should execute your deal through a registered broker of a recognized stock exchange or through a registered authorized representative.



How do I deal with a registered authorized representative?

You should send your request in writing for purchase or sale of shares/debentures/mutual funds. The authorized representatives on executing your order furnish you with a purchase/sale note. This purchase/sale note originates from the contract note which is issued by the main broker to the sub-broker. The purchase/sale note would help in resolving any disputes with the authorized representative.



What are the formalities for becoming a client of a broker/authorized representative?

All investors should open accounts with necessary documentary support of proof of identity and get the registration/account number. The features of this opening an account is to reduce the chances of any disputes.



What is the maximum brokerage that a broker can charge?

The maximum brokerage chargeable is at present 1% of the trade value



What is contract/confirmation note?

Contract note is a confirmation of trades done on a particular day for and on behalf of a client. A contract note issued in the prescribed format and manner establishes a legally enforceable relationship between the member and client in respect of the trades stated in that contract note. Contracts note are made in duplicate and the member and client both keep one copy each.



What are the points to be checked by an investors to check the validity of a contract note?

Name and address of trading member, their SEC registration number, details of trade like order No. trade No. trade time, security name, quantity rate, brokerage, settlement no, signature of authorized signatory.



What is a Book Closure/Record Date?

The ownership of shares of companies traded on the stock exchange is freely transferable by registration. However, shares are many times held by buyers without sending it for registration to the company. In order to be entitled to the benefits such as dividend, bonus, rights etc. announced by the company , a buyer would need to send it for registration. The company announces cut off dates from time to time. The list of members on the companies registers as of these cut off dates be the people entitled to the corporate benefits.



What is a no-delivery period?

Whenever a book closure or a record date is announced by a company, the stock exchanges sets up a no-delivery period for that security. During this period, trading is permitted in the security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for the corporate benefit is clearly determined.



What is an ex-date?

The first day of the no-delivery is the ex-date viz. If there is any corporate benefit such as rights, bonus, dividend etc. announced for which book closure/record date is fixed, the buyer of the shares on or after the ex-date will not be eligible for the benefits.



How do I execute an order on the stock exchanges?

Select the broker you want to trade with opening an account and fulfill the other formalities. Place orders with the broker in writing. Ask for the order confirmation slip on the day the order is placed. Ask for trade confirmation slip on the day the trade is executed. Ask for contract note at the end of the trade date. Ensure smooth settlement of the trade by delivering securities and funds on time to your broker.



What are the documents you should receive from your broker and when?

Order confirmation slip. After the order has been placed. Trade confirmation slip. After the trade has been executed. Contract Note: with in 24 hours of the trade being executed.



To what extent price of a share can increase or decrease in a day and during a settlement?

Standard upward and downward price limits over the previous days market price applicable for each market day:





Previous days per share market price Limits
Upto Tk. 200 20% but not exceeding Tk. 35

Tk. 200 to Tk. 500



17.5% but not exceeding Tk. 75

Tk. 501 to Tk. 1000



15% but not exceeding Tk. 125

Tk. 1001 to Tk. 2000



12.5% but not exceeding Tk. 200

Tk. 2001 to Tk. 5000



10% but not exceeding Tk. 375

Tk. 5001 and above



7.5% but not exceeding Tk. 600



What is settlement cycle?

Settlement cycle on the DSE/CSE is an account period for the securities traded on the exchanges.
CLEARING AND SETTLEMENT PROCEDURE
Trading Procedure and Settlement:





Accounting Period


Settlement Day

Saturday to Monday


Next Wednesday

Tuesday to Thursday


Next Monday



If I have sold shares when do I deliver them to the broker?

You have to deliver the securities to the broker immediately upon your getting the contract note for sale but in any case before the shares pay-in-day.

If I have bought shares when do I pay money to the broker?

If you have bought shares, you have to pay-in-funds to the broker in such a manner that the amount paid is realized before the funds pay-in-day.

When can I expect to receive funds/securities from the broker?

The securities and the funds are paid out to the broker on the pay-out day.

What should I do if I receive a bad delivery?

All bad deliveries will have to be reported to the clearing house by the buying broker.

What are company objections?

An investors sends the certificate along with the transfer deed to the company for registration. In certain cases the registration is rejected because of signature difference, or if the shares are fake, forged ot stolen or if there's is a court injunction preventing the transfer of the shares etc. In such cases the company returns the shares along with a letter, which is termed as an objection memo. All such cases are identified as company objections.

What is proper transfer deed?

A deed of transfer is considered proper if it is:

(a) in the prescribed format (Form 117)
(b) dated by the prescribed authority (e.g. Registrar of Comaopnies) and its validity period has not expired
(c) duly signed by or on behalf of the transferor and transferee and complete in all receipts.

How does the transfer of shares take place?

After a sale is effected the share certificate along with a proper transfer deed and complete in all respects is sent to the company for transfer in the name of the buyer. A transfer is complete in the books of the company after the transfer is registered in the share transfer register maintained by the company.

What should I ensure while handling over securities which I have sold?

You have to ensure that the transfer deed is of a recent date and not dated prior to the book closure date. Also, you have to ensure that any other particulars are accurately filled in as contained in the share certificate and if there are any corrections made for the information filled in by the seller, such corrections are properly authenticated by all sellers

Why is it important to register the transfer of shares with the company?

All the corporate benefits like dividend, bonus, rights etc. announced by the company are given to those persons whose names appear in the register of members of the company as on the book-closure date or record announced by the company. It is therefore important for the buyer to register the ownership of the shares.

What are some of the common investor grievances?

Non-receipt of shares sent to transfer Non-receipt of corporate benefits Non-rectification of bad delivery by the broker Non-receipt of funds/securities on sale/purchase Introduction of fake, forged and stolen securities Non-rectification of company objections Contract notes not issued by the broker

What will you do if you have any of the above grievances?

First you should inform your broker of the matter. See what he suggests. If you are not satisfied put your complaints in writing to the authority of the stock exchanges. If it is not solved. Apply with your grievances to the Securities and Exchange Commission.

Rights and Obligation of an Investors

The right to access: the best price, the speediest service The right to get: Proof of price, proof of brokerage charged, your money on time, your shares on time, shares that are genuine The right for redress: against fraudulent price, against unfair brokerage, against delays of money of shares, against investor unfriendly companies The obligation to be systematic: open a proper account with your broker; have early deal recorded on an enforceable contact note The obligation to be correct: Keep your shares in good condition; Keep your signature verification records up to date The obligation to be timely: make sure you pay on time when you buy; make sure you deliver shares in time when you sell; make sure you pay your broker his brokerage charge in time; make sure to send shares for transfer in your name in time





What safeguards does a shareholder have for his investment?

Apart from the normal risks involved in the ups and downs of the market, a share holder in a listed company has the protection of a well organized market, the DSE, CSE and the Securities and Exchange Commission (SEC) a statutory body responsible for ensuring an orderly market and protecting the interest of investors, among other things.

Buying in the Primary Market

In order to buy shares issued by a company in the primary market, you will have to fill out a special form, which is obtained from the brokers, the issuing company, or any branch of a commercial bank involved in the particular issue of shares. Photo copies of such forms could also be used.

In such a primary issue the minimum number of shares that can be applied for is usually 50, and applications for higher quantities must be for multiple of hundred.

Application duly perfected and accompanied by check, bank draft or cash as indicated should be sent to a branch of a bank engaged for the purpose or to a share broking company or the company issuing the shares as stated in the prospectus

In the case of the issue of new shares which have a high demand, it is possible that the amount of money the company is seeking from the issue would be found or subscribed fully, before the closing date. Therefore, it is usually advisable to apply for shares in a primary issue within the stipulated times of the prospectus.

If the issue is over-subscribed the applicant will in due course receive a refund of the money paid for not getting shares through lottery. I f your application is accepted and shares are allotted in your name you will be issued a share certificate by the company. However, you will not be permitted to withdraw your investment from the company. This is because share investment as equities have no maturity dates as with debt obligations. The company in which you have purchased shares has not incurred a debt obligation by issuing shares. Further the Companies Act prohibits a company buying back its own shares.

You will in time earn a dividend, when the company declares dividends depending on its profitability. Or else you may be allotted bonus shares or entitled to buy more shares on a rights issue. However, if you wish to covert your shares into cash you can sell in the Stock Exchanges.