Stock market getting rid of floor price this week, finally

Infographic: TBS

It took more than two years to fully eliminate the strict price floor imposed by regulators, which had prevented stock prices from rising above a predetermined level.

The Bangladesh Securities and Exchange Commission (BSEC) on Thursday evening asked both the bourses to remove the floor price for three stocks namely Beximco Limited, Khulna Power Company and Shahjibazar Power Company from Sunday.

The remaining three stocks BSRM Limited, Islami Bank and Meghna Petroleum will be free from the restriction on 14 August (Wednesday), according to the BSEC letter undersigned by its chairman Professor Shibli Rubayat Ul Islam. 

BSEC Executive Director and Spokesperson Rezaul Karim confirmed the development.

M Shaifur Rahman Mazumdar, managing director of the Chittagong Stock Exchange, told TBS, "We have received the regulatory instruction online and we are prepared to implement it."

There will be no floor price at all from Wednesday, however, the other restrictive measure to arrest the downward momentum — the 3% lower circuit that does not allow any stock fall by more than 3% a day will remain in place for all the listed scrips until further notice, he added. 

Also, the upper limit that allows scrips to move up to 10% higher on a day will be unchanged. 

Welcoming the development, stock market professionals said floor was the most bizarre measure the country's capital market regulator ever embraced and such radical measures hit hard investors' confidence in the market.

"Allowing market mechanism to determine prices is a fundamental requirement for capitalism and if prices of securities, interest rates and bond yields are dictated by the regulators, capital allocation becomes suboptimal and capital market never develops. Price dictating has created a lot problems in our country and it must be avoided going forward," said VIPB Asset Management Managing Director Shahidul Islam, a former president of CFA Society Bangladesh.

The BSEC in March 2020 first opted for floor price just before the stock market went for an unprecedented shutdown for 55 days following the outbreak of the Covid-19 pandemic in the country. 

However, the economic resilience and a declining interest rate environment together helped stocks kick off the floors to let the regulator remove it in a year as it became irrelevant after a sharp rally. 

DSEX, the broad-based index of the Dhaka Stock Exchange (DSE), had surged to over 7,400 in October 2021 from less than 3,600 points in March 2020. 

Then it entered a correction phase that was accelerated following the Russia-Ukraine war that broke out in February 2022. 

The BSEC at the end of July 2022 found comfort in using the same restrictive measure by re-imposing the floor for all scrips to stop further fall of the stock prices and indices.

That time, the magic did not work as the world entered and continued an inflationary cycle forcing interest rates to go higher, corporate earnings to deteriorate and capital outflow from stocks to fixed-income alternatives.

As the investors were not ready to keep buying stocks at artificially held high prices, the floor became a nightmare in the Bangladesh stock market for the investors who wanted to sell shares. 

Earlier this year, after more than 18 months, the BSEC gradually removed floor prices for an increasing number of scrips.

Echoing many, VIPB's Shahidul Islam said, "Bangladesh is expected to go through massive reforms and we expect these will attract both domestic and global investors."

He added, "Trust in the regulatory environment is a key to a vibrant capital market and we need it to be built and sustained, immediately."