Capital Market Stabilisation Fund to extend Tk20cr liquidity support

The Capital Market Stabilization Fund (CMSF) is providing Tk20 crore in capital support to tackle the liquidity crisis in the country's stock market.

The CMSF will lend the fund to the Investment Corporation of Bangladesh (ICB) for investing in stocks.

Due to the liquidity crunch, institutional investors have become inactive in the capital market, while others are opting for a slow-moving policy.

Md Monowar Hossain, chief of operations of the CMSF, told The Business Standard that the capital will be given to the ICB for investing in stocks.

"Also, it had earlier provided ICB with capital for market support," he added.

The CMSF is working as a custodian of undistributed, unclaimed or unsettled dividends (cash or stock), unallotted rights shares, or non-refunded public subscription money of shareholders or investors.

The Bangladesh Securities and Exchange Commission (BSEC) has established the CMSF under "The BSEC (Capital Market Stabilization Fund) Rules, 2021" and formed a regulatory body to administer the fund in August last year.

However, there are questions about the legality of the formation of the fund by the BSEC.

Since the commission has formed the CMSF, another governing body is beyond its authority in administering the fund, creating anarchy in the rule of law and posing a risk to the stability of the stock market.

At a coordination meeting with regulatory bodies held on 6 September, Bangladesh Bank Governor Abdur Rouf Talukder raised the CMSF issue, saying that there is no law in this regard but the fund was formed according to rules.

"When there is no law, the BSEC has no authority to issue rules," the meeting minutes quoted the governor as saying.

He said that there is a CMSF fund in India, but it is under the finance ministry and not under any regulatory body. "No regulatory body has the authority to control funds."

He opined that if a fund is formed, it has to be under the finance ministry or the Investment Corporation of Bangladesh.

The governor suggested that the finance ministry and the BSEC jointly take the decision about the formation and management of the fund.

Later, the central bank will take a decision about the transfer of unclaimed dividends from banks into the fund.

Listed companies have so far contributed about Tk500 crore of undisbursed cash dividends to this fund.

The CMSF has already given a loan of Tk225 crore to the ICB for capital market investment.

Basically, the turnover is not improving as the participation of institutional investors in the market is decreasing. In this situation, the turnover at the Dhaka Stock Exchange (DSE) dropped to around Tk300 crore.

The turnover at the DSE has nosedived to the lowest in the last 20 months as the market is suffering from a liquidity crisis.

However, on Wednesday, the DSE's turnover increased by 14% to Tk311 crore compared to the previous day.

At the same time, DSEX, the broad-index of the Dhaka bourse, has increased by 4 points to settle at 6,233.

The BSEC held a meeting with the top executives of 26 insurance companies on increasing liquidity supply in the capital market.

At the meeting, the commission requested that insurers support the market in the current liquidity crisis. In their turn, the companies held out their assurance of supporting the market.

BSEC Commissioner Shaikh Shamsuddin Ahmed, who presided over the meeting at the commission's headquarters in the capital, said, "Banks make long-term investments with short-term deposits. Insurance companies get long-term funds, they can invest in fundamental companies for the long term if they wish."

BSEC spokesperson Mohammad Rezaul Karim said, "There is a liquidity crisis in the capital market. The commission is playing a role in increasing the supply of liquidity. Banks, ICB, CMSFs, and portfolio managers have been requested to increase liquidity supply in the capital market. If everyone gets active, the market will regain momentum."

Regarding the floor price, he said, it is temporary. "Once the market goes to a particular stage, the commission will consider withdrawing the floor price."

Owing to high inflation brought on by the Russia-Ukraine war, the stock market fell sharply.

To prevent this fall, the Bangladesh Securities and Exchange Commission imposed the floor price on 29 July.

Now no share price can fall below the floor price. As per data, on Wednesday, 310 stocks were stuck at the floor price.

The Bangladesh Bank data showed that the excess liquidity in banks was Tk2.03 lakh crore at the end of June this year but fell to Tk1.69 lakh crore in October.

Due to the liquidity crisis in the financial sector, loans are not available from banks for investment in the stock market, say officials at a top brokerage house. ***