Floor removed for 168 scrips, prices allowed to fall by 1% in a day
The floor price was not allowing the prices of listed securities to go below the level of the pre-floor average prices
The Bangladesh Securities and Exchange Commission (BSEC), after the session's closing bell on Wednesday, has removed floor prices for 168 scrips — mainly mutual funds and small-cap stocks — to offer the market some breathing space in daily trading.
However, the 168 scrips are not allowed to fall freely as the regulator narrowed the bottom circuit breaker — the limit to fall in a day — to 1%, from the regular limit of 10%.
Upper circuit breaker — the limit of price increase in a day — on the other hand, has been unchanged for all scrips. Also, the scrips beyond these 168 would be allowed to fall up to the regular bottom circuit breaker until hitting the floor.
The BSEC Executive Director and Spokesperson Rezaul Karim told The Business Standard, the relaxation has been done upon stakeholders' requests to bring back vibrancy in the stock exchanges.
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Of the around 400 scrips listed in the Dhaka Stock Exchange (DSE), 319 were stuck on the floor prices on Wednesday depriving investors of exit opportunities.
Daily turnover in the premier bourse has been hovering within a range of Tk300-500 crore for weeks.
The floor price, that the BSEC imposed on the last day of July this year, was not allowing the prices of listed securities to go below the level of the pre-floor average prices.
The 168 scrips
All the listed mutual funds, most junk stocks, some small and mid-cap stocks of moderately performing companies made the list of 168 scrips that were allowed to break below the floor.
Analysts believe the first phase of floor relaxation mostly included the stocks which clearly deserve some room for correction to attract buyers.
How was the list prepared? A BSEC spokesperson said the list was even bigger initially and the regulator, considering some factors, ended up choosing the 168.
Low capitalisation was the first criteria so that their price fall cannot negatively impact the indices and the overall market a lot, he said.
The trading pattern of the smaller scrips was also considered. According to Rezaul Karim, due to no trading, many investors were not able to sell off many of the 168 stocks and now they can do it to withdraw cash from the market or buy other stocks.
The total market capitalisation of the 168 scrips was around Tk13,000 crore on Wednesday - less than 5% of the DSE's total market capitalisation, according to stockbrokers' calculation.
Mixed bag reaction
The floor price imposed to arrest market fall was a controversial weapon of the BSEC as many investors, especially the retail ones, lauded it. A large number of professional fund managers, on the other hand, were against it because of its restrictive nature.
The market had some interim rallies though as people had confidence that the floor would protect their capital.
However, as soon as the controversies regarding floor price strengthened, the confidence kept weakening and the top BSEC officials kept assuring investors that the floor price would not be removed until significant improvement in the market scenario.
Now, many questioned why the regulator made the move amid the worst market situation in the year. Some investors welcomed the move, on the other hand.
Some also have expressed their suspicion of information leakage by regulatory insiders much before the decisions were made, as stocks, including many of the members of the 168 scrips, had a sharp sell-off on Wednesday. The decisions of removing floor and imposing 1% bottom circuit were made at a commission meeting after the closing bell.
More than 30 of the 168 were trading above floor, including a few junk that are trading up to 93% higher than the floor.
DSEX, the broad-based index of the DSE, closed 0.44% lower at 6,198 while turnover in the premier bourse inched up to Tk334 crore, from Tk322 crore.
