SEC move triggers fall in Dhaka stocks

Dhaka stocks fell heavily on Monday amid the concern of investors over the market regulators’ latest decision to suspend netting facility for non-marginable stocks after Eid holidays next week.

The general index of the Dhaka Stock Exchange shed 86.19 points, or 1.25 per cent, to close at 6,803.68 points on panic selling, market operators said. Out of total 256 issues traded on the day, 188 issues lost value, 62 advanced and six remained unchanged.

The market began the day on negative mood as investors started to offload their possessions fearing that the SEC’s decision would bring down prices of shares, said an official of a brokerage. The general index shed 158 points by 11:30am but it rebounded slightly before finishing the day.

The Securities and Exchange Commission (SEC) on Sunday suspended netting facility for ‘non-marginable’ issues with effect from the first working day after the Eid vacations next week to squeeze inflow of funds into the stock exchanges, ignoring appeals from stock brokers and bankers to ease margin loan disbursement system. Non-marginable issues — against which investors are not entitled to get loans—include shares which have price earning ratio of over 40 and ‘Z’ category shares. Because of the suspension of the netting facility -- which allows investors to buy shares on the same day with the funds which are accumulated by selling shares on the day -- investors will not be able to purchase shares with the fund that will come from selling ‘non-marginable’ issues before the fund is matured.

The funds from selling shares of Z category need around 10 days to mature while the shares of A, B, and N categories need four days. The SEC also asked brokerage houses and merchant bankers to adjust margin loans of the investors by September 30 as per the recently imposed margin loan calculation method based on current market price and net asset value of any issue. The commission rejected the appeal of the brokers and bankers to extend the deadline.

‘General investors, particularly small investors, were panicked following the new SEC directive as 200 issues out of a total 260 listed on the DSE are currently non-marginable,’ said a stock broker. Besides, he said, many investors offloaded shares to adjust loans as the SEC stuck with the September 30 deadline.

The banking issues, most of which are marginable, were mixed with
16 out of 30 issuing gaining and 12 losing value. Prices of two banking issues remained unchanged. He, however, said that the real impact of the SEC decision would be known after Eid vacations.

Mahmood Osman Imam, who teaches finance at the Dhaka University, said that the panic selling fuelled by the SEC decision pulled down the market. ‘Most of the issues are still over-priced even after today’s fall. We can not say there was market correction,’ he said. He, however, said that some marginable shares with ‘bad’ fundamentals might see gains because of the SEC decision.