Demutualization of Dhaka Stock Exchange

Abstract

Stock exchange is one of the most important financial institutions of any economy as well as Bangladesh. A stock exchange is a form of exchange which provides for stock brokers and traders to buy or sell stocks, bonds and other securities. Stock exchange did not begin as the super sophisticated, simultaneous, worldwide trading exchanges like today. It was not until 1531 when the first institution roughly approximating a stock market emerged in Antwerp (Belgium). In the 1500s, stocks were not transacted in a simultaneous global fashion. Brokers and moneylenders would meet there to deal in business, government and even individual debt issues. But there was no official share that changed hands. Now-A-Days stock exchange is one of the most important and biggest financial institutions of any economy. Bangladesh has two stock exchanges, Dhaka Stock Exchange, established in 1954 and Chittagong stock exchange, established in 1995. Recently Government and BSEC decided to demutualization of Dhaka Stock Exchanges. DSE is the first and biggest stock exchange of the country. Demutualization is the modern, popular and current trend among stock exchanges all over the world. Bangladesh has started its journey to get their exchanges demutualized in 2011. Previous record of Demutualization of other stock exchange (Like: London Stock Exchange), the performance of demutualized exchanges have improved in terms of operational profitability and efficiencies along with governance scale. But there are some challenges and risks associated with demutualization. There are many reasons of the demutualization of Dhaka Stock Exchange (DSE). The main reason of the demutualization of Dhaka Stock Exchanges (DSE) is Stock market crash in 1996 and finally in 2010-11. December-2010 and January-2011 was the historical month of the economy of Bangladesh stock market. Then Government and BSEC take necessary steps to demutualize their stock exchanges. Demutualization means turning a non-profit organization into a profit oriented organization and separating controlling functions from controller’s functions, empowering controller and taking decisions without being motivated by the market players. Different stake holders of capital market and civil society also support and demand for demutualization of exchanges. The exchanges Demutualization bill was passed by the parliament on 29th April, 2013 and the same received the assent of the honorable president on May 02, 2013 and the Exchanges. Demutualization Act, 2013 was published in the Bangladesh Gazette on the same date and came into effect immediately. Nowadays Demutualization is a widespread global phenomenon. It has been looked to as a means of meeting developmental and competitive challenges and even to address failure to carry out credible operations. The extent of movement toward a demutualized structure is also related to the competitive threat. Demutualization of DSE’s success depends on the authority who must carefully consider the impact of the demutualization on the viability of the exchange as a key institution and the impact on the regulatory structure.