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 Stocks to get common index in four months Regulator meets CEOs of bourses

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Posts : 98
Join date : 2010-05-25

PostSubject: Stocks to get common index in four months Regulator meets CEOs of bourses   Thu Jun 03, 2010 1:06 am

Sarwar A Chowdhury

A common index of stocks will be introduced in the next four months, a move meant to reflect the accurate picture of share transactions.

The new one will replace the indices currently in place in the country's two bourses. The existing index calculation is far from appropriate method prescribed by the regulator.

The flawed computation in indices came to the light through media reports in January following the trade debut of Grameenphone on the stockmarket in November last year.

On November 16, 2009, the trading debut day of Grameenphone, the benchmark index of Dhaka Stock Exchange skyrocketed by more than 764 points, as DSE counted the index from the first day and based on the face value of each Grameenphone share at Tk 10.

But the first day of a company's trade on stockmarket does not provide an accurate counting, as rules say the calculation will be based on the previous day's closing price of the stock.

It means, the index calculation -- not only in the case of Grameenphone, but also in the case of any new issue -- should be counted from the next day.

On the other hand, the Chittagong Stock Exchange calculated the index on a five-day weighted average price of Grameenphone shares, which also did not give an accurate picture.

Following such experience, the SEC has temporarily directed the bourses to start counting the index points from the second day of a company's trade.

And to find out a permanent solution, the regulator sat with the chief executives of the two bourses in Dhaka yesterday.

"It'll take three to four months to create and launch the new indices, at least the benchmark indices of the two bourses," Mansur Alam, SEC member, said after the meeting.

"However we've asked the Dhaka and Chittagong stock exchanges to launch the indices as early as possible through following IOSCO prescribed method in index calculation," said Alam, who presided over the meeting.

The SEC member also said, “Despite a directive from us in last September, the stock exchanges failed to follow a standard indexing method."

This time, there is no scope of any lapse in introducing new indices, Alam added.

Now, DSE follows IOSCO-recommended guidelines in index counting, while CSE follows the Laspeyres index calculation method.

Prof MA Mamun, chief executive officer of CSE, said an index should reflect the real picture of stocks.

“CSE is ready to launch new indices,” he said.

Presently, each bourse has three types of indices. The value of the each three indices does not also match with each other.

The DSE introduced the general index on November 27, 2001 with a base of 817.62 points. The index, which excludes 'Z' category companies, is calculated on the basis of individual stock price movement under 'A', 'B', 'G' and 'N' categories.

Previously, there was only one index that included all securities of the stock exchange. Starting with a base of 350 points, the index rose as high as 3,648.75 points on November 5, 1996, when the market witnessed a 'bubble and bust'.

The broader DSE All Share Price Index was reintroduced on March 28, 2005, and the DSE-20 was introduced on January 1, 2001.

The CSE's All Share Price Index and 30 Index were introduced on December 30, 1999 with base points of 2,000.

The Selective Categories Index was launched on April 15, 2001 with a base point of 2,000.
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