No one has so far showed interest in becoming market maker at the country’s capital market because of tough regulatory framework and less opportunity to maximise profit.
The Bangladesh Securities and Exchange Commission has been trying to introduce market makers to mitigate liquidity crisis at the market when needed, but has failed so far to have any, officials of the BSEC and stock exchanges said.
Market makers are entitled to keep the prices of shares within a certain range through buying and selling securities based on fundamentals of companies depending on the market situation.
The stock market has been facing an acute liquidity crisis in recent weeks that caused the turnover at the Dhaka Stock Exchange remaining at Tk 300 crore.
Experts feared that the liquidity situation at the market would worsen ahead of the national elections, which are likely to be held at the end of this year.
The commission framed the market maker rules in 2000 and amended the rules on June 13, 2017.
As per the rules, the minimum capital requirement for becoming a market maker is Tk 10 crore in paid up capital.
The institutions who don’t have the required paid up capital don’t want to raise the capital fearing taxation, DSE officials said.
Market experts said that Bangladesh Bank set exposure limit for the banks’ investments that bars the merchant banks to raise their paid up capital and act as a market maker.
Moreover, lack of professionalism and knowledge is another reason for the dealers and merchant bankers not to be interested in market making.
Under a new move, the BSEC framed draft rules on capital adequacy that would help stockbrokers and merchant banks raise their paid up capital.
According to the new draft rules named BSEC Risk Based Capital Adequacy Rules, 2018, a full-fledged stockbroker and dealer must maintain Tk 15 crore in capital while a full-fledged merchant bank has to maintain Tk 35 crore in capital.
Moreover, the market maker rules say a market marker with a paid-up capital of just Tk 10 crore would be allowed to act for the service for only one listed issue. To be a market maker
for more than one listed securities, stockbrokers or stock dealers will have to increase their paid-up capital by Tk 10 crore for each securities.
An entity with a Tk 50-crore capital would be allowed to act as market marker for three authorised securities.
An entity would be allowed to be market maker for highest five authorised securities at a time.
The rule of market maker is vital for making exchange-traded funds functional.
In June 2016, the commission finalised the exchange-traded fund rules, paving the way for entities like the stock exchanges to run the index-based funds.
Stockbrokers and stock dealers who are licensed under the Securities and Exchange Commission (stock dealer, stockbroker and authorized participants) Rules, 2000 will be allowed to act as market maker.
Market makers establish quotes whereby the bid price is set slightly lower than listed prices and the ask price is set slightly higher in order to earn a small margin.
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