Reaping Benefits of DSE demutualization Reaping Benefits of DSE demutualization (original) (raw)

Capital market (especially stock market) is the heart of any economy through which the savings are channelized into effective long-term investments. It plays a pivotal role in contribution to the country's GDP. This is why, sometimes it is called barometer of the economy. A developing country like Bangladesh badly suffers for capital formation, which is the prerequisite for sustainable economic development, where a developed and vibrant capital market can provide a big avenue for capital formation. Although there are two stock markets in Bangladesh, their contribution to the country's GDP in terms of capitalization is only around 25% whereas in Hong Kong is 1090%, in Malaysia 169%, in Thailand 98%, in India 80% and even in Philippine 91% (June, 2014). Thus, comparing to other countries' stock markets, our stock market is still very small. Moreover, our stock market is growing very slowly, but day by day it is becoming an important institution for capital formation. Even though the history of our capital market is very long about 60 years, it has not been flourished properly due to post-independence political instability and capital market turmoil in 1996 and 2010. However, even if it is late, our stock market has already implemented and finally initiated a number of contemporary reforms like; online trading, state of the art surveillance, next generation world leading trading platform, Demutualization, Bangla website, Investment protection fund, new index benchmark by S&P, Shariah index and so on. Among all the recent reforms, the demutualization of stock exchange was the most revolutionary initiative taken by the exchange as it separated ownership (and voting rights) from the right of access to trading which will ensure the transparency and accountability in exchange operation. The same people cannot play the dual roles (as a market player and a regulator) in the market at a time which may cause market manipulation. Thus, it is our honorable finance minister whose unbending attempt made it (demutualization) possible for which he may get a big thank. Some people, particularly members and directors of stock exchange, mentioned earlier that demutualization would not bring any benefit for the exchange at all. We cannot expect immediate benefit from demutualization. It will take time to get the full benefits of demutualization. If all things keep going rightly, I think they will be wrong very soon. However, after demutualization, the exchange has to deal with many challenges, among them making profit is the foremost one as it became profit oriented organization from not for profit oriented and now the exchange has an obligation to provide dividend among its shareholders. Empirically most of the stock exchanges experience positive impact of demutualization on their profit, although some exchanges; e.g. the Philippine Stock Exchange; experienced negative return just after demutualization. At the beginning stage, DSE will not face such