Big blow to stocks :SC upholds SEC decision on share credit

Dhaka stocks yesterday suffered the biggest fall since July.

The drop was mainly because of the combined effects of some moves, market insiders said.

One of the factors was a Supreme Court (SC) verdict that went in favour of the stockmarket regulator's decision on share credit.

The SC yesterday stayed a High Court (HC) order that halted a Securities and Exchange Commission's (SEC) decision directing merchant banks and stockbrokers to follow a net asset value (NAV) based calculation for credit disbursement and loan maintenance.

The SC ruling, passed by a three-member Appellate Division bench, spread across the market and prompted a panic sale, stockbrokers said.

Chief Justice ABM Khairul Haque headed the bench.

The benchmark index of the Dhaka Stock Exchange -- DSE General Index (DGEN) -- nosedived 187 points, or 2.51 percent, to 7,292. Earlier on July 25, the DGEN lost 204 points, suffering the steepest fall since the crash in 1996.

The key index of the Chittagong Stock Exchange -- CSE Selective Categories Index -- also plummeted by 364 points, or 2.59 percent, to 13,708.

The Dhaka and Chittagong bourses' warning of a disaster in the stockmarket also fuelled yesterday's downtrend.

The two bourses said on Saturday that unless the market calms down immediately, it may face a big disaster anytime and the exchange authorities will not take the responsibility for it. They also sought the prime minister's intervention in offloading government shares as a short-term measure to cool down the market.

"The bourses' concern left an impact, at least for the time being, on the secondary market," said a stockbroker.

Moin Al Kashem, managing director of Prime Finance Asset Management Company, said: "The correction in share prices was needed."

But such a correction will not have a long-term impact on the market, he added. "We need a correction that will come from increasing the supply side."

However, many saw the correction as a relief in the market that rallied for 11 consecutive sessions.

"After a long rally, it is natural for the share market to take a breather, and it is the nature of financial markets to go up and down," said Hasan Imam, chief executive officer and managing director of RACE Asset Management.

However, after the SC order, which asked both sides to dispose of the rule, merchant banks and stockbrokers will now have to follow the NAV-based calculation in providing and maintaining margin loans.

Barristers Rokanuddin Mahmud, Fazle Noor Taposh and Abul Kalam Azad moved for the petitioners, while Attorney General Mahbubey Alam for the state.

On September 27, the HC stayed the SEC directive on share credit and loan adjustment, after two investors -- Morshadur Rahman and Shahnewaj Jweel -- filed a petition challenging the SEC directive.

Both the bourses lost yesterday in all sectors. Losers outnumbered gainers 212 to 25, with three securities remaining unchanged on the DSE. Losers also beat advancers on the port city bourse 151 to 25, with six unchanged.

The DSE traded more than 13.56 crore shares and mutual fund units worth Tk 2,364 crore, while the CSE traded more than 1.62 crore shares and mutual fund units with a turnover of

Tk 217 crore.
source-thedailystar