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13 Jul 2014
No entity shows interest in 14yrs after rule enactment

None of the banks, merchant banks and stockbrokers has so far showed interest to get the opportunity of becoming a market maker even after 14 year of enactment of rules because of tough regulatory framework and less opportunity to maximise profit, capital market experts said. Experts said that the effective functioning of the market maker could help in reducing manipulative transactions significantly and could create sustainable stability in country’s capital market.

A market maker is a company that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread. The Bangladesh Securities and Exchange Commission should take steps in promoting the idea by encouraging institutions to take the role of market maker for the sake of the capital market, experts said. In 2000, the BSEC, then SEC, formulated the Securities and Exchange Commission (Market Maker) Rules, in December 3, 2000. 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.

Market makers are useful because they are always ready to buy and sell as long as the investor is willing to pay a specific price. The Nasdaq, an American stock exchange, is the prime example of an operation of market makers. There are more than 500 member firms that act as Nasdaq market makers. Asked, a BSEC senior official told New Age on Thursday that no response was yet to be found from any institution or entity for acting as market maker after the enactment of the rules in 2000. ‘Even none of the institutions has expressed its interest to us to take the opportunity,’ the official said. ‘Institutional brokers might have a feeling of risk to be a market maker as they will be bound to buy and sell shares within a specific range price that might discourage them to take the opportunity,’ said Mohammad Musa, professor (school of business) at United International University. Lack of knowledge on market making might be another reason, he said. In the developed market, like America, there is a strong presence of market maker, he said.

Musa said, ‘Effective functioning of the market maker may help in reducing manipulations in our capital market to some extent and it will also give investors the confidence that they would be able to sell shares at a certain price to the market marker.’ The capital market regulator can press the stock exchanges to take steps in making awareness among the institutions in this regard and encourage them, the UIU teacher said.

DSE officials, however, said that there were perceptions among the institutions that once they would be licensed for market making that would reduce the opportunity to maximise their profit in the present high rate. ‘The existing rules of market making are not favourable for the institutions to make profit and to make the business feasible that is the main reason for not expressing interest in this regard,’ former DSE president Ahsanul Islam Titu told New Age on Friday. ‘If the rules and regulations become satisfactory to the institutions, they would automatically grab the business and get licence from the regulator,’ he said
 
Source :: The New Age