'Floor price for stocks should not be reintroduced'

Floor price for stocks is neither an investor-friendly nor market-friendly mechanism so it should not be reintroduced again, said Saiful Islam, president of DSE Brokers' Association (DBA).

If the macroeconomic situation deteriorates and the performance of listed companies falls, then the prices of their stocks fall simultaneously, he said.

"It is obvious," Islam opined.

The regulator should not reintroduce the floor price across the board again, he said, adding that buyers will invest if a stock price falls below its actual value. It is normal for the stock market, he said.

Floor price distorts the market mechanism and natural price movement, which is not expected in any stock market, Islam said in an interview with The Daily Star.

The Bangladesh Securities and Exchange Commission (BSEC) launched the floor price, which is the lowest price at which a stock can be traded, for the second time in July of 2022 to halt the free-fall of the indices amid uncertainties brought on by the lingering fallout of the coronavirus pandemic and the Russia-Ukraine war.

Last week, the BSEC lifted the floor price for the majority of stocks.

Bangladesh's economy is now enduring some stresses, as stated by the central bank, so its impact will be reflected on the stock market.

Initially, the market can be impacted but the drop should not be restricted through artificial mechanisms. After a period, the market will settle based on its own strengths, he said.

Instead of intervening in the price mechanism, Islam suggested that regulators ensure good governance in the market and bring good companies.

"Supply-side problems are a fundamental issue of the stock market."

If the government can bring some good companies to the stock market, it will benefit the market and investors much more.

"Corporate governance among the listed companies is very weak. It should be strengthened," he said.

Islam, who is also a director of BRAC EPL Stock Brokerage, urged institutional investors to give support to the market and keep it vibrant.

However, he conceded that there was a possibility that institutions may not be interested to invest in the stock market considering opportunity costs.

Specifically, as the yield rate of treasury bonds and treasury bills is above 11 percent, institutions may not be interested to invest in the risky stock market, he clarified.

There is also liquidity pressure in some institutions.

But he opined that big fund holders should support the market despite the situation.

"They should go fundamentally and support the capital market," added Islam, who is also a former vice-chairman of the South Asian Federation of Exchanges. He is also a former senior vice-president of the Dhaka Stock Exchange.