Policy Implications Concerns in Stock Market

The relationship between investment and the overall economy is what an engineer would call a positive feedback loop. Greater business investment would increase hiring, both by those who produce the investment goods and those who buy them. Greater employment would mean more workers taking home paychecks, which in turn would increase the overall demand for goods and services. When businesses saw more customers coming through their doors, they would then increase investment spending yet again.

The market is dynamic and a change in prices of shares is the beauty of stock market. Certain risks would, therefore, keep on pepping up, in the day to day operations e.g. the behavioral risks -misconduct, manipulation, malpractices, fraud and unfair trade – which would   undermine the market integrity, erode into investor confidence and jeopardize the interest of hapless retail investors. Expansionary economic policy leads to increases in the stock market because it generates increased economic activity. Policymakers can implement expansionary policy through monetary and fiscal channels. Typically, it is employed when the economy is slipping into a recession and inflationary pressures are dormant.

These should be the areas of concern for the investors and the Regulator. Normally, one has to take appropriate lessons from the unexpected corporate events. The Bangladeshi investors have been bitten once in the year 1995. To preempt any further biting, therefore, the intensity of carefulness must necessarily be high. As a regulator, SEC keeps a constant watch to spot any unusual movement or activities for possible prompt action. This keeps an alert to spot any unusual movements or activities for preemptive or punitive action to protect the integrity of the market.

 

Policy implications

It is evident that a number of measure – on line screen based trading, dematerialized trading, shortening of settlement cycle from, risk mitigating prudential norms of capital  adequacy and exposure limits, value at risk based margining, real time monitoring of positions and margins, automatic disablement of the terminals, trade/ settlement guarantee fund, price based circuit breakers, enhancement of Governance standards among corporate and stock exchanges, continual disclosure requirements, registration and regulation of intermediaries – are already in place to manage and mitigate the risks in Securities Market. Nonetheless, if one relaxes with the comfort of a feeling that the Securities Market is now absolutely risk free, he runs the risk of deluding himself. The market is large and still it has the potential to grow. While the growth should be nourished, the attendant risks need to be contained. By and large, following measures are suggested for managing risk associated with stock market and for protecting the integrity of stock market participants:

  • SEC and stock exchanges should conduct investor’s awareness program at various places across the country in order to protect all investors generally, small investor particularly, from the exposition of risk generated by manipulators. This is because, small investors fall a prey of manipulator, All available tools – Regulations, guidelines, surveillance, inspections and investigations are applied to deal with market misconduct and enforce action against market manipulators.
  • Circuit breaker can also be applied on stock index basis.
  • Stock market should introduce financial derivative products in order enable marker participants for hedging their position both short and long.
  • Central listing authority should be established in order brings a harmonization in the listing requirements, or SEC can be empowered for enlistment of corporate firms.
  • SEC should establish a central monitoring and surveillance system in order to protect the entire stick market from being risky.

 

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