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Competitive Structure of Merchant Banking Industry
Rationale of the Study Investment Banking is an American synonym of merchant banking. Investment banks provide advice on mergers and acquisitions and are involved in financing industrial corporations through buying shares and selling them in relatively small lots to investors. In the Bangladesh context, merchant banking includes all institutions that combine the functions of both development banking and investment banking. Investment banks act as intermediaries between issuers and investors. The issuer sells securities to investment bankers who in turn sell the securities to investors.
The investment banks own the securities until they are resold. For firms seeking to raise long-term funds, investment banks provide assistance through a number of functions including underwriting, marketing of securities, corporate finance, sale and brokerage, asset management and research. In underwriting, investment banks can protect themselves by forming a syndicate, which allows them to diversify the risk. One investment bank acts as the managing underwriter that oversees the underwriting activities of all members of the syndicate.
In the process of marketing, securities are typically sold through a selling group consisting of the sales division of the underwriting syndicate and selected retail brokerage houses. Another significant development in investment banking is the ‘instantiated stock offering’, in which, the corporation distributes the entire stock issue directly to institutional investors rather than syndicating them through a retail distribution network to individual investors. In Bangladesh, Merchant Banks should perform all functions of Investment Bank and gain efficiency in primary market making process. 1. 2 Objective (s)
Primary objective of this report is to submit this report as course requirement. Secondary objectives of this report are: To know the competitive structure of Merchant Banking Industry in Bangladesh. To know about the process of Issue Management Analysis, Underwriting Activities analysis and Portfolio Management Analysis etc. 2 1. 3 Limitation To complete this report following limitations are prominent: Limited Published data about Merchant Banks Few access to Price Sensitive Information Inadequate information about Issues in Dacha Stock Exchange (DES) & Securities & Competitive Structure of Merchant Banking
Industry in Bangladesh By wares 1 5 Investment banks act as intermediaries between issuers and investors. The Issuer brokerage, asset management and research. In underwriting, Investment banks can development in Investment banking Is the ‘unselected stock offering’, In which, the corporation distributes the entire stock Issue directly to Institutional Investors rather than syndicating them through a retail distribution network to Individual Investors. In gain efficiency In primary market making process. Primary objective of this report Is to submit this report as course requirement.
To know the competitive structure of Merchant Banking Industry In Bangladesh. To know about the process of Issue Management Analysis, Underwriting Activities 1. 3 Limitation To complete this report following Limitations are prominent: Limited Published data Few access to Price Sensitive Information Inadequate Information about Issues In Dacha Stock Exchange (DES) & Securities & 1. 4 Structure of the Report This report is done in compliance with the Merchant Banker and Portfolio Manager Regulation 1996 applicable in Bangladesh and other related rules. Chapter-2 highlights the methodology.
A brief review of capital Market of Bangladesh is illustrated in Chapter 3. In Chapter 4, Merchant Banking Industry of Bangladesh is illustrated. Legal Framework for Merchant Banking Industry is given in Chapter-5. The Main part of the report is given in chapter 6. It is illustrated with the help of Issue Management Analysis, Underwriting Analysis and Portfolio Management Analysis. Key Findings is given in Chapter 7 and it is followed by Conclusion and Policy Implications. 3 Chapter – 2 Methodology 4 This part comprises of the following heads: a. Data Source To complete this report, data are primarily collected from the DES Library, SEC
Reading Room and AAA Consultants & Financial Advisers Ltd. In which I have completed my Internship. Besides this, Vive collected data from website of different companies from 19942011. B. Variables Merchant Banking comprises of 4 activities basically. Of them Issue Management is practiced widely in Bangladesh. For Issue management Analysis Market Share as a % of Total Issue, Market Share as a % of Total Issued Amount, Timing Option, Diversification of Issues etc are the key variables. For Underwriting analysis underwriting amount, Underwritten shares, Commission etc are key variables. For
Portfolio Management activities total managed portfolio, fees earned etc are used as key variables in this report. C. Analytical Approach To complete this report, First of all Issue Management Analysis is illustrated with the help of Market Share as a % of Total Issues; Market Share as a % of Total Issued Amount, Timing Option and Diversification of Shares. For Underwriting Activities Underwritten amount is used as the parameter. Portfolio Management analysis is done with the help of total managed portfolio, fees earned etc. Chapter – 3 A Brief Review of Capital Market of Bangladesh 6 3.
Securities & Exchange Commission In a market economy securities market is a vehicle through which surplus fund is invested in alternative investment opportunities. Robust capital market plays a pivotal for industrialization and economic development of a country. For increasing the depth and breadth of the markets attracting investors is important. This happens only when investors are confident that the securities market is transparent and efficient. The Securities & Exchange Commission (SEC) was established on June 8, 1993 as capital market regulator in Bangladesh through the Securities & Exchange Commission Act, 1993 (Act 1 5 of 1993).
The commission ensures compliance of capital market related laws, rules and regulations etc. By the intermediaries and persons and institutions related with capital market. Basic laws of the capital market are as follows: a. Securities Act, 1920 b. Securities & Exchange Ordinance, 1969 c. Securities & Exchange Commission Act, 1993 d. Depository Act, 1999 3. 2 Dacha Stock Exchange The Dacha Stock Exchange was established in 1954 but its commercial operation started in 1956. Due to nationalization policy trading activities of DES remained suspended during the post liberation period and resumed again in 1976.
DES is a self-regulatory not for profit organization. As a self-regulatory organization DES supervises the functions of listed companies. Administration of DES is run be the Dacha Stock Exchange (Board and Administration) Regulations 2000. The board of directors consists of 24 members, 12 directors are elected by direct votes of DES members and 12 directors are nominated by the elected members from non-DES members with the approval of the commission. The Chief Executive Officer (CEO) of DES is also a non-voting Director. DES hires the CEO of DES which requires Commission’s approval.
The CEO conducts the daily affairs of DES. Now, there are 234 members in DES of which 194 members are registered by the SEC for conducting securities business. According to the rules every member must be a corporate body. Transaction and transfer of most of the securities listed on DES are now executed in electronic form. At present DES its on-line trading activities into the divisional and district towns of the country. 7 The major functions are: – Providing the screen based automated trading of listed Securities. – Settlement of trading.
As per Settlement of Transaction Regulations) – Gifting of share / granting approval to the transaction/transfer of share outside the trading system of the exchange (As per Listing Regulations 42) – Market Administration & Control. – Market Surveillance. – Publication of Monthly Review. – Monitoring the activities of listed companies. (As per Listing Regulations). – Investors grievance Cell (Disposal of complaint bye laws 1997). – Investors Protection Fund (As per investor protection fund Regulations 1999) – Announcement of Price sensitive or other information about listed companies through online. 3.