Two bourses followed apparently flawed computations for Grameenphone shares in November, despite clear instructions from the market regulator to follow a standard indexing method.
The bourses were meant to follow the instructions from September last year.
The Securities and Exchange Commission (SEC) is yet to describe the bourses' calculations as a violation of law, but has said computations were far from "reliable and verifiable".
“We are evaluating all the information collected. If the commission finds any violation or flaw in the method of their calculation, the commission will take necessary action,” said Farhad Ahmed, executive director of SEC, in a press briefing yesterday.
The Dhaka Stock Exchange follows IASCO-recommended guidelines in index counting, while the Chittagong Stock Exchange follows the Laspeyres index calculation method.
The SEC at a meeting on May 28, 2009 directed the two stock exchanges to strictly follow index calculations as prescribed by their respective systems.
IASCO guidelines say the calculation must be 'reliable and verifiable', and the Laspeyres method emphasises that index counting will be based on weighted average prices of a base period.
The search for information by the market watchdog comes, as it suspects that DSE followed different methods in different times.
Farhad Ahmed of SEC said the media reported that the exchanges had violated IASCO guidelines in index calculation and the market is based on flawed indexation.
“It is not appropriate, as the IASCO guideline does not say the index calculation should be from the second day of a company's share trading or that it should not be based on the first day's transaction," he said.
"The IASCO guideline says the calculations must be reliable and verifiable, which means the index can be counted from any day of a company's trading debut."
But both DSE's and CSE's calculation while incorporating Grameenphone shares showed unusual reflections in the key indices, which means the index calculation was not reliable and verifiable, he said.
The flawed counting also resulted in confusion among market experts, analysts, investors and stakeholders.
On November 16, 2009, the trading debut day of Grameenphone, the benchmark index of DSE skyrocketed by more than 764 points, as DSE counted the index from the first day, based on the face value of each Grameenphone share at Tk 10.
On the other hand, CSE calculated the index on a five-day weighted average price of Grameenphone shares, which also did not give an accurate picture in the index.
About the meeting in May, Satipati Moitra, chief executive officer of DSE, said: “I can hardly remember anything about the meeting. I will not say anything on the issue. Moitra was present at the meeting as the then chief financial officer.
CSE authorities say they calculated the index based on the Laspeyres method, the one they usually follow.
However, the distortion was acute in the case of Grameenphone, because of its size. Even though the same methods were followed in the previous cases, the distortions were not reflected because of the small capital sizes.
SEC now ordered the two exchanges to start counting the index from the second day of a company's trade, based on the first day's closing price.
“As it had seen a huge gap, in most cases, between the first day's trading price and the IPO price, the commission suggests counting the index from the second day,” Farhad Ahmed explained.
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