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MARKET PULSE 

FEB-2018

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values. They are overvalued. Smart 
investors recognize this and make arbitrage 
profit by short selling the overvalued 
securities. Through short selling, they 
provide additional supply of the securities 
and thereby put downward pressure on 
prices. In our stock exchanges, short 
selling is not allowed. Had short selling 
be allowed, we would have seen sharp 
increases in prices of almost all securities 
during 1996 and 2010. 

During these periods, the stock exchanges 
experienced huge buying pressure 
resulting in sharp increases in prices of 
securities traded in the exchanges. Most 
of the securities became highly overvalued 
by many times their fair/intrinsic values. 

If short selling were allowed, the market 
would have reverted long before prices 
shot up that high. 

Allowing short selling of 30% by market 
makers is a good first move. Let me 
hope that the same will be allowed to all 
participants, market makers, brokers and 
investors; since short selling will allow 
market participants to earn good return and 
help cool down heated markets. 

Will market making be a viable 
business in the context of Bangladesh? 
Do you think we need market makers 
for our markets?

I cannot overemphasize the need for 
market makers in our stock exchanges. 

But the sad reality is we do not have them. 
Though the Market Maker Rule has been 
made in Year 2000, we are yet to see the 
presence of market makers in our stock 
exchanges. The regulator should give a 
serious look at what has been preventing 
the brokers/dealers to come forward to be 
market makers and do what it needs to do. 
As mentioned above, as we do not have 
market makers, many transactions do not 
take place. Once we can ensure market 
makers in our stock exchanges, we will see 
more activities in our stock markets making 
them more vibrant. Volume of transaction 
in the markets will certainly increase and 
markets will be more disciplined. 

Though the Market Maker Rule has been made in Year 2000, we are yet to see the 

presence of market makers in our stock exchanges. The regulator should give a serious 

look at what has been preventing the brokers/dealers to come forward to be market 

makers and do what it needs to do.