If only I had known that the share I was investing in was a paper share, I would have never spent good money on it ! The paper share was such a hassle that I was ultimately compelled to sell it at a loss. I vowed not to invest in this kind of shares any more.
Pijush Kanti Dey, an investor in the capital market, shared this way his experiences of owning a company's paper shares. However, his case is not the single example. There are thousands of people who face the hassle Pijush is fed up with.
Another investor, Rafiqul Islam, said, “I have to go to Motijheel from Gulshan-2 and spend an entire day if I want to sell my shares of paper certificates. Also, there is the risk of getting those torn or easily being lost. But I can easily sell or purchase any time the shares in other form under the computerised system.”
The alternative to trading of paper-based stocks is the Central Depository System (CDS). Under this system, all paper shares have been turned into electronic ones and transactions are also carried out electronically.
Bangladesh entered the CDS era in January 2004. Central Depository Bangladesh Ltd (CDBL), the service provider company, operates the CDS and it has been gaining popularity among the investors ever since.
Till May 31, 2008, out of a total of 286 listed companies, 150 companies joined the CDS and about 15 lakh beneficiary owners' accounts (BO) have been opened to assist with the electronic trade. Surprisingly, 136 companies, including some 'A' category companies, still use paper shares to trade in the stock market.
According to the Dhaka Stock Exchange (DSE), as on May 2008, some 88.48 percent of trade came under the CDBL and the remaining 11.53 percent was carried out in paper shares, although a whopping 136 or 47.55 percent of all the companies listed in the market are using paper shares. This shows an evident distaste in the use of the paper shares.
The most popular shares in the market are of the 'A' category companies, who regularly hold their annual general meetings and declare minimum 10 percent dividends. 'A' Category companies like Rupali Insurance and GQ Ball Pen are still applying paper-based shares.
“It is shocking that many companies are yet to come under CDS,” said Kazi Firoz Rashid, chairman of Kazi Firoz Rashid Securities Ltd.
“We have to deal with fake shares because those are not demated,” he added.
Stock market operators expressed concerns over the tremendous pressures on the 'low capacity of the CDBL hardware' due to the increasing volume of trade of the beneficiary accounts in recent times.
The CDBL capacity was not upgraded even though the number of shares traded on the DSE ascended to 2.19 billion in April 2008 from only a 1 billion in early 2004 when CDBL began operations.
Earlier, the country's two bourses urgently demanded an upgrade of CDBL infrastructure to cope with the growth in transactions of the securities. They also recommended setting up a second generator for power back-up, branch offices in other cities, including Chittagong and Sylhet, technical support to the Depository Participants (DPs) and a surveillance department in the CDBL.
From October to December last year, the number of shares traded exceeded 60,000 in 13 days out of 54 trading days. When some inconveniences were caused, due to the high volume of trade, a settlement was managed with cooperation from the DPs. However, on October 25, 2007, trade volume increased to a monumental 72,105 and to 71,606 on November 22, 2007 delaying share deliveries to the DPs.
Kazi Firoz Rashid, former chairman of DSE said, “The system disrupted several times since the CDS came into operation in 2004,”
“The CDBL may face severe difficulties in the future, if the capacity is not enhanced. The disruptions that occurred last year was only the tip of the iceberg," he added.
Furthermore, the operations of CDBL remained suspended for an entire day due to technical faults on July 26 last year. Spot trading of seven top companies on the Dhaka bourse was also halted for almost all the trading hours on August 1 last year due to the disruption in the CDBL.
Another DP said that it was ridiculous how the stock market expects large companies to float shares even though the poor capacity of the existing CDS operating company is not at all adequate to run the system.
The good news is that the CDBL plans to increase its capacity by three times.
“CDBL's capacity will be enhanced in the next couple of months,” its head of system support told The Daily Star.
Sources in the Dhaka Stck Exchange (DSE) said the bourse is also mulling to set up a CDS for itself to cope with the growing pressures in the market.
“A category shares have to demat its shares after January 2009,” said Salahuddin Ahmed Khan, the DSE chief executive officer.
Although there is no time boundary for getting enlisted in the CDBL system, there is good news for investors like Pijush Kanti Dey because he will no longer to require to hold paper shares of 'A' category companies from early next year.