BSEC resets stock circuit breaker’s lower limit to 10%

The Bangladesh Securities and Exchange Commission (BSEC) has decided to reset the lower limit of the circuit breaker mechanism to 10 percent from 3 percent for all publicly traded companies.
The country’s stock market regulator took this decision at an emergency commission meeting at its office in Dhaka yesterday.
During the meeting, the BSEC also decided to lift the floor prices of four companies — BSRM Ltd, Khulna Power, Meghna Petroleum, and Shahjibazar Power.
However, the price cap mechanism remains active for Islami Bank and Beximco Ltd as the regulator aims to prevent Mohammed Saiful Alam and Salman Fazlur Rahman from selling their shares.
The BSEC has also decided to take legal action against companies that announced dividends but did not distribute them in a timely manner.
The BSEC had set floor prices, which is the lowest price at which a stock can be traded, in July 2022 to halt the freefall of market indices amid lingering uncertainties brought on by the fallouts of Covid-19 and the Russia-Ukraine war.
The floor prices of 169 companies were lifted in December later that year.
However, the mechanism was brought back in March 2023 as the economy continued to be clobbered by a macroeconomic crisis amid depleting forex reserves, depreciation of the local currency and elevated inflation.
Owing to the floor prices, most stocks did not see much trading while price manipulation involving junk stocks and weak companies was rife.
But in the face of huge criticism from market analysts, the BSEC lifted the floor prices of all but 35 stocks in January this year.
After that, it withdrew the price mechanism from six companies in phases.
But in place of floor prices, the regulator decided to increase the circuit breaker’s lower limit in a bid to narrow the scope for individual stocks to shed more than 10 percent on a single trading day.
The move comes as part of the BSEC’s efforts to halt panic selling and slow down the fall of market indices.
The BSEC had issued an order regarding the circuit breaker in April, saying that stocks would not be allowed to fall more than 3 percent based on its closing price the previous day while the prior limit was 10 percent.
The upper limit of the circuit breaker, meaning the extent to which the price of a stock can rise, has been kept unchanged at 10 percent.
Market analysts have long been criticising these steps that aim to keep stock indices artificially higher.