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Chapter 1 About EC Securities Ltd.

1.0 Profile of the Organization:


1.1 Company Overview:
Name: EC Securities Limited Address: Plot No. 53 Nafi Tower (6th Floor), Gulshan South Commercial Area, Gulshan-1, Dhaka-1212.

EC Securities Limited (ECSL) is a financial intermediary providing merchant banking, securities and investment management services. The substantial and diversified clients of the company are corporations, financial institutions and high net- worth individuals. ECSL seeks to provide quality driven merchant banking solutions, as well as new opportunities for individual and institutional investors. EC Securities Limited (ECSL) has been operating as the investment arm of East Coast Group (ECG) since 1997. East Coast Group (ECG) emerged as one of the fastest growing business conglomerates in Bangladesh. The group became active in different areas of business starting from trading in bulk commodities to investing in manufacturing, real estate, bank & insurance sector. Besides maintaining a potential portfolio of its own, the company is also engaged in underwriting of Initial Public Offerings, equity participation and corporate finance. ECSL is prudently trading in securities market and holds substantial shares of successful companies with continuous high earnings and dividend payment records. The Company also holds shares of high-profile private and public limited companies as a long-term investment strategy. ECSL has been maintaining diversified portfolio of its own and has stake in renowned companies such as Union Capital Limited, Hill Plantation Limited, Greenland Pharmaceuticals Limited, MJL Bangladesh Ltd, Mobil Jamuna Fuels Ltd, Consolidated Tea & Plantation Ltd, Surma Summit Tanks Terminals Ltd Clean Fuel Filling Station Ltd, Shugandha Holdings Ltd, GEP Telecom Ltd, and GEP Holdings. ECSL, with its new dynamic merchant banking team and dedicated premise, has now expanded its range to provide portfolio management services to its clients.

1.2 Company Vision:


To integrate through all the areas of the capital market to provide an ideal solution for investors and with aim to grow organically to be able to maintain a sustainable business expansion and provision for the future.

1.3 Company Mission:


Providing quality- driven merchant banking solution.

1.4 Objectives:
Create awareness and a brand image that will increase the clientele base, which would further lead to profit maximization for the company.

1.5 Human Resources:


There are 19 employees working altogether under EC Securities Limited in single working shift and in various departments. There are 15 officers.

1.6 Products and Services:


Investing heavily, in modern IT infrastructure and set-of-the-art trading floor, ECSL seeks to provide quality driven services to their clients. Services include:

Portfolio Management Margin Loan Facilities Non-discretionary Investor accounts (Auto) E-mail transaction notification services

Chapter 2 About the Report

2.0 Introduction: An Internship program is a prerequisite to complete the Bachelor of


Business Administration course of American International University Bangladesh. Each student has to undergo Internship program. Internship program is a nice opportunity for the graduates to have a taste of the corporate world. As a part of the Internship Program of Bachelor of Business Administration course requirement, I was assigned for doing my internship in EC Securities Limited (ECSL) for the period of 3 months starting from February22, 2011 to May 22; 2011.My organizational supervisor was Mr. Waiz Chowdhury an executive of ECSL. My faculty supervisor Mr. Md. Farooque Hossain, Lecturer in Accounting, American International University-Bangladesh also approved and authorized me to prepare this intern report.

2.1 Rationale of the Study: Merchant banking is an emergent sector in the capital market
of a country. A capital market has strong contribution to the economy and capital market largely depends on merchant bank. A merchant bank is related to the capital market, corporation and as well as the stock holders also. Merchant bank helps a corporation to be listed in the capital market as well as continuing its operation in the capital market. It also provides significant services like portfolio management to the stock holders. It has a helping hand to increase the liquidity of capital market. So every entity directly or indirectly related to merchant banking, should know about the activities and role of merchant bank. On the other hand this essential sector has many obstacles to run its operations. This is why it should be the responsibility of the concerned to know about the obstacles. Persons who bear the interest to get career in a financial organization, they can get a vast idea about merchant bank and can easily compare with other sectors or the same. As I have done major with accounting and Finance and I am very much interested to do work in the area of finance in future, thats why I am proposing this study.

2.2 Statement of the Problems: A merchant bank has very essential role in the capital
market. When we come to the point of merchant bank, we know that it only provides loan facility to the stock investors. But this is not the actual job of merchant bank. The real is enormous. It motivates and helps a company to increase its capital by listing in the capital market. In addition to this merchant bank shares the risk of a public limited company by underwriting the shares. It also provides various services to the investors. So there are many Entities that largely related and depend on merchant bank. But many people do not have clear idea about these vital activities of merchant bank. It is a fact that we might have interest to know deeply about merchant bank and as well as difficulties of doing its operations.
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2.3 Scope and delimitation of the study: This research helps me very much to know
about the significant role of merchant bank on capital market and also the obstacles they are facing. I work at EC Securities Limited as an intern. So I am learning the operations and contribution of this company as a merchant bank. This research helps me to know the way of service and the capital market contribution of the company. By doing this research I will be able to know the vision of the company about capital market markets. At last, I have to say that this internship program will help me to know about the job environment and responsibilities in a corporate environment. It was not an easy task for me to prepare the report on Operations & obstacles of Merchant Banking in Bangladesh- A study on EC Securities. First of all there was a hard competition to get an internship in a financial organization. I got the internship at late just before the month of March. So the time I got to prepare a satisfactory report was not sufficient. Within a very short time I had to select the report topic as well as to collect relevant data. As I have collected information from internet, different types of publications so it is not possible to get all required information. This is why I could not prepare the report as I did wish. But within the limitations I have tried my best to make the work as fruitful.

2.4 Objectives of the study:


2.4.1 General Objective: To figure out the major functions of a merchant bank and find out the constraints on the way of its operations. 2.4.2 Specific Objectives: To identify the contributions of a merchant bank to capital markets. To investigate the benefits that general investors get from a merchant bank. To introduce the readers with some essential laws regarding merchant bank. To make the readers familiar with trading procedure of a stock in stock exchange.

2.5 Methodology of the study:


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2.5.1 Data Sources: As the report is information basis the secondary data sources are emphasized. Moreover I was relying on some primary sources as well. So the report is based on both primary and secondary data. The primary sources are mainly open ended questions to the employees and executives of the company. For secondary sources I did collect data from various sources. 2.5.2 Primary Sources: 2.5.3 Secondary Sources: Publications obtained from different libraries and from Internet. Relevant file study as provided by the concerned officer. Different types of literature review. Study of different types of journal related with finance and merchant bank. Relevant research papers. Practical deskwork. Face to face conversation with employees. Face to face conversation with executives.

Chapter 3 Analysis and Interpretation of Data

3.0 Analysis and Interpretation of the data:


3.1 Merchant banking at a glance: Merchant banking is an emergent sector in the
capital market. According to Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996, merchant bankers is defined as those who manage portfolio on behalf of its clients or performs the business of underwriting or are related to securities as underwriter or advisor or are providing corporate advisory services on completion of all the activities relating to Issue Management. Generally the term merchant banking refers to a negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies. As per Merchant Banking Regulations, a merchant bank can mainly perform three activities which are: 1. Issue Management: Issue Management function of merchant Banking helps capital market to increase the supply of securities. Being a Issue Manager we provides assistance to the Private Limited Companies intended to be converted into Public Limited Companies by way of obtaining necessary permission from the relevant authorities, preparing prospectus for public issue of shares and debentures, involving itself in the collection of application money, scrutiny of applications, arranging for lottery relating to allotment, if required, allotment of shares and debentures, refund of application money etc. 2. Underwriting: Underwriting Operation is one of the important functions of a Merchant Banker by which it can increase the supply of stock/shares and debentures in the market. It is an arrangement whereby the underwriter undertakes to subscribe the unsubscribed portion of shares/debentures offered by any Public Limited Company. This encourages the prospective issuers to offer shares/debentures to the public for subscription and they can raise fund from the public for implementation of their industrial undertakings.

3. Portfolio Investment Management Services: One of the most important functions of merchant banking is to provide Portfolio Management service to the customer. Basically, Portfolio Management Services program has four different wings to provide portfolio investment management services. In addition a merchant banker can also perform the activities of Project counseling, PreInvestment Studies, Merger & Acquisitions, Factoring, Asset Securitization, OTC Market, Capital Re-Structuring etc.

3.2 Origin of merchant banking: Merchant banks first arose in the Italian states in the
Middle Ages, when Italian merchant housesgenerally small, family-owned import-export and commodity trading businesses began to use their excess capital to finance foreign trade in return for a share of the profits. This trade generally consisted of lengthy sea voyages. In late 17th and early 18th century Europe, the largest companies of the world was merchant adventurers. The colonies of other European countries were started in the same manner. For example, the Dutch merchant adventurers were active in what are now Indonesia; the French and Portuguese acted similarly in their respective colonies. The American colonies also represent the product of merchant banking, as evidenced by the activities of the famous Hudson Bay Company. Later, the center for merchant banking shifted from the Italian states to Amsterdam and then, in the eighteenth century, to London, where immigrants from Prussia, France, Ireland, Russia, and the Italian states formed the core of early British merchant banking. As the nineteenth century opened, virtually no mercantile houses remained focused on both trade and finance. During the 20th century, however, European merchant banks expanded their services. They became increasingly involved in the actual running of the business for who the transaction was conducted. Today, merchant banks actually own and run businesses for their own account, and that of others.

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3.3 Merchant banking in Bangladesh: The concept of merchant banking is in a


development phase in our country. Regulatory bodies and Government is always trying to develop the capital market focusing the welfare of the investor through building a stable and secured market. The first ever stock exchange came into existence in Bangladesh (then East Pakistan) in the name of East Pakistan Stock Exchange Association Ltd. It took two years more to launch its formal operation. 1964, the name of East Pakistan Stock Exchange Limited was changed to "Dacca Stock Exchange Ltd." Investment Corporation of Bangladesh (ICB) was the pioneer in the country that has performing with strong reputation in the countrys capital market spreading its activities in all the segments of capital market. In 1987, the Bangladesh Government prepares and presents the Securities & Exchange Rules. In 1993, DSE took step ahead to update its all-share price index on the basis of the design suggested International Finance Corporation (IFC). In 1994, Securities & Exchange Commission (SEC) published rules regarding the activities of dealers and brokers. The title of the rules is set (Stock-dealers, Stock-brokers and Sub brokers). In 1996, SEC introduces SEC (Merchant Banker & Portfolio Manager) Regulations, along with SEC (Mutual Funds) Regulations, 1996. Except the activities of ICB, merchant banking in Bangladesh had started their activities. Now there were no legal obligations of the issuer companies to engage an issue manager at the time security issue. In 1997, some bank and non-banking organization give proposal to get the permission of operate merchant banking operation. In 1998, DSE introduced automated trading; it is a great breakthrough both for the country and stock exchange. IDLC of Bangladesh got license full-fledged merchant banker. It is the first licensed full-fledged merchant banker in the country. Another 10 full-fledged merchant banker introduces in this. In 1999, another 5 non-banking organization started as full-fledge merchant banker. Prime Finance and Investment Limited started their full-fledge merchant banking operation from this year. In 2000, only one non-banking organization introduced as a full-fledge merchant baker. In 2001, Prime Bank and Arab Bangladesh Bank started their operation as a merchant banker, another 2 non-banking organization started their merchant banking operation. From 2002 to 2009, another 10 merchant banker are introduced and most of them are private commercial banking organization. The number of full-fledged merchant banker is now 34. Another one
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company is also registered as merchant banker but currently deals with issue portfolio management only.

To register as a merchant banker, SEC asks some requirements as below: Issue Manager Portfolio Manager Merchant Banker At least 1 (one) proposal for public issue be submitted to the Commission in each calendar year In addition to own portfolio, at least 5(five) new portfolio accounts be opened in each calendar year 1 (one) issue management, 2 (two) underwriting, 5(five) new

portfolio accounts be opened in each calendar year Besides these, merchant bankers need a pre-condition of capital of TK 100 million for the registration of full-fledged merchant banker. Tk. 10 million of capital is needed of a company is registered for issue management and underwriting or portfolio management only. For issue management, it is needed 2.5 million only.

3.4 EC Securities Ltd. as a Merchant Banker: Merchant Banking department of EC


Securities Ltd is a very progressive department. EC Securities Ltd. operates as a full-fledged merchant bank since February 2010. As a merchant bank, ECSL operates many types of operations. The activities are given below1. Portfolio Management Service: ECSLs dynamic and experienced team of merchant banking executives are there to provide an elite portfolio management services at a call. ECSL has an auto e-mail notification module and phone trading solutions to accommodate the growing needs of its customers. It is currently developing an online trading platform called Investors Portal. Once it is available all customers can manage their account online and send authenticated buy/sell with just a click of a button. The portfolio management department of ECSL maintains two portfolios

Organizations own portfolio, which is an omnibus BO account. Investors portfolios, which are operated against each individuals account.

The major activities of organizations own portfolio are12

To prepare all kind of paper and formalities for IPO/Rights Shares applications, transfer and registration

To collect dividend warrant, interest warrant, bonus shares and right shares from the company

To prepare Transfer instruments and get signature verification of others. To update daily market trend statement of ECSL portfolio. To prepare monthly purchase and sales statement and monthly gain loss statement for board meeting purpose.

The major activities of investors portfolio are: To do necessary jobs relating to opening of investors account. To receive, record and maintain orders for purchase or sales of securities on behalf of the portfolio accounts holder. To execute buy and sale order on behalf of investors. To maintain investors wise information in the ledger. Maintain updated fund position and share position of each investors. To give support at the time of requisition of withdrawal by investors. To report SEC as per their instruction or requirements. To prepare tax certificate for the requirement of the investors. To report to the different companies for different activities (right share application, dividend declaration, bonus share declaration, Pre-IPO offer, IPO offer) on behalf of investors. To do other ancillary jobs at the instruction of superiors.

No. of Portfolio Account ECSL: Portfolio department of ECSL has 1127 individual and institutional non-discretionary accounts as on dated 15 March, 2011.

2. Margin Loan Facilities: ECSL also provides margin loan facilities based on clients equity to give the investors financial leverage to trade in stock market.
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3. Private Placement: ECSL has a policy to encourage its regular investors by providing a pre IPO private placement opportunities, creating incentives and adding value to the services is an important features of their corporate vision.

4. Issue Management: It is a mandatory activity for any merchant bank working in Bangladesh. Issue management means managing new issues of equities, bonds and debenture. The functions of issue management include provide assistance in transform of Private Limited Companies to Public Limited Companies where necessary. It helps preparing prospectus, pricing issue of Shares, getting approval from the appropriate authorities, arranging underwriters, bankers to the issue, stock exchanges, advertising agencies receiving share applications, arranging distribution of allotment letters and refund money send all other activities related to public issues. Thus, issuing new IPO is the focus point for any merchant bank under separate issue management department. (Merchant Banking and its Progression in Bangladesh: The Multidimensional Factors, 2005, p.7).Mangers may select out of SEC approved Issue Managers. The normal commission for Issue Manager is 1% of issue amount.

The activities are divided by issue management into two stages: Pre-issue Stage and Post-issue Stage.

Like other merchant bank, EC Securities Ltd. follows following steps for Issue management: Step A: Before filing the prospectus to SEC for approval some documents are required to provide by Issue Company to issue manager. Step B: General Requirement for filing application to SEC for consent to an issue (In line with Public Issue Rules, 2006) Step C: Basis on getting consent letter on dated from the Securities and Exchange Commission the company will publish the prospectus on different newspapers, websites and for NRB they send EMS. The issue manager shall carefully examine and compare the published abridged version of prospectus on the date of publication with the copy vetted by SEC.
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Step D: After subscription of Resume, the issuer and the issue manager shall jointly provide the Commission and the stock exchanges with the list of valid and invalid applicants (i.e. final status of subscription) to the Commission within 3 (three) weeks after the closure of the subscription along with bank statement (original), branch-wise subscription statement, NRB application forms (photocopy attested by the CEOs of the issuer company and the issue manager). The list of valid and invalid applicants shall be finalized after examination with the CDBL in respect of BO accounts and particulars thereof. Step E: Application forms pay orders collection & checking, data entry and other related works up to the status ready for lottery arrangement. Step F: Distribution of allotment letters and refund warrants. Step G: The Issue Manager, In addition to the issuer company, shall ensure due compliance of the conditions and submit compliance report thereon to the Commission. As an issue company, EC Securities Ltd. worked for 2 companies as a co-issuer so far.

5. Underwriting: Along with issue management, ECSL also has high expertise in underwriting of initial public offers. A merchant bank uses some portion of their own assets as guarantee to help an entity find investors, this process in known as underwriting. It is one of the major functions of a merchant bank. Underwriting is one of intermediary function whereby underwriters, agrees to take up the unsold position of an issue that is being offered by the company directly to the investor. In other words it is a guarantee of subscription of shares or debentures by the public against some specific commission. In our country as per the SEC rules every public company has to do 50 % of their new issues must have to underwrite.

The underwriting procedure can be outlined with the flow chart: Manage underwriting Finalize underwriting of shares Steps done by ECSL as an underwriter: Step A: Agreement Signed Step B: Declaration of Current Underwriting Step C: Contact Person Details
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Prepare underwriting agreements

Step D: Due Diligence Signed Step E: Management Approval Step F: Board Approval Step G: Note for Payment Step H: Forwarding Letter No. of Underwriting by ECSL: Total amount of issues held for Underwriting are 7. 6. M&A Counseling and Project Feasibility Analysis: ECSL is introducing new cutting edge financial intermediary merchant banking solutions such as merger and acquisition counseling and project feasibility analysis for SMEs.

7. NRB Client Service: ECSL assist foreign institutions /NRBs to set up custodial and cash account with local or foreign commercial bank. The company assists in all legal and regulatory affairs involved in the process. NRBs are offered to participate in IPO and pre IPO placement through ECSL.

8. Research and IT: Investing heavily in modern IT infrastructure and state of the art trading floor, ECSL boast 10 trading terminal which include VIP ladies trading floor with female portfolio managers. ECSLs research team also provides weekly market reports and sector wise analysis fundamental and technical analysis. Their investors are issued library card with which they can browse the database, books, journals and annual reports. In addition their library has dedicated PC loaded with technical/graphical analysis interface.

3.4.1 Business level Strategy:


1. Customer Needs and product differentiation: ECSL focuses on retail portfolio management service for which margin loan facilities are provided to encourage customer to

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increase their investment and their daily trading. ECSL provides two types of portfolio accounts: Loan account Non-loan account

These accounts are offered to their client, and which they can choose on their own decision. Charges are lower than its competitors. It provides portfolio managers to individual clients for their safety and benefits while investing in the capital market. Unlike others, ECSL provides separate trading room especially for women which opens a door for the women in this field. They keep day to day trading records and inform each and every client through email every day.

2. Customer Group and Market Segmentation: ECSL grouped its customers based on important in their needs or preferences in order to gain a competitive advantage. individuals and women. They segmented the market in a demographic way. Their targeted customers are the highly net worth

3.4.2 Planning Differentiation:


1. Operational Plan By this year ECSL will take all necessary steps as per tactical plan to increase shareholder value by generating revenue and it also a continuous process. By this year ECSL will manage resources and leverage technology to maximize performance and customer service. Customer awareness also a continuous process. By this year we will ensure our laws, regulations and regulatory processes are maintaining properly. Increase the female investor is also a continuous process.

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2. Contingency Plan: If electronic filing system is not available for the customers then we will provide the information to its customer through email, phone and fax.

Higher Management will be available to receive the customer complain. If fails the assessment and improvement the customer management quality of the employees then Management will go to recruit the professionals.

If fails to incorporate latest tools and technology then email, phone and fax will be used. If fails to educate and share best practices with the staffs then we will recruit experience employee. If fails to setup a plan for customer awareness program to increase the customer awareness, monitoring & control activities will be increased to reduce the risk. If fail to train the employee Management will recruit experience employee. If fails then Management will take initiatives to train the employee. If fails to provide separate Trading facility to the female investors then female Portfolio Manager will be appointed to guide the female investors. If fails then facilities will be increased for the female investor as Advertisement.

3. Strategic Plan: To increase shareholder value by generating revenue. Manage resources and leverage technology to maximize performance and customer service. To increase the customer awareness. Ensure our laws, regulations and regulatory processes are maintaining properly. To increase the female investor.
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4. Tactical Plan: Make electronic filing available to more customers. Make it easier for customers to file complaints. Assessment and improve the customer management quality of the employees. Explore additional performance recognition awards. Develop succession plans for key positions.

Expand Latest tools & Technology more comprehensively. Educate and share best practices with staff to improve use of tools. To setup a plan for customer awareness program to increase the customer awareness.

To increase the monitoring regarding customer awareness. Train the employee. Work with stakeholders to maintain the viability and relevance of regulation and Coordinate with other regulators to reduce regulatory costs.

To provide separate Trading facility to the female investors. To work with Female Chamber of Commerce.

3.4.3 Process of everyday business functions: Every merchant bank has to do their
business as per the SEC instruction. If they break any of its instruction SEC may cancel the license of merchant bank. ECSL maintain some system to precede its business.

1. Non-Discretionary accounts:

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Generally non discretionary accounts are operated by ECSL. That means it will give only the monetary support (margin loan) and necessary support to do the share business. But it will not take any kind of risk of giving advisory risk at the time doing the share business by the investors. Portfolio department of ECSL merchant banking mainly two accounts, one is called individual account (a/c no 102) and another is own portfolio account (a/c no. 101). Own portfolio account is the companys own account. 2. Relation with Brokers: ECSL is related with three broker houses, by which it operates its secondary share business. Investors are doing their daily buy and sale by these broker houses. The broker houses areSES Company Ltd. and WI-Fang Securities Ltd. 3. Taxation: Under the Income Tax Ordinance1984, EC Securities Ltd. is subject to tax on income derived from share transaction amount of its trading activities. Provision for income tax has been calculated on the other income of the country. The companys trading income is subject to deduction of tax at source on brokerage commission as final settlement. 4. Trading in accordance with the applicable laws and regulations: Buy/Sale order books: according to Securities Exchange Rule, 1987, 4(1), A buy/sell order form is to be maintained through which all clients shall place their transactions order. This form is to be signed by the clients. No order shall be entered in the Brokers workstations without written order form. [This clause is extremely important as the main risk of a brokerage house is involved with it and any misunderstanding regarding the order shall be verified with this document. All these orders should be chronologically recorded in a register mentioning the name and address of the client, the name and number of the securities to be bought or sold, the nature of transaction and the limitation, if any, as to the price of securities. No sell order to shares shall be entered without holding the shares by the Broker or having the shares in the Broker clearing account (in case of CDBL traded
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issues). CDBL regulations require the shares intended to be sold out be transferred from the BO account of the client to the clearing account of the Broker.

No buy order shall be entered without having positive balance (Credit balance) with the broker excepting a margin Agreement for credit facility. [In case the accumulated purchase amount exceeds the credit balance of a particular client, excess amount should be deposited with the broker on the same day.EC Securities Ltd. maintains Buy/Sale order books in accordance with the rules mentioned above.

5. Telephone/Email/Fax Order: Order of Purchase or Sale of shares through telephone/fax or email is also accepted in EC Securities Ltd. according to the Securities Exchange Rule, 1987, 4(1). In the rule, A telephonic order of buy or sell given by a customer may also be accepted if The customer has an established account with the member. The order is properly recorded and signed by the member or his Authorized representative. Written order of confirmation is obtained by the member within 24 hours. For placing such orders, the account holder has to tell his account number; i.e. A1111 and must make sure he is completely aware of the position of his account value and available shares. 6. Settlement Process: The settlement date is the day on which either the payment to cover purchases or the securities to cover sales must be in the companys account. When the clients purchase/buys a security, payment must reach EC Securities Limited account before execution of trade. When the client sells a security, the share certificates must be delivered to EC Securities Limited before trade execution. 7. Clearing & Settlement:
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Shares and money are settled with the clearing & settlement department of the exchange according to the category of the company. For A category shares, money and shares are to be settled on T+1 (Transaction Date + One Days) and cleared on T+3 (Transaction date + Three Days). For B and G same rule applies.

In case of shares in Z category shares and money shall be deposited on T+4 and cleared on T+7.

CDBL traded issues are settled on within T+2. Only A category shares are eligible to become as demat form.

3.4.4 Trading Procedures:


1. Screen Based Trading: It is an advanced trading system over the Cry out Market. Now Bangladesh has started this type of trading system. In this system the shares are dematerialized that means we do not have any paper share certificate. Now every share is reserve in the central depository. Central depository is a system where every share is record as digital and they are also traded digitally. The way bank record all the transaction of its client depository also record his clients every transaction electronically. And the owner ship also transacted digitally. The depository maintains an account of the share investor which is called the BO account. 2. CDBL: Central Depository Bangladesh Limited (CDBL), a joint venture company setup by banks, stock exchange, Asian Development Bank and other institutions operates the Central Depository System (CDS) in Bangladesh. CDBL, by converting physical certificates into electronic form, will eliminate the risks of damaged, lost, forged and duplicate share certificates. The Dhaka Stock Exchange has become a full depository Participant (DP) of CDBL to facilitate the trading of its non-DP members. CDBL is regulated by the Securities and Exchange Commission (SEC).EC Securities has a direct server connection with CDBL. 3. TESA: trading software
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DSE trading function is operating by the help of TESA. It is trading software which is based on HP proprietary O/S & DBMS. TESA software is built for the global securities markets. It uses fault tolerant computers, intelligent workstations and client / server design techniques. This provides co-operative processing, high message integrity, continuous operation and fully automatic recovery. This co-operative mechanism enables very high speed processing which is essential for todays electronic markets, especially for DSE. TESA has two parts: MSA (Members Server Application) & TWS (Trader workstation).MSA is the Gateway between the traders and the Stock Exchange, which manages all the transactions and database operations between the traders and the Trading Engine. TWS is the Front-end Application closer to investors, where they can submit Buy/Sell orders for their desired securities. Dhaka stock exchange utilizes the blending trading system where both the pure auction market and the dealer market work collectively. Actually the pure auction market dominate the dealer market as public basically prefer and feel comfortable dealing with the pure auction market in first hand in trading system. However, people go for dealer market when, trading in dealer market is much more comfortable to utilize the trading system compared to only exercise pure auction market. Nevertheless, note that, when pure auction market and dealer market is in same cost to trade, then people definitely go for the pure auction market as its more comfortable toward public. TESA conducts trading in-5-phases:

Enquiry: In this session Brokers can logon to the system. No order will be submitted in this session. No trade will be executed. Only previous orders can be withdrawn in this session.

Opening: The Opening is a pure, single-price auction. All buy and all sell orders are compared and calculate the open-adjust price. No trades will be executed in this session

Continuous Trading: During this phase, participants enter orders and immediate execution or for inclusion in the book. Automatic matching and execution takes place based on best price/ first in, first out trading rules.
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Closing: Closing prices are calculated and disseminated to market participants. Enquiry: Market will be closed in this session & other facilities like the previous enquiry session.

Based on price, orders may be of the following categories Limit order and Market order

Based on volume, orders may be of the following categories, namely: Partial fill which signifies that as much possible of the order quantity shall be executed as soon as the order is submitted to the trading engine. Partial fill and kill signifies that as much as possible of the order quantity shall be executed as soon as the order is submitted and the remaining order quantity shall be returned to the trader who entered the order. Full fill or kill signifies that either all of the orders quantity shall be executed as soon as the order is submitted to the trading engine or the entire order shall be rejected and returned to the trader. Based on validity, orders may be of the following categories, namely: Good till day - By default, all orders shall be valid till the end of the current trading day. Good till date- The trader can specify the date till which the order should remain active in the market. The order validity date can be a date which is up to a maximum of thirty days from the current trading day. 4. Payment Policies:
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EC Securities Ltd. prefer that the client makes payment before the execution of a buy order or delivers share certificates before the execution of a sell order. Account payee Cheques for payments on purchase of a securities must be made payable to EC Securities Ltd. Only clients personal cheques, bank draft, pay order, corporate cheques are accepted in EC Securities Ltd. Any kind of cash or money order is unaccepted for the payment of the transaction.

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Chapter 4 Challenges of Merchant Banking

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4.0 Contemporary challenges of merchant banking in Bangladesh:


Merchant Banking concept is a new concept in Bangladesh. This market is not that much established. There are many problems in this area. Some major problems are given below1.High Flotation cost For high flotation cost small entities cannot enter the market. It declines the number of issue management. So there is a negative effect on the income of Merchant Bank.

2. High government borrowing at high interest rates The government has traditionally been the major borrower through the various national savings schemes and that too at the highest interest rate bracket and in unlimited (not predetermined) amounts. The government instruments were crowding out corporate borrowers and bank deposits in comparable tenures. Thankfully, the scenario is shifting lately as the government has discontinued some high interest paying instruments and restricted investments on others, accompanied with rate cuts. This has been attributed to the recent surge in stock prices.

3. Lack of transparency in public sector borrowing Public sector borrowing has been riddled with lack of transparency that failed to eventually proffer any reliable demand-supply scenario in which an efficient debt market can function. Because of the frequent shifts and ad hoc culture and volatility of demand, many of the debt instruments could not be designed to be publicly traded that could fuel a vibrant market. Efforts are now on to issue tradable instruments and bring fiscal discipline.

4. Entrenched buy & hold culture Since the first love of fixed income investors were the non-transferable high yield government saving certificates, an entrenched buy & hold culture developed over the years. Even premature encashment over the counter at the issuing offices were not a common practice. This culture spilled over to the nascent listed corporate debenture market, testified by the
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historically low trading volume at the exchanges, which retarded the natural growth of a secondary debt market.

5. Low long-term borrowing requirement Owing to a bitter colonial past and lack of resources, historically there was a weaker base for industrialization and related formalized commercial activities. This has kept the demand for long-term capital and credit requirement at the formal market at a lower level.

6. High bank deposit rates As deposit interest rates of the commercial banks were also quite high until recently in competition with government securities, corporate issues had to offer unsustainable higher rates (14%-18.5% per with semi-annual rest). High bank interest rates deterred public borrowing by the corporate bodies, thwarting the expected development of a debt market.

7. Banks feeding project finance appetite Though retail banks necessarily should not be in a position to provide adequate long-term project finance owing to a deposit and credit tenure mismatch, traditionally the commercial banks were (and still) providing such funds largely through annual rollovers, distorting the long-term credit market. Borrowers prefer less disclosure requirement and prudential obligations in bank borrowing to a public issue.

8. Relatively short history The issuance of debt securities by corporate bodies is a relatively recent phenomenon in Bangladesh and the experience of the investors has not been quite pleasant. The first public issue of listed corporate debenture in independent Bangladesh happened only in 1987, followed by about another dozen in the following years.

9. Absence of policy support


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Until recently there had been no government initiative, policy support or expressed political will to develop the financial and infrastructural base where a debt market could grow. Only recently the government has taken some measures that hint policy shift and discipline, including intended listing of two new sovereign bonds at the bourses for the first time. Out crowding effect from bad loan situation and fiscal deficit of the government as well as dominance of NCBs also played a damper on viable debt securities market development.

10. High tax incidence & issue cost Until a couple of years back debenture trust had to pay one-off 2.5% registration fees (now a fixed token amount of Tk2,500) and 2% stamp duty on the total amount raised. With firm commitment underwriting requirement necessitating 2.5% fees, the public issue cost averaged about 8%, topping with a recurring annual 1% trustee fee and related listing fees. In a prevailing high interest regime, a high establishment and issue cost base rendered most public issue of corporate debentures unviable.

11. Lack of regulations and infrastructure Absence of a dedicated set of regulations and necessary infrastructure that could help a debt market of consequence remained an impediment. However, despite absence of an umbrella law, there could have been notable market activities had there been strong policy support. The historical inheritance of the English Common Law, including the Companies Act 1913, Contract Act 1862, Trust Act 1882 etc. along with the various securities regulations including the SEC Public Issue Rules, all provided a framework which could have a facilitating role had there been application of imagination. The SEC has now framed a guideline for issuance of debt securities.

12. Lack of expertise & innovation

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General lack of expertise and innovation and absence of institutions in bringing variations in debt products have kept the market uninteresting. Lawyers, financial advisors and other service providers have not been competent in identifying the rights and obligations of the parties involved in debt securities. Expertise and institutional base for issuing various forms of debt is yet to visibly evolve. There is also absence of pertinent financial research institutions. The Bangladesh Bank have now issued Primary Dealer licenses to selected banks and NBFIs and the SEC have also initiated the process of appointing eligible stock brokers for trading of government securities at the bourses.

13. Unaccountable trustees Owing to the absence of a clear regulatory regime, the system failed to hold the Trustees of debenture responsible for failure to defend the rights of the debenture-holders in many cases when issuing companies declined to honor obligations. Regulators could not take the Trustees to task those, though received their fees, could or did not take any timely action against recalcitrant issuers. The trusteeship of debentures has in effect become an unaccountable and defunct institution.

14. Absence of institutional investors In Bangladesh the institutional investor community like investment & merchant banks, mutual funds, pension & provident funds, life insurers etc. has unfortunately not developed due to multifarious impediments. The market is essentially retail based and prone to high risk. The newly licensed merchant banks are yet to make any tangible mark, the government pension funds are essentially non-funded and non-accounted-for liabilities, provident and insurance funds restrained under age old qualitative and quantitative restrictions and growth of private mutual fund retarded under stringent regulatory frame-work and an uneven playing field. None of these ground realities has been conducive to growth of a healthy and vibrant capital market.

15. Cold capital market

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The capital market is yet to emerge as an effective investment avenue to most of the small savers on one hand and attractive avenue for the corporate bodies in raising fund on the other, especially since the boom and burst of 1996. The negative spillover effect of the grim capital market performance dampened potential public issue of debt securities. However, with recent resurgence of the market the appetite for investment grade securities has again been pronounced that could unleash fresh demand for listed debt securities. 16. Quality Research and Analysis Development of quality equity research in the country is yet to match the growth of local capital markets. Quality research increases investor awareness, reducing speculative trading and market volatility.

17. Information Asymmetry Access to credible information is restricted. Retail investors lack dedicated investment process infrastructure. Forced to look to brokers for advice that may consist of market rumors. Syndicate of large investors manipulates the market through price inflation, pump and dump strategies.

18. Supply Side Constraints Lack of fundamentally sound scripts as companies prefer traditional bank finance to capital markets. Need to encourage listing of good scripts in the market. Reducing supply side constraints generates liquidity, reducing scope for price manipulation.

19. Lack of Professional Portfolio Management


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Ratio of institutional-to-retail investors remains low. Institutional investors bring stability through non speculative long term investments Listing of more mutual funds can be a starting point to increasing institutional activity.

20. Valuation Disparity Value of scripts is subject to speculative trading rather than sound fundamentals, resulting in market volatility. Education of investors, overall development of capital markets through time can address this issue.

21. Lack of a Formal Debt Market Bangladesh does not have established secondary debt market. Markets are unable to provide short term financing solutions to corporations, i.e., commercial paper. Listing of debt instruments from quality issuers and institutional trading can increase activity. Introduction of BASEL II guidelines by Bangladesh Bank likely to encourage banks to raise capital through debt instruments in 2010.

22. Central Co-ordination of Regulators Top down co-ordination between Bangladesh Bank, SEC and related bodies would: Streamline regulatory processes Reduce time required for quality issuers and new capital markets products to reach market.

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Chapter 5 Findings of the Study

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5.0 Findings: After analyzing the descriptive part, I have following findings on the report
work:

Merchant Banking is an emergent sector in the capital market of a country. A Merchant Bank is directly or related to capital markets, corporations and stockholders. Issue Management, Underwriting and Portfolio Investment Management Services are the basic function of Merchant Bank. As the first Merchant Bank of the country IDLC started its operations in Bangladesh in 1998. The number of full-fledged Merchant Bank in Bangladesh is now 34. EC Securities Ltd. started its operations as a Full-Fledged Merchant Bank on February 2010. It has a strong mission to provide quality driven Merchant Banking solutions to the clients. As a potential Merchant Bank EC Securities Ltd. provides excellent and dynamic services to the clients. Like other Merchant Bank EC Securities Ltd. Maintains its own portfolio account as well as individual portfolio accounts of its clients. High flotation cost is a barrier of entry into market for a small entity. There is high tax incidence and issue cost in our country. There is lacking of policy support from the government in our capital market. The lacking of expertise and innovation of both individual and institution are also present in our capital market.

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Chapter 6 Recommendations

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6.0 Recommendations: EC Securities Ltd. has established its image as one of the best
service provider for its potential customers. From above discussions and basic understandings while working in the organization following recommendations can be formulated for the organization. By adopting the principles of good governance at all decision making levels, EC Securities Ltd. must show that corporate governance is a management enhancement tool. This is one of the factors that can give confidence to business partners and facilitates co-operation with parties in international financial centers, which already adopts such principles. EC Securities Ltd. should more clearly define respective responsibilities of staffs, managers, executives and board of directors in the attainment of goals and establish a procedure of sanctions attached to these responsibilities. It should improve more on management control systems comply religiously with corporate governance principles and the international financial standards especially aspects that impact on assessment &management of risks, transparency & viability. Intensify consultation within the profession in order to become a real source of idea for the development of brokerage house system within the region. Demand is shifting continuously, and these shifts have so much to do with today and the future as with the past. In order to increase the profitability & reduce the risk EC Securities Ltd. should maintain a well-balanced portfolio. The more diversified the portfolio, the lesser the risk of losses. It is to be keeping with mind that competitors can copy product but cannot copy the understandings & expertise.

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Many consumer segments still demand branches & use them while the other seek the reassurance of the branch if they do not use them, so branch should be based on proper demand identification.

EC Securities Ltd. should continuously redefine new demand for financial, brokerage services & ensure that this understanding is unique & actionable.

Chapter 7 Conclusion

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7.0 Conclusions: Merchant banks can contribute greatly for the development of more
authenticated and structured capital market and can also help to form a more stable economy. The report has been focused to present the important issues of merchant banking sector of Bangladesh. It has not been possible to present all the factors along with problems and prospects within this limited time frame and it needs more expertise to analyze the real scenario. It may not showcase the proper scenario of total merchant banking conditions. The findings may get biased by the interviewer information compared to the real scenario of market. It was very difficult to give recommendations as well. In spite of these reasons, dedicated efforts are given to prepare the report, but some mistakes can occur, which are unintentional due to lack of knowledge on certain areas and also because of time limitations.

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Bibliography

Fraser L.M, Ormiston. A, (2001), understanding financial statements (6th edition) Prentice hall of India pvt. Ltd. SEC, Bangladesh,(2011)http://www.secbd.org/addressmerchant.html. Merchant Banking in Bangladesh: A Case Study on Prime Finance and Investment Limited, (2011), Available: http://www.docstoc.com/search/merchant%20banking %20in%20bangladesh:%20a%20case%20study%20on%20prime%20finance%20& %20investment%20ltd. Investment Banking Project Report, (2011), Available: http://www.scribd.com/doc/15516137/Final-Project-Report-on-Investment-Banking. EC Securities Limited, (2011), Available: http://www.ecslbd.com. Arnold, C. M., (2001) Timing the market: How to make profit in bull and bear market with technical analysis, (2nd edition) Willey, New York Bangladesh Bank, (2011), Available: http:// www.bangladesh-bank.org /[ 23rd March, 2011] Bringham, Eugene, F, Gapenski, L.C., (2003), Intermediate of Financial Management, (7th Edition) Prentice Hall, New York. Bodie Z, Kane. A, Marcus. A. J, (2004), Investments, (6th edition), Tata McGraw-Hill Publishing Company Limited, New Delhi. Chittagong Stock Exchange, (2011), Available: http://www.csebd.com/ [27th February, 2011] Foster G, (1996), Financial statement analysis (2nd edition), Pearson education, India.

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Abbreviation

Acronym

Details

ECSL DSE CSE SEC Commission CDBL Bangladesh Limited CDS TESA Architecture BO MSA TWS

East Coast Securities Limited Dhaka Stock Exchange Chittagong Stock Exchange Securities & Exchange Central Depository Central Depository System The Electronic Securities Beneficiary Owner Members Server Application Trader Workstation

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