Floor Price and Bangladesh’s Capital Market
The term ‘floor price’ in the context of the stock market generally refers to the minimum price at which a security can be traded, often associated with processes like initial public offerings (IPOs) and auctions.
In certain situations, governments set floor prices to prevent the market price of a commodity from falling below a level that could harm the producers. This is particularly common in markets with inelastic demand and very low natural prices.
As of July 5, 2020, the Bangladesh Securities and Exchange Commission (BSEC) established a floor price for new companies listed through fixed price and book-building methods.
Another decision stated that a company’s last closing price at the OTC (over-the-counter) market would become its floor price after relisting on the main board, preventing trading below this set price.
In July 2022, the BSEC introduced a floor price for every share to curb free-falling indices amid uncertainties arising from the COVID-19 pandemic and the Russia-Ukraine war.
This mechanism, implemented on July 28, 2022, played a crucial role in stabilizing the market. However, over 60pc of shares were stuck at the floor price, indicating a lack of trading activity due to limited buyer-seller participation.
On January 18, 2024, the BSEC withdrew the floor price for most stocks after 18 months, aiming to revitalize the market. The floor price will still apply to 35 companies, according to the regulator.
A similar decision was made in December 2022, but in March of the following year, the BSEC reinstated price controls for all companies due to macroeconomic challenges.
The floor price restrictions led to minimal trading activity for many stocks and increased price manipulation in low-quality and weak companies. General investors are optimistic about this decision favoring them and providing a more secure investment environment.
Farzana Arshi
Sr. Research Analyst
Doha Securities Limited