Analyzing the impact of existing floor price on the brokerage industry: a case study of LankaBangla Securities

Abstract

In Bangladesh, the stock market has historically experienced volatility due to the presence of small investors who constitute a significant portion of the market. This has resulted in institutional investors and high net worth individuals being hesitant to participate in the stock market, leading to a lack of long-term stability. To safeguard the market during the pandemic, the SEC imposed a floor price in March 2020. While this measure protected small investors from significant losses, it has had negative consequences for the capital market. Imposing floor prices is a rare concept globally and has a significant impact on market turnover. Normal small investors who require access to their funds face difficulties in extracting their investments and incur opportunity costs as they are unable to invest elsewhere. Margin investors, who borrowed money to buy shares, also bear the burden of interest expenses in addition to the opportunity costs. Traders' performance is hampered as they are unable to generate high turnover for companies, directly affecting their salary, promotions, and job security. The report aims to contribute to a better understanding of how the floor price mechanism affects the stock market and its implications for the economy and investors. Based on the findings and conclusions, the report provides key recommendations for investors and policymakers. The goal is to promote a balanced approach to the interplay between floor prices and the stock market, considering the broader implications for the economy and the well-being of investors.