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At a glance of Money Market:

The Bangladesh economy is the most growing economy in the world. With the changing
of the world financial market the Domestic as well as international policy for Bangladesh
upgrading gradually. Actually financial system mainly developed though the development of
domestic and foreign capital and the money market. For functioning the economic system money
market wellfunctioning perimeter is very important. For meeting short term li!uidate demand
"y lending and "orrowing of the participants within the financial system is the mechanism of
money market. T"ill is the largest component of the money market in Bangladesh. #apital
markets are essentially a"out matching the needs of investors with those that need capital for
development. De"t markets are an e$tremely effective mechanism for matching the long term
needs of savers with those of entrepreneurs. %ike emerging market countries around the world&
Bangladesh could "enefit from having a localcurrency& fi$ed income securities market. At
present& its main fi$ed income financial products are "ank deposits& "ank loans& government
savings certificates& treasury "ills& and government "onds and corporate de"t etc.
Background of Bangladesh Money Market:
The money market of Bangladesh reached its present phase through a series of changes and
evolution. 'nitially& after li"eration& money market was the ma(or constituent part of the financial
market of the country. #apital market& its other segment was a relatively smaller part. All
financial institutions of the country were nationali)ed after li"eration. The growth and evolution
of money market in the country took place during the period from *+,* to the early eighties
under various sets of interventionist rules and regulations of the government and as such it could
hardly reflect the actual market conditions. -owever& in this period a vast financial
superstructure with large network of commercial "ank "ranches was esta"lished in the country.
.imultaneously& speciali)ed financial institutions under government sector also emerged with the
o"(ective of mo"ili)ing financial resources and channeling them for short& medium and long
term credit and investments. The market participants had to operate in an environment of
directed lending and loan dis"ursement goals& and predetermined rates of interest fi$ed "y the
Money Market
authority. -owever& rate of interest in the call market was fle$i"le "ut due to prevalence of li"eral
refinance facility at concessional rates from Bangladesh Bank& the activities of call money
market remained insignificant.
'n the "eginning of the *+/0s& money market in Bangladesh entered a new era with the
denationali)ation of two nationali)ed "anks and esta"lishment of some private "anks. With this
development money market assumed the characteristics of a competitive market in the country.
-owever& the administered interest rate structure and the government1s policy of priority sector
lending continued to operate as factors that deterred the development of a li"erali)ed money
market in the country.
Money market securities:
De"t securities having maturity one year or less is call money market securities. Money markets
securities are relatively high degree of li!uidate. Money market securities tend to have a low
e$pected return "ut also a low degree of risk. 2arious types of money market securities are listed
Market Existence
Treasury bill
-ouseholds& firms
and financial
*4 weeks& 56
weeks or * 7ear
* year -igh
etail certificates
of de!osit "C#s$
Banks and saving
, Days to 8 7ears
or %ong
of de!osit "%C#s$
%arge Banks and
.aving 'nstitutions
Firms 5 Week to *7ear Moderate
Bank holding
#ompanies &
#ompanies and
Firms *Days to 5,0 Days %ow
Foreign Bank
Firms and
* Days to * 7ear 9one$istent
firm can sell the
acceptance at a
discount o"tain
40 Days to 5,0
'ederal 'unds
* Days to , Days 9one$istent
Firm and Financial
Firms and
* Days to *8 Days 9one$istent
Treasury-Bill (rogress in Bangladesh
The central "ank of Bangladesh ;Bangladesh Bank= operates throughout the country with its nine
"ranches. 3overnment receipts and payments are overseen and managed "y the central "ank.
Different "ranches of .onali Bank ;.B= are assigned to take part in these transactions on "ehalf
of the central "ank& where there is no Bangladesh Bank "ranch. These "ranches are known as
1#hest Branches1. 'n a district& there may "e one chest and some su"chests. Bangladesh Bank
has directly monitors #hest "ranches. This function is called >Feed?. The Bangladesh
government finances its e$penditures in e$cess of ta$ receipts through the sale of de"t
o"ligations. #urrently& the total par value of outstanding Treasury "ills stood at a"out Taka 5@.6
core up to Auly 50*4 while in Aune& 50*5 it was *@,./ core;.ource: Bangladesh "ank =.
Treasury "ills are divided with its maturity "y the num"er of days. There are si$ types of T "ills
found in Bangladesh. These are
a= 40 days T"ill
"= +* days T"ill
c= */5 days T"ill
d= 46@ days T"ill
e= 5 years T"ill
f= 8 years T"ill
The market for Bangladesh Treasury "ills has a comple$ structure with numerous participants.
They are Ministry of Finance& Bangladesh Bank& government securities dealers and "rokers& and
other holders of Treasury securities. Banks usually "uy three kinds of T"ills B tenures of which
range "etween +*day to 46@day B and four kinds of T"onds B tenures of which range
"etween 8year to 50year B from the Bangladesh Bank. 3enerally& the participants in money
market are:
*= individual
5= Business and
4= 3overnment
More s!ecifically )e can identify different !artici!ants as:
*= 3overnment Treasury Department C They are the only demander of fund
5= #entral Bank C They are "oth supplier and demander of fund
4= #ommercial Bank C They are "oth supplier and demander of fund
@= Business C They are also "oth supplier and demander of fund
8= 'nvestment and .ecurities Firm
a. 'nvestment #ompaniesDBank
". Finance #ompanies
c. 'nsurance #ompanies
*ho and +o) Can Invest:
There was no secondary market for treasury securities until 5004&. Any investor ;institution
or individual=& with a current account with Bangladesh Bank& can invest in T"ills through
primary market auctions. Auction is held on every .unday at ** a.m. at the Moti(heel Branch of
BB. 'f .unday is a holiday& then the last working day "efore .unday will "e chosen. All the
investors su"mit their "id unless otherwise pension or provident fund. After receiving the "id& the
auction committee decides how much T"ills will "e off loaded. There is a highpowered
committee to oversee the treasury functions ;which includes seven mem"ers=.
Schedule for Issuance:
Treasury securities are issued through regularly scheduled auctions in the primary market. The
process importantly involves the Bangladesh Bank& which serve as conduits for the auctions.
Selling System:
Treasury "ills are not listed at the Bangladesh .tock <$change. T Bills are sold on a discount
"asis& with a terms means that we have to pay for the "ills less the interest receiva"le during the
term of the "ill and receive the face value of the "ill at the end of the period. 'f one wanted to
e$it "efore maturity& rediscounting isn1t possi"le at the #entral Bank& rather he or she may go for
Eepo auction.
Secondary Market for T-Bill:
'n 5004& government had decided to introduce the secondary T"ill market with a vision of
"roadening the government securities market. World1s leading financial institution #itigroup1s
su"sidiary #iti"ank& 9.A. and local Frime Bank %imited had taken part in the first secondary
transaction of T"ills in Bangladesh that year. #iti"ank& 9.A. had sold a T"ill of 5 years maturity
"earing Taka 4 crore of face value to Frime "ank. Bangladesh Bank had taken necessary steps to
assist this transaction. This was regarded the first secondary T"ill transaction in the country.
Bangladesh Bank has selected eight "anks and one non"ank financial institution as primary
dealers ;FDs= to handle secondary transactions of T"ills and other government "onds. The eight
"anks are .onali Bank& Aanata Bank& Agrani Bank& Frime Bank %td& Gttara Bank %td& .outh<ast
Bank %td& Aamuna Bank %td& and 9##B%& and the only 9BF' is 'nternational l %easing and
Financial .ervices %td. The inter"ank Eepo is one kind of secondary market for T "ills and
government securities& which was introduced from Auly 5,& 5004. The selected "anks and the
9BF' have already ended all procedural eligi"ility re!uirements for "eing appointed and start
operating as secondary "ond market dealers. The Bangladesh Bank earlier invited applications
from all scheduled "anks and financial institutions and directed interested parties to drop
applications to the F:E<H Eeserve and Treasury Management Department of the central "ank
latest "y August 5*& 5004. A total of */ commercial "anks and * non"ank financial institution
filed their applications for receiving FD licenses during the stipulated time.
(rocedure to allot T-bills:
The Treasury issues securities consistently and predicta"ly through a regular schedule of
auctions. 'n Bangladesh& Multipleunits Auction Model 's followed. Two types of "ids may "e
su"mitted at the auction:
a= #ompetitive "ids I
"= 9oncompetitive "ids
#ompetitive "ids specify "oth the !uantity of the security sought and a yield. 'f the specified
yield is within the range accepted at the auction& the "idder is awarded the entire !uantity sought
;unless the specified yield is the highest rate accepted& in which case the "idder is awarded
a prorated portion of the "id. 9oncompetitive "ids specify only the !uantity of the security
sought. %et us discuss the procedure that BA93%AD<.- BA9J follows to allot T"ills to
competitive and noncompetitive "idders through T"ill auctions. 'n Bangladesh& T"ills are
!uoted on a 46@day discount "asis. We define the "ank discount rate ;BDE= as BDE K DDM L
46@Dt& where it is the num"er of days from settlement to maturity& and D is the discount from par&
D K M F& M "eing the par or maturity value& and F "eing the price. -ence the discount from par
is given "y DK BDE $ M $ tD46@& while F K M D. <$ample: The W.A on Monday& Fe" ,& *++@
gives the ask !uote on the May 08& 1+@ T"ill as 4.5*M. ;'f we were to "uy the "ill& we would "uy
at order. The !uote is for Friday& Fe"ruary @. The market convention used in the W.A is that two
days are needed for settlementN under this convention settlement would take place on Tuesday&
Fe" @.There are /, days "etween Fe" @ and May 5. The discount on a O*0&000 par "ill is D K
4.5*M $*0& 000 $,8D46@ K 6,.@*& and the price is F K *0& 000 C 6,.@* K ++45.8+. #onversely&
assume the price of the T"ill were O+&/00. The discount amounts to D K *0& 000 +&/00 K 500&
and the "ankdiscount rate e!uals BDE K*00D*0000 L 46@D,8 K @./8M.
The values of Treasury securities are often summari)ed "y the yield curve& which plots the yields
of all noncalla"le securities against their maturities. An e$ample of the yield curve on Auly5@&
50*4 ;Auction no P58/= is given "elow. This curve has an upwardsloping& concave shape.
.ecurities having maturities of less than five years are highly concentrated& "ecause shorterterm
securities are auctioned more fre!uently and "ecause many previously issued longerterm
securities fall in that maturity range.
7ield 2olatility of T"ills in Bangladesh
;As of 5@0650*4 Auction no.58+=
T-Bill ,ield
40 days ,.60M
+* days /.@*M 0.6/M
*/5 days *0.*6M 0.64M 0.64M
46@ days *0.@5M 0.6*M 0.6*M 0.6*M
5 years *0.+0M 0./6M 0./6M 0./6M 0./6M
8 years **.80M 0.0,M 0.0,M 0.0,M0.0,M 0.0,M
.ource: Bangladesh "ank + Auly& 50*4;totalK* core ;*0 million==
This is an upward sloping yield curve or normal yield curve which indicates that the higher the
maturity& the higher the yield.
That means& yield of +*dayu T"ill is higher than that of 40day T"ill and so on. -ere the yield
spread "etween the +*day T"ills and 40day T"ills is *.6/M& which is the ma$imum than those
of others. The reason is that the demand of T"ills gradually decreases with term to maturity.
-ere shows how the curve of time going upward with the yield.
Call Money ate:
The interest rate "anks charge a "roker for the funding of loans to investors who "uy on margin
is called call money rate or "roker loan rate. 'n the call money market& participants enter in to
lending and "orrowing for overnight. The transaction takes place due to immediate li!uidity
need. This may arise from various sources like temporary ina"ility to meet the mandatory
@Mcash reserve re!uirement ;#EE= demanded "y the central "ank& sudden shortage of fund to
meet the lia"ilities like any prescheduled repayment etc. free from any specific regulation
the participants determine the call money rate on a negotiated manner. The call money rate is a
volatile rate in our country. 't is !uite affected "y certain seasonality. During the <id or special
occasions especially when there is a surge of deposit withdrawals& the "anks find themselves in
immediate li!uidity crisis. There is a direct and positive relationship "etween T"ill rate and call
money rate. When there is a seasonal cash crisis& "anks rush to the call money market. 'n this
situation& call money rate peaks. 9aturally investors of T"ills are not availa"le at that time
unless otherwise they are offered higher yield rate. #all money markets weight average interest
rate on up to Auly& 50*4 is ,.58 M with the limit of * DollarK6+.0, TJ ;.ource: Bangladesh
Call Money Market:
The volume of transactions and weighted average interest rates in the call money market showed
mi$ed trend during F706 ;Ta"le *= reflecting some noise in the activities of money market. The
call money rates witnessed some degree of fluctuations in the last two !uarters of F706 resulting
from the recent pressure in the foreign <uropean Aournal of Business and Management e$change
market and tight li!uidity situation in the money market. This stemmed mainly due to the
increased demand of 3overnment?s credit that was met up from 9#Bs to finance the cost of
imported petroleum products. Gntil the second !uarter of F706& the call money rates remained
mostly sta"le "ut "ecame somewhat volatile in the third !uarter. At the "eginning of the last
!uarter of F706& the weighted average call money rate stood at 5*.8 percent& su"stantially higher
than 8.@ percent recorded in the "eginning of the first !uarter.
#ifference )ith the basic definition:
'n Bangladesh& two and five year securities are also regarded as T"ills known as )ero coupon
The commitment of the seller to the "uyer to "uy "ack the instrument as and when the "uyer
intends to sell is called Eepo. This is an agreement "etween seller and "uyer.
Before& there was a premature encashment facility for the investors of T"ills. Fremature
encashment facility is a procedure of "uying "ack the security when cash is needed giving
amount and accrued interest. This is also called discounting the T"ills. #urrently& instead of
Discounting Window& Eepo facility is opened for the investors. -ere instrument isn1t re!uired&
rather it is lined. 'nvestors can "orrow either full or partial amount against the "ill. 'f an
investor "orrows *00M against the "ill& then ma$imum +8M discounted value will "e provided.
There is also a Eepo auction that is held side "y side of the T"ill auction. The yield rate of Eepo
is determined through "id received and "id acceptance& and this yield is higher than the yield of
T"ill. For e$ample& let us assume that& T"ill yield K ,M& Eepo yield K /M& then& 9et yield K *M.
To whom Eepo facility will "e provided is dependent upon the li!uidity in the market. Eepo
auctions held for * and , days tenure. #urrent special Eepo with Bangladesh out of total 5 "ids
received amount ;*@5 cr= and accepted amount ;*08 cr= with the range of rate *0.58 M; .ource
BB + Auly& 50*4=
everse e!o:
When commercial "ank has e$cess li!uidity& it can deposit it to Bangladesh "ank. This procedure
is fre!uently known as Eeverse Eepo. There is also a Eeverse Eepo auction which held with the
time of the T"ill auction. Eeverse Eepo auction is also held for * and , days tenure. #urrent
special Eepo with Bangladesh out of total 5 "ids range of rate 8.58 M; .ource BB , Auly& 50*4=
#ertificate of deposit was introduced as a money market instrument in Bangladesh in *+/4. 'ts
o"(ective was to strengthen the money market and "ring idle funds& including those arising from
"lack money and unearned incomes& within the fold of the "anking system. The Bearer of
#ertificate of Deposits ;B#D= with a fi$ed maturity is issued "y and paya"le at the "ank to
Bangladeshi nationals& firms and companies. The certificate does not contain the name of the
purchaser or holder. The interest rate is not fi$ed as in the case of other deposit resources
accepted "y the "anks at present.
The interest is determined on the date of issue of #Ds "ased on the demand and supply of funds
in the money market. The difference "etween the face value of #Ds and the prepaid interest is
received "y the "ank from the purchaser of #Ds at the time of issue. The "earer of #Ds can sell
the same to another purchaser. The "ank maintains no record other than the #ertificate 9o.& rate
of interest allowed& and the date of sale and encashment. A "ank does not issue certificate of
deposits for the value e$ceeding the limit prescri"ed for it "y the Bangladesh Bank. The
outstanding amount of #Ds was a"out Tk *.08 "illion in Aune *+// and increased to Tk 5.+*
"illion in Aune *++5 and further& to Tk 4.@@ "illion in Decem"er *++/. The amount of resources
mo"ili)ed through issue of #Ds was only 0.8/ percent of total deposits at the end of Decem"er
A turning point was the denationali)ation of Gttara and Fu"ali Bank in *+/4 and *+/@
respectively and the government decision to allow private "anks to operate in the country.
Formation of private "anks during the *+/0s provided new opportunities to develop this segment
of money market. 'n *+/8& two investment companies and in *+/+& one leasing company were
allowed to participate in the call money market. At present& all "anks including speciali)ed ones
and non"ank financial institutions are allowed to participate in this market.
The holdings of treasury "ills "y the deposit money "anks ;DMB= were only Tk 0.+@ "illion on
40 Aune *+,4 and the rate of interest was 6M. Amidst fluctuations& the volume went up to Tk
+.8@ "illion at the end of Aune *+/6. The rates of interest went up to +M at that time. Although
the rate of interest declined to /M at the "eginning of *+/,& the treasury "ill holdings "y the
DMBs went up su"stantially to Tk *5.8* "illion at the end of Aune *+/,. The treasury "ill
holdings reached a peak of Tk @8.*5 "illion at the end of Aune *++4 and thereafter& it declined to
Tk 0.@6 "illion at the end of Aune *++8. -owever& the treasury "ill holdings shoot up to Tk @+.,4
"illion "y May *+++. 't may "e assumed that lower treasury rate as compared to higher yield on
Bangladesh Bank Bill might have induced the "anks to shift their portfolio investments in favour
of the latter. -owever& due to suspension of auctioning of Bangladesh Bank Bills government
treasury "ills& other than the commercial "ill segment& have "ecome the only instruments in the
"ill market.
The online"ased trader work station introduced "y the Bangladesh Bank has so far failed to
make the secondary "ond market vi"rant as clients are reluctant to invest in the treasury "ills and
treasury "onds through the system. A good num"er of sales orders through the TW. every day
"ut clients were unwilling to participate in the system last 50*4 auction. -ence& the ma(ority of
the clients including corporate "usiness houses had not so far thought much a"out the secondary
government securities market where their provident funds could "e invested with proper security.
9ew instruments will create ade!uate opportunity for investment of shortterm. The e$cess fund
will increase li!uidity and further reduce dependency on the call money market. 'ntroducing *8
Days TBill& a new maturity "ill will give the investors greater li!uidity preference in the short
term. And give an out let for earning return on ideal e$cess fund. The commercial "anks should
take campaign programs to gear up the "ond market and can give the knowledge more a"out
online eTender system and its "enefits.
At a glance of #apital Market:
#apital Market mainly refers to the .tock and .hare market of the country. When&
"anking system cannot totally meet up the need for funds to the market economy& capital market
stands up to supplement it. #ompanies and the government can raise funds for longterm
investments via the capital market. The capital market includes the stock market& the "ond
market& and the primary market. .ecurities trading on organi)ed capital markets are monitored "y
the government& new issues are approved "y authorities of financial supervision and monitored
"y participating "anks. Thus& organi)ed capital markets are a"le to guarantee sound investment
opportunities. This paper reveals the various aspects of the #apital Market in Bangladesh
#apital market can "e termed as the engine of raising capital& which accelerates industriali)ation
and the process of privati)ation. 'n other words& capital market means the share and stock
markets of the country. 't is a market for long term fund. With the emergence of the need for
infrastructural development pro(ects& for setting up of new industries for entrepreneurial attempts
now there are more fre!uent needs of funds.
(artici!ants in the ca!ital markets are many. They include the:
#ommercial "anks
.avings and loan associations
#redit unions
Mutual saving "anks
Finance houses
Finance companies
Merchant "ankers
Discount houses
2enture capital companies
%easing companies
'nvestment "anks I companies
'nvestment clu"s
Fension funds
.tock e$changes
.ecurity companies
'nsurance companies
Capital Market
/. (rimary Market:
The primary market is where securities are created. 't1s in this market that firms sell ;float=
new stocks and "onds to the pu"lic for the first time. For our purposes& you can think of the
primary market as "eing synonymous with an initial pu"lic offering ;'F:=. .imply put& an
'F: occurs when a private company sells stocks to the pu"lic for the first time.
'F:s can "e very complicated "ecause many different rules and regulations dictate the
processes of institutions& "ut they all follow a general pattern:
i. A company contacts an underwriting firm to determine the legal and financial details of
the pu"lic offering.
ii. A preliminary registration statement& detailing the company1s interests and prospects
and the specifics of the issue& is filed with the appropriate authorities. Jnown as a
preliminary prospectus& or red herring& this document is neither finali)ed nor is it a
solicitation "y the company issuing the new shares. 't is simply an information
pamphlet and a letter descri"ing the company1s intent.
Ty!es of 'inancial Market
iii. The appropriate governing "odies must approve the finali)ed statement as well as a
final prospectus& which details the issue1s price& restrictions and "enefits and is issued to
those who purchase the securities. This final prospectus is legally "inding for the
0. Secondary Market:
The secondary market is what people are talking a"out when they refer to the Qstock marketQ.
The defining characteristic of the secondary market is that investor?s trade amongst
themselves. That is& in the secondary market& investors trade previouslyissued securities
without the involvement of the issuing companies. For e$ample& if you go to "uy Microsoft
stock& you are dealing only with another investor who owns shares in Microsoft. Microsoft
;the company= is in no way involved with the transaction.
Bangladesh capital market is one of the smallest in Asia "ut the third largest in the south Asia
region. 't has two fullfledged automated stock e$changes namely #haka Stock Exchange
"#SE$ and Chittagong Stock Exchange "CSE$ and an overthe counter e$change operated "y
Securities and Exchange Commission:
#apital market plays a significant role in the economy as a source of long term financing. A fair&
efficient and transparent capital market is essential for a country for its industriali)ation and
economic development. To develop such a fair& efficient and transparent capital market& the
.ecurities and <$change #ommission was esta"lished as a regulator through enactment of the
.ecurities and <$change #ommission Act& *++4 in Aune *++4& with the following mission:
R Frotecting the interest of investors in securities
R Developing the capital and securities markets& and
R Framing of securities rules concerning a"ove.
The #ommission frames rules and regulations under the relevant laws ensure control of the
capital market through compliance of duties and responsi"ilities of the issuer& stock e$change
and market intermediaries.
The #ommission consists of a chairman and four full time mem"ers who are appointed "y the
government for a period of three years as per law& and terms of their service is determined "y the
government. The #hairman is the chief e$ecutive officer of the #ommission.

The #haka Stock Exchange "#SE$:
Dhaka .tock <$change %td ;D.<= is the oldest and largest stock e$change in Bangladesh.
Though D.< was esta"lished in 5/ April *+8@ "ut its commercial operation started in *+86. The
"oard of directors consisting of 5@ mem"ers directs the activities of D.<. :ut of them& *5
directors are elected "y direct votes of D.< mem"ers and other *5 directors are nominated "y the
elected mem"ers from nonD.< mem"ers upon approval of the #ommission. At present& there
are 54/ mem"ers in D.< of which 55 mem"ers are registered "y the #ommission for conducting
securities "usiness. D.< has e$panded its online trading network to many district towns like
3a)ipur& 9arayangan(& #omilla& Feni& -a"igan(& Maulvi"a)ar& Mymensingh& #hittagong& Jhulna&
.ylhet& Jushtia& Barisal& Ea(shahi and Bogra including the divisional towns. As on 40 Aune 50**
total num"er of listings in D.< was @+0 against this issued capital wasTk. /06/4.+0 crore and
the market capitali)ation was Tk. 5/84/+.55 crore.
The Chittagong Stock Exchange "CSE$:
The #hittagong .tock <$change %td ;#.<=& the second stock e$change& was esta"lished in *++8.
The "oard of directors consisting of 5@ mem"ers directs the activities of #.<. :ut of them& *5
directors are elected "y direct votes of #.< mem"ers and other *5 directors are nominated "y the
elected mem"ers from non#.< mem"ers upon approval of the #ommission. 9ow there are *48
mem"ers in #.< of which *50 mem"ers are registered "y the #ommission for conducting
securities "usiness. As on Aune 40& 50** total num"er of securities in #.< was 5*8 against which
issued capita was Tk. 506,,.4+ crore and market capitali)ation was Tk. 558+,/.00 crore.
-ver -the-Counter Market or -TC Market:
.ecurities are traded without intermediaries through mutual understanding in the :T# market&
which are outside the stock e$changes. 'n #.< stock e$change?s :T# market& there are
opportunities of securities trading. Gnder .ecurities and <$change #ommission ;:verthe
#ounter= Eules& 500*& :T# market was esta"lished in #.<. .ecurities delisted from the
e$changes and securities not listed with the e$changes "ut issued o"taining consent from the
#ommission can "e traded in the :T# market. Dhaka .tock <$changes %td started :T# market
in line with the direction of the #ommission on 6th .eptem"er& 500+. .ettlement procedure of
cthe :T# market is like the pu"lic market. The list of the companies trading in D.< :T# market
as on 40 Aune 50** is furnished.
1ision of the stock exchange:
Eegulating the market structure through proper rules and strict compliance "y mem"ers.
<$pansion of #.< trading network to cover 80@ Thanas.
'ntroduce Book Building system in Bangladesh capital market.
'ntroducing derivative market.
#ontinuous promotion of stock investment throughout the country.
#reate opportunity to cross "order trading with .AF< countries.
'ntroduce glo"al depository receipts ;3DE=.
To create an efficient and transparent market facilitating entrepreneurs to raise capital so that it
accelerates industrial growth for overall "enefit of the economy of the country.
Develop a strong platform for entrepreneurs for raising capitalN
Frovide an investment opportunity for small and large investorsN
Develop a transparent market ensuring investor?s interestN
Frovide a fully automated trading system with most modern amenities to ensure: !uick
easy& accurate transactions and easily accessi"le to allN
Attract nonresident Bangladeshis to invest in Bangladesh stock marketN
Attract foreign institutional investors to invest in BangladeshN
#ollect& preserve& disseminate date and information on stock e$change.
Scenario of #haka Stock Exchange:
The market capitali)ation refers the sum that derived from the current stock price per share times
the total num"er of shares outstanding. Although the market capitali)ation of a company is an
indication of the value of the company& it is only a temporary metric "ased on the current stock
Market capitali)ation ratio e!uals the value of listed shares divided "y 3DF. This ratio are often
using as a measure of stock market si)e. 'n terms of economic significance& the assumption
"ehind market capitali)ation is that market si)e is positively correlated with the a"ility to
mo"ili)e capital and diversify risk on an economy wide "asis. .o market capitali)ation to 3DF
ratio can "e used as an indicator of market development.
'n F7 *++8+6& total market capitali)ation of D.< was Tk. ,+46.*, crore while in F7 500504& it
increased at Tk.,5*6.4 crore. 'n this time interval& the market capitali)ation remained at
appro$imately a constant level. But in F7 50040@& the market capitali)ation increased rapidly
and stood at Tk.*@*/8.* crore& a"out +6.4 percent larger than that of the previous fiscal year.
This increasing trend has continued and finally reached at Tk. 545,0*.6 crore in F7 50*0**. 'n
the last five years& the market capitali)ation increased significantly. The turning year was in F7
500+*0& in this year& the market capitali)ation increased "y *5,.4* percent than that of the
previous fiscal year and reached from Tk. *00*@4.4 crore to Tk. 55,6@0./ crore.
Turnover e!uals the value of total shares traded divided "y market capitali)ation. -igh turnover
is often used as an indicator of high level of li!uidity. Turnover also can "e used as complements
of total value traded ratio. While total value traded and 3DF ratio capture trading compared with
the si)e of the economy& turnover measures trading relative to the si)e of the stock market.
Therefore a small& li!uid market may have a high turnover ratio "ut with a small total value
traded and 3DF ratio.
Figure 4: Turnover of DSE during FY 1995-9 to FY !"1"-11
'n F7 *++8+6& the turnover of D.< was Tk. /*+.+* crore while in F7 *++6+,& it reached at Tk.
68@*.48 crore. >Fake? demand mechanism during this period has led the general inde$ price to
move vertically and hence increased the li!uidity of capital market. But the following year in F7
*++,+/& the turn over reduced at a significant rate and a total of Tk. 85,+.66 crore fell short
from the previous fiscal year and the turn over "ecame Tk. *56*.6+ crore. 'n F7 500806& the
turnover was Tk. @8++.46 crore. 'n F7 500+*0& the turnover again increased dramatically and
reached at Tk. 586484.88 crore.
2olatility is a measure of the degree of price movements of a stock. 't shows how active a stock
price typically is over a certain period of time. 'n general& the volatility of stock return is
determined "y the fluctuations in stock inde$. Fluctuation in the stock inde$ also depends on the
demand and supply of securities traded in the stock e$change.
The market estimate of volatility can "e used as the "arometer of the vulnera"ility of the stock
market. .tock return volatility represents the varia"ility of daytoday stock price changes over a
period of time& which is taken as a measure of risk "y the relevant agents. -igh volatility&
unaccompanied "y any change in the real situation& may lead to a general erosion of investors?
confidence in the market and redirect the flow of capital away from the stock market. The
e$cessive level of volatility also reduces the usefulness of stock price as a reflector of the real
worth of the firm.
Figure : DSE general inde# during !""4 to !"11
The volatility in stock return in D.< seems to follow clustering at particular pointsN there are
periods of high volatility followed "y periods of low volatility. Many events and random shocks
are responsi"le for the inde$ price fluctuations. For e$ample declaration of lucrative incentives in
F7 50040@ national "udget& floatation of shares of some profita"le companies through 'nitial
Fu"lic :ffer ;'F:= along with several important reform measures initiated "y the .ecurities and
<$change #ommission ;.<#= helped regain investor?s confidence "ack to the capital market.
The downward drive of capital market in *++6 was created "y fake demand mechanism resulting
to short term price volatility in the capital market. 'n F7 50*0**& the >game plan? is different
from *++6 and the inde$ volatility has a similar shape for a sudden time ;a"out one year= "efore
the downturn of the market.
:ne of the important indicators of the capital market is the num"er of listed companies. The rationale
of including this measure is that as the num"er of listed company increases& availa"le securities and
trading volume also increases. 'n "asis of the properties of the companies& the companies are divided
into five groupsN A& B& 3& 9 and S. The properties of these companies are shown in the ta"le "elow:
Com!any (ro!erties
%umber of Com!anies
', 03/3-03//
-olding Annual Meetings ;A3M= and have
declared dividend at the rate *0 percent or more
in a calendar year
-olding Annual Meetings ;A3M= and have
declared dividend less at the rate *0 percent or
more in a calendar year
5 3reenfield companies. 0
All new listed companies e$cept 3reenfield
-ave failed to hold the A3M or fail to declare
any dividend or which are not in operation
Capital Market Co$pany Category and C%ara&teri'ti&'
The num"er of listed companies has grown from *@+ to 56/ with an average annual growth rate
of 5.++ and a standard deviation of @4.4+ from fiscal year *++0+* to F750*0**. 'n F7 *++0+*
the num"er of listed companies of D.< was *@+ while in F7 500*05& the num"er of listed
companies was increased to 5@/ and finally in F7 50*0**& the listed companies of D.< stood at
ot al
nu$(er of DSE li'ted &o$panie'
Derivative products are necessary for reducing the risk of investors through creating alternative
investment opportunities in the capital market. At present there e$ists no rule for trading of
derivative products and knowledge a"out derivatives are also limited among the intermediaries
and investors. #.< is imparting training on derivative products. The #ommission is now looking
at the legal issues related to this matter so that it can frame necessary rules for introducing this
'n F7 50*0**& there was an upward trend in terms of sector wise performanceN all sectors
e$perienced an upward trend with a few e$ception. :n the "asis of market capitali)ation of
ordinary shares of companies listed with D.<& total market capitali)ation of "anking sector in F7
50*0** was Tk. 6/06*.+ crore which was 8.6, percent higher than that of previous fiscal year.
'n this fiscal year total market capitali)ation of mutual fund was Tk. 48+8.8 croreN 45 percent
higher than that of previous fiscal year. 'n general the investment in mutual fund is normally
assumed to safe investment due to volatility in capital market "ut the market capitali)ation of
mutual fund was compara"ly lower than other sector. 'n F7 50*0** the market capitali)ation of
fuel and power sector was Tk. 5/+4*.@ crore which was @ percent lower than that of previous
fiscal year on the other hand the market capitali)ation growth of insurance sector accumulated
45.5/ percent in terms of previous fiscal year. But real sector components of economy such as
(ute industry although gained a positive market capitali)ation growth "ut the total market
capitali)ation were lower and in last fiscal year it was only Tk. ,+ crore. Telecommunication
sector started it activities in capital market in F7 500+*0 with a total market capitali)ation of
Tk. 4*/56.6 crore. But in the following fiscal year& the market capitali)ation of this sector
dropped down a"out 40.@6 percent and "ecame Tk. 55*4*.@ crore.
Se&tor-)i'e &ontri(ution in $arket &apitali*ation +FY 1995-9 to FY !"1"-
The financial market contri"ution in capital market in terms of market capitali)ation has
increased significantly in F7 50*0**. 'n this year the "anks& insurance including mutual funds
have (ointly contri"uted 84 percent of market capitali)ation whereas pharmaceuticals and
chemicals& te$tile industries& food and allied products and engineering have (ointly contri"uted
5* percent of total market capitali)ation. The short term larger profit of financial sector has
induced the investors to make a larger investment in financial sector than those of real sectors.
Therefore in short run the profit has "een ma$imi)ed "ut in the long run it can make a distur"ing
effect on the economy which has already "een o"served through capital market downward trend
and )ero recovery in the capital market in this year.
Se&tor -i'e .erfor$an&e in FY !"11-1!
The trend of general inde$ of D.< during Auly 500+ to August 50*0 shows that the general inde$
of D.< has increased smoothly. 'n Auly 500+ the general inde$ of D.< was 5+*@.84 while in
April 50*0 it increased to 868@.//. During this time period& there was an increasing trend of
general inde$. 'n August 50*0 the general inde$ of D.< stood at 668,.+, and finally in
9ovem"er 50*0& it reached the peak and "ecame /605.@@. After this general inde$ has started to
fall down and in Fe"ruary 50** it reached to 8504.0/.
T%e trend of general inde# of DSE during &apital $arket do)nturn in !"11
(articulars 0337 03/3 03// 03/0
8isted Securities @*8 @@8 80* 8*8
#SE 5eneral Index "#5E%$
:pening 'nde$ 5&/0,.6* @&848.84 /&5+0.@* 8&58,.6*
#losing 'nde$ @&848.84 /&5+0.@* 8&58,.6* @&5*+.4*
M of change 6*.8@ /5.,+ ;46.8/= ;*+.,8=
+ighest 'nde$ @&848.84 /&+*/.8* /&40@.8+ 8&805.40
%owest 'nde$ 5&@0/.6, @&86/.@0 @&6@+.44 4&6*6.5@
Current Scenario of Bangladesh Ca!ital Market
Bangladesh capital market has e$perienced "ullish ride during 500,50*0 e$cept a slight
deviation in the last half of 500/. 'n 50*0& D.< 3eneral 'nde$ rose "y almost +0M from 8000
-owever from "eginning of 50** market went into correction mode and fallen sharply and came
down to 8000 level "y the end of 50**. Gnlike normal falling market& the "earish mode of 50**
was !uite different. During the fall !uite a num"er of times market e$perienced *858M
fluctuations. :nly very few num"er of institutions and individuals can gain positively from those
fluctuations. At present market is continuing with that "earish trend with the same "umpy
fluctuations now and then.
Following ta"le shows the key statistics of Dhaka .tock <$change %td. ;D.<= for last three

0337 03/3 03// "u! to 03 %ov$
Total Market Ca!ital
BDT 1,903
BDT 3,508
BDT 2,639 Billion
Total Turnover
BDT 1,475
BDT 4,009
BDT 1,456 Billion
Total 8isted Securities 415 445 494
Total 8isted Com!anies 236 218 231
I(- 18 Securities 15 Securities 12 Securities
Total (aid u! Ca!ital of I(- BDT 8.3 billion BDT 6.5 billion BDT 15.38 billion
%e) Mutual funds floated 7 12 7
Bond Market:
A "ond is de"t instrument issued for a specific period for the purpose of raising capital "y
"orrowing. A "ond is a longterm o"ligation. 3enerally& a "ond is fi$ed interest financial
instrument issued "y 3overnment& #orporate& and other large entities. 'n other words& a "ond is
an agreement to repay the principal along with the interest or coupon. There are some "onds
which carry a )ero coupon or interest "ut have fi$ed term. These "onds are called as )ero coupon
"ond or deep discount "ond "onds. These "onds are sold at a price which will "e far "elow the
face value of the "ond depending on the risk characteristics and prevailing interest rates in the
Bonds are trada"le and "asically the price of a "ond depends on the e$isting interest rates
in the market for a e!ually risky instrument and the coupon on the "ond. A "ond market has the
role to facilitate the flow of longterm funds from surplus units to deficit units.
Thus "ond acts as a loan where the "uyer or holder of the "ond is the lender or creditor& the
issuer is the "orrower or de"tor and the coupon is the interest.
Ty!es of Bonds:
A simple way to classify "onds is "ased on the different kind of the issuers. The three
main issuers are government& governmental agencies& and corporations.
Issued by
Issued by
T-Bonds "More
than /3-year$
T-Bonds "More
than /3-year$
T-%otes "More than
/-year 9 8ess than
T-%otes "More than
/-year 9 8ess than
T-Bills "8ess
than /-year$
T-Bills "8ess
than /-year$
I. 5overnment Bonds:
According to the length of duration& government "onds can "e classified into three main
categories. They are as follows.
Bills: de"t securities whose maturity period is less than one year.
%otes: de"t securities whose maturity period is * to *0 years.
Bonds: de"t securities whose maturity period is more than *0 years.
II. Munici!al Bonds:
These are called governmental agency "onds. These "onds are not issued directly "y the
government "ut with the "acking of the government. 'n most countries& the returns from
municipal "ond are free from government ta$. Because of this ta$ advantage& the interest on a
municipal "ond is normally lower than that of a ta$a"le "ond. Thus& a municipal "ond can "e a
great investment opportunity on an afterta$ "asis.
III. Cor!orate Bonds:
A company can issue "onds like stocks. #orporate have many options to increase its capital from
the market& the perimeter is whatever the market will "ear. #orporate may issue shortterm ;less
than 8 years=& mediumterm ;8 to *0 years= and longterm ;more than *0 years= "onds. #orporate
"ond may "e converti"le i.e. the holder can convert it into stock. 't can "e calla"le also& which
allows the company to redeem an issue prior to maturity.
There are some other types of "onds such as lottery "ond& war "ond& serial "ond& revenue "ond&
climate "ond etc.
The capital market of Bangladesh is predominantly an e!uity "ased securities market. 9um"er of
"onds and other de"t instruments are insignificant. At present& there is Tk *@0 million of
de"entures of / companies listed in the stock e$changes. 'n order to populari)e the government
"ond and to increase the depth of market& trading of government treasury "onds have "een
introduced in stock e$changes with effect from * Aanuary 5008.
As on 40 Aune 50**& 5*5 government treasury "onds& 4 corporate "ond& / de"entures were listed
in D.< whose market capitali)ation was Tk 4+@0*.40 crore. But "onds are not yet popular.
Finance DivisionMinistry of Finance& Bangladesh Bank& .ecurities and <$change #ommission
and 9ational Board of Eevenue are working together for development of the "ond market.
Issue of Cor!orate #ebt Securities in Bangladesh
S8 Securities
,ear of
* T *,M Ba$imco Fharma De"enture *+// 50M #onverti"le @0
5 T *,M Ba$imco limited De"enture *+/+ 60
4 T *,M Ba$imco 'nfusion De"enture *++5 @8
@ T *,M Bangladesh #hemical De"enture *++4 50M #onverti"le 50
8 T *,M Ba$imco .ynthetic De"enture *++4 4,8
6 *,M Ba$imco Jnitting De"enture *++@ 50M #onverti"le 5@0
, *,M Ba$imco Fisheries De"enture *++@ *50
/ T *8M <astern -ousing De"enture *++@ *0M #onverti"le /00
+ *@M Ba$imco Te$tile De"enture *++8 580
*0 *@M BD Sipper De"enture *++8 50M #onverti"le @0
** *@M Ba$imco Denims De"enture *++8 400
*5 *@M BD %uggage De"enture *++6 50M #onverti"le *80
*4 *@M Aramit #ement De"enture *++/ 50M #onverti"le **0
*@ *8M BD Welding <lectrodes De"enture *+++ 50
*8 'BB% Mudara"a Ferpetual Bond 500, Frofit .haring 4&000
*6 A#' Sero #oupon Bond 50*0 50M #onverti"le *&0,0
*, .u" Bonds :f BEA# Bank %td 50** 58M #onverti"le 4&000
%ote: T marked de"entures are not availa"le at present.
Source: .<#& D.< and #.< report.
5overnment #ebt Market in Bangladesh
Bangladesh Bank :rder*+,5& article 50 and Treasury rules*++/ ;Appendi$*& .ection4=
empowers Bangladesh Bank for the issue and management of 3overnment securities. As per the
a"ove mentioned laws and regulations& Bangladesh Bank ;BB= acts as the "anker and de"t
manager to 3overnment of Bangladesh ;3:B=. Ta$ is the main source of government?s revenue.
3overnment meets its deficit through sale of de"t securities when e$penditures e$ceed its ta$
'n the past the financing of "udget deficit for 3overnment of Bangladesh was "eing done
through issuance of >ad hoc? Treasury Bills. Bangladesh Bank su"se!uently partially offloads
these >ad hoc? Treasury Bills through the issuance of Treasury Bills and Bonds to the market&
leaving the 3overnment?s cash position unaffected. >Ad hoc? Treasury Bills were thus accessed
"oth to meet cash mismatches as well as for financing the "udget deficit. 'ssuance of >ad hoc?
Treasury Bills has "een discontinued now. Financing "udget deficit for 3overnment of
Bangladesh takes place through the issuance of ;i= .pecial "onds& ;ii= Bangladesh 3overnment
Treasury Bonds ;B3TBs=& and ;iii= savings instruments ;9.D=.
-owever& for small deficit& Bangladesh Bank maintains a pretty cash account named >Ways and
Means Advance? ;WMA=. 9ormally& government "orrows from WMA first and then through
Treasury Bills. For this advance a floating interest rate ;"ank rate U *M= is charged. At present
the "ank rate is 8M.
Cor!orate #ebt Market in Bangladesh
Bank loans are the main source of finance for corporate ;Ta"le4.4=. The corporate "ond market
in Bangladesh is very small in si)e. Banking sector is dominating corporate finance since other
sources of corporate de"t instrument are underdeveloped. Alternative sources of finance other
than "ank loans should "e developed "y diversifying the de"t instruments in order to esta"lish
sound financial market in Bangladesh. A complete set of guidelines on "onds and de"entures
must "e developed to promote the corporate "ond market. The government has to reduce the
interest rate on national savings certificates in order to a favora"le environment for developing
corporate "onds.
Ta"le: 4.4 'nstruments Availa"le in Bangladesh
%ominal 4mount"Billions of
elative si:e ;
Deposits @045 4,.50M
Bank %oans 480* 45.40M
Term loans ;as of Aune 50**= *444 *5.40M
3overnment saving certificates +68 /.+0M
3overnment "onds 84@ @.+4M
Treasury "ills 5,* 5.80M
<!uity ;issued value= *+5 *.,,M
Frivate placement 9ot pu"licly availa"le
De"entures I "onds ** 0.*0M
The sluggish growth of the "ond market in Bangladesh has "een recogni)ed due to a num"er of
factors. They are discussed "elow.
8imited number of investor: :nly limited num"er of investors compared to total
population is interested in investing in "ond or stock market.
Ca!ital gain: 'mpact of cliental effect& most of the investors in Bangladesh look for
capital gain rather than fi$ed flow of income while making their investment decision. 'n case of
"ond chance of capital gain is limited.
+igh return in risk free government bond: Eate of return in case of risk free
government "ond is too highs so corporate "onds have to offer even higher rate for covering
additional risk to the investors which make the rate nonvia"le for the issuers.
4lternative sources of debt financing: :ther sources of de"t financing& especially
"orrowings from commercial "ank are very easy and widely used in Bangladesh. The charged "y
"ank is less than "orrowing rate through "ond issuance. Besides these& "orrowing from "ank is
fle$i"le and !uick. .o& issuers don?t have to depend on "ond issue only to design their capital
structure and to generate ta$ "enefit from use of de"t.
8imited !rivate management of !ension fund: 'n Bangladesh private management of
longterm pension fund is very limited. .tate owned "odies I government organi)ations do not
raise fund through issue of de"t instrument. They depend on deficit financing I printing money
from central "ank for financing their pro(ects. .o& all these factors make secondary market for
"onds very illi!uid I discourage issuance of Bond.
*eak regulations and market infrastructure: %aws I regulations regarding
governance of "ond market are inade!uate. Market failure is common scenario in Bangladesh.
Eisk free investors (ust prefer government "onds while risk takers go for investment in stock
market. There are not enough investors for corporate "ond market.
<nderdevelo!ed tax system: Ta$ system in Bangladesh is not properly developed. Ta$
can "e evaded through unfair means ;"ri"e and other means=. .o& ta$ incentive for issuing "onds
is not very high which causes underdeveloped corporate "ond market.
Illi=uid secondary market: 'lli!uidity in secondary market of government de"t
securities makes constraints on determining proper pricing of the treasury "onds in the primary
+igh interest rate: 'ndividual savings are attracted "y national saving scheme due to its
high interest rate ;Ta"le4.5=. 9ational saving certificates are risk free though its interest rate is
highN conse!uently other saving products are crowded out from the market. Thus a company has
to propose a higher coupon rate to attract investors which might "ecome unvia"le for the
+igh transaction cost of bind issuance: The high transaction cost of "ond issuance is
considered as constraint. Farticularly& the registration fees& stamp duties& ancillary charges and
annual trustee fees on outstanding amount put forth to diminish the "ond issue.
Chea! syndicated loans: 't is a common phenomenon that a syndicate is formed "y a
num"er of "anks to finance large pro(ect. .yndicated loan is cheap as well custommade and
fle$i"le which makes "onds nonattractive to the corporate issuers.
#efault on interest !ayment: 'n early *++0s& the interest payments of some corporate
de"enture were defaulted. 'n the +0s& the regulations of financial market were not ade!uate and
credit rating was not mandatory. Besides& investors? confidence was eroded due to the failure of
trustees to protect the de"enture holders? rights which makes the investors averse to invest in
corporate "onds.
Inex!erienced investor: 'n Bangladesh most of the investors are ine$perienced. They are
very much familiar with the "onds. They consider that return ;interest= on de"t instrument is very
small with no chance of capital gain. Therefore& they take investment decision in stocks for
a"normal capital gain.
+igh inflation: #omparatively high inflation has "een prevailing since last decade&
which has made potential investors introverted to invest in corporate securities.
We suggest following recommendations for stronger capital market in Bangladesh.
Demutuali)ation of stock e$changes&
.trengthening of the market surveillance systems&
<nsuring integrity and efficiency of the .<# mem"ers and staff&
#oordination "etween the .<# and the stock e$changes&
Bank financing in capital market&
Froper monitoring and immediate action "y .<#&
'ntroduction of asset revaluations policy&
#onsistency in regulation& supply of ade!uate securities and
Transparency in listing procedure&
.olve the market imperfection pro"lem&
Make the information availa"le and relia"le to all.