Good for Business Students

1. Progress and Prospect of Bangladesh Money Market and Capital Market
Security In Bangladesh
Prepared for:
Mr. Md. Mahbubul Haque Khan
Lecturer
Department of Business Administration
East West University
Prepared By:
N.M. Baki Billah
2008-2-10-071
Anwer Hossan
2008-1-10-090
Nazia Choudhury
2008-2-10-068
Syeda Samia Akbar
2009-1-10-026
Amatul Gous
2007-1-10-092
Date of Submission:
21 April, 2011

2. Letter of Transmittal
21April, 2011
Mr. Md. Mahbubul Haque Khan
Lecturer
Department of Business Administration
East West University
Dear Sir
It is a pleasure to submit the term paper on “Progress and Prospect of Bangladesh Money
Market and Capital Market Security” by today.
It is a fantastic opportunity for us to prepare the individual term paper under your guidance,
which really is a great experience.
We have worked hard and tried our best, in order to prepare the term paper. We believe that it is
encouragement for us to get involved with such process of reporting and a way to enrich
financial knowledge. It will be a privilege for us to provide further clarification on this report
whenever it is necessary.
Thank you.
Sincerely.
Anwer Hossan
2008-1-10-090
N. M. Baki Billah
2008-2-10-071
Nazia Choudhury
2008-2-10-068
Syeda Samia Akbar
2009-1-10-026
Amatul Gous
2007-1-10-092

3. AA Acknowledgement A
It really was a great challenge for us to prepare the term paper. First of all, we present our due
regards to the Almighty, who has provided us the brilliant opportunity to build and complete this
report successfully with good health & sound mind.
Our course instructor, Mr. Md. Mahbubul Haque Khan, Lecturer, Department of Business
Administration, East West University helped us all the way through. He also gave
proper guideline about this term paper and also by not getting irritated with our
unlimited questions. We really want to express our gratitude to him for giving valuable
advice and time, which helped immensely in preparing this term paper.
We also like to thank Shokil Alam Chaklader and Naimul Ehasan, two of our friends who helped
us immensely in this term paper.

4. Table of Contents
Content Page number
Introduction 1
Money Market Securities 1
T-Bill progress in Bangladesh 2
Issuer 2
Types 3
Participants 3
Who and How Can Invest 3
Schedule for Issuance 3
Selling System 4
Secondary Market for T-Bill 4
Procedure to Allot T-bills 5
T-bill Yield 5
Call Money Rate 7
Repo 7
Reverse Repo 8
Capital market in Bangladesh History of Capital Market 9
The Capital market, an important ingredient of the financial system, plays a
significant role in the economy of the country & Regulatory Bodies
9
2. Participants in the Capital Market
i) Stock Exchanges
The Dhaka Stock Exchange (DSE)
10
The Chittagong Stock Exchange (CSE) 11
Compliance Officer 11
Book Building Method 11
Trading of Securities in the Exchanges 11
O-T-C Market 11
Settlement of Securities Transaction in the Exchanges 12
Securities Trading in the Exchange through Borrowing 12
Securities Issue through Private Placement 12
Rights Issue,ICB,Specialized Bank,Products,Players,Parameters 13
Capital Market Development
14
Measures Supporting Capital Market Development:
15-16
Indicators of capital market development
17
Capital Market Securities
17
Bond Market in Bangladesh
17
Bangladesh Government Treasury Bonds 18

5. (BGTBs) Auctions
18
Bangladesh Government Islamic Investment Bond (Islamic Bond) 19
Corporate bond
19
ACI Bond
19
Mudaraba Perpetual Bond (MPB) of Islami Bank Bangladesh Limited.
20-21
Purpose of the Issue 22
Salient Features Of Mudaraba Perpetual Bond of Islami Bank Bangladesh
Ltd. (IBBL)
22-23
Profit Distribution Features of MPB 23
Risk Factors 24
BRAC Bank 25% Subordinated Convertible Bonds 24-25
Mutual Funds 25
Debentures
26
Capital market securities (DSE)
27
Sectorial performance (DSE)
28-30
Capital market securities (CSE)
30
Problems
31-34
Prospect
34-35
Overview of SAARC Markets
35
Recommendations
36-38
Conclusion
39

6. Introduction
The Bangladesh economy is within the mainstream of the continuously changing global financial
system. Domestic as well as international trade also characterizes Bangladesh economy. Hence a
financial system has developed here consisting mainly of the capital and the money market. For
any underdevelopment country the existence of a well functioning money market is of
paramount importance. The money market currently existing has also developed due to certain
needs. In general, these needs can be termed as need for short term liquidity within our financial
system, to carry out the day to day economic activities and obviously to meet and match need for
short term lending and borrowing of the participants within the financial system. T-bill market is
by far the largest component of the money market in Bangladesh.
Capital markets are essentially about matching the needs of investors with those that need capital
for development. Bangladesh has no shortage of both such parties, a young and dynamic
population that increasingly wants, and is able to, make provision for lifetime events, to save for
children’s education, for the possibility of ill health and ultimately for old age and retirement. On
the other side of the equation, Bangladesh has a pressing need for investment resources to bolster
its stretched infrastructure resources, to build more power stations, bridges, ports and gas-
pipelines to empower the people in the development of enterprise and the creation of jobs. Debt
markets are an extremely effective mechanism for matching the long term needs of savers with

7. those of entrepreneurs. Like emerging-market countries around the world, Bangladesh could
benefit from having a local-currency, fixed-income securities market. At present, its main fixed
income financial products are bank deposits, bank loans, government savings certificates, term
loans, treasury bills, and government bonds and corporate debt (syndicated loans, private
placement, and debentures). But in general the corporate debt market is still very small compared
with the equity market.
Money market securities
are the debt securities that have a maturity one year or less. They generally have a relatively high
degree of liquidity. Money market securities tend to have a low expected return but also a low
degree of risk. Various types of money market securities are listed below.
Money Market
Securities
Issued by Common
Investors
Common
Maturities
Secondary
Market Activity
Treasury bills Federal
Government
Households, firms
and financial
institutions
13 weeks, 26
weeks. 1 year
High
Retail
certificates of
deposit (CDs)
Banks and saving
institutions
Households 7 days to 5 years
or longer
Nonexistent
Negotiable
certificates of
deposit (NCDs)
Large banks and
saving Institutions
Firms 2 weeks to 1 year Moderate
Commercial
paper
Bank holding
companies, finance
companies and
other companies
Firms 1 days to 270 days Low
Eurodollar
Deposit
Banks located
outside the country
Firms and
government
1 day to 1 year Nonexistent
Banker’s
acceptances
Banks ( exporting
firm can sell the
acceptance at a
discount obtain
funds)
Firms 30 days to 270
days
High
Federal Funds Depository
institutions
Depository
institutions
1 day to 7 days Nonexistent
Repurchase Firms and
financial
Firms and
financial
1 day to 15 days Nonexistent

8. agreements institutions institutions
T-Bill Progress in Bangladesh
Issuer
Bangladesh Bank (BB), the central bank of Bangladesh, operates throughout the country with its
nine branches. Government receipts and payments are overseen and managed by
BANGLADESH BANK. Where there is no BANGLADESH BANK branch but transactions of
government occur, different branches of Sonali Bank (SB) are assigned to take part in these
transactions on behalf of BANGLADESH BANK. These branches are known as 'Chest
Branches'. In a district, there may be one chest and some sub-chests. BANGLADESH BANK
directly monitors Chest branches. This function is known as 'Feed'. The Bangladesh government
finances its expenditures in excess of tax receipts through the sale of debt obligations. Currently,
the total par value of outstanding Treasury bills stood at about Taka 22000 crore.
Types
Treasury bills are designated by the number of days to their maturity. There are six types of T-
bills that prevail in Bangladesh. These are
a) 28 days T-bill
b) 91 days T-bill
c) 182 days T-bill,
d) 364 days T-bill
e) 2 years T-bill
f) 5 years T-bill
Participants

9. The market for Bangladesh Treasury bills has a complex structure and involves numerous
participants--Ministry of Finance, Bangladesh Bank, government securities dealers and brokers,
and other holders of Treasury securities.
Who and How Can Invest
Until 2003, there was no secondary market for treasury securities. Any investor (institution or
individual), who maintains a current account with Bangladesh Bank, can invest in T-bills
through primary market auctions. Auction is held on every Sunday at 11 a.m. at the Motijheel
Branch of BB. If Sunday is a holiday, then the last working day before Sunday is used. All the
investors submit their bid unless otherwise pension or provident fund. After receiving the bid, the
auction committee decides how much T-bills will be offloaded. There is a high-powered
committee to oversee the treasury functions; which includes seven members.
Schedule for Issuance
Marketable Treasury securities are issued through regularly scheduled auctions in what is called
the primary market. The process importantly involves the Bangladesh Bank, which serve as
conduits for the auctions.
Selling System
Treasury bills are sold on a discount basis, which in simple terms means that we have to pay for
the bills less the interest receivable during the term of the bill and receive the face value of the
bill at the end of the period. Treasury bills are not listed at the Stock Exchange. If one wanted to
exit before maturity, rediscounting isn't possible at the Central Bank, rather he or she may take
part in the Repo auction.
Secondary Market for T-Bill
Until 2003, there was no secondary market for T-bills transaction in Bangladesh. Government
had decided to introduce the secondary T-bill market with a vision of broadening the government
securities market. World's leading financial institution Citigroup's subsidiary Citibank, N.A. and
local Prime Bank Limited had taken part in the first secondary transaction of T-bills in
Bangladesh that year. Citibank, N.A. had sold a T-bill of 2 years maturity bearing Taka 3 crore

10. of face value to Prime bank. BANGLADESH BANK had taken necessary steps to assist this
transaction. This was regarded the first secondary T-bill transaction in the country. a. Primary
Dealers: Bangladesh Bank has selected eight banks and one non-bank financial institution as
primary dealers (PDs) to handle secondary transactions of T-bills and other government bonds.
The eight banks are Sonali Bank, Janata Bank, Agrani Bank, Prime Bank Ltd, Uttara Bank Ltd,
South-East Bank Ltd, Jamuna Bank Ltd, and NCCBL, and the only NBFI is International
Leasing and Financial Services Ltd. The inter-bank Repo is one kind of secondary market for T-
bills and government securities, which was introduced from July 27, 2003. The selected banks
and the NBFI have already ended all procedural eligibility requirements for being appointed and
start operating as secondary bond market dealers. The BANGLADESH BANK earlier invited
applications from all scheduled banks and financial institutions and directed interested parties to
drop applications to the FOREX Reserve and Treasury Management Department of the central
bank latest by August 21, 2003. A total of 18 commercial banks and 1 non-bank financial
institution filed their applications for receiving PD licenses during the stipulated time. The
central bank earlier issued a guideline for the PDs with a view to activating and streamlining the
country's secondary bond market. Under the guideline, the PDs will subscribe and underwrite
primary issues and make secondary trading deals with 2-way price quotes. A PD won't short sell
any particular issue and won't carry a short position in secondary dealings. The PDs won't act as
inter-bank or inter-dealer brokers; it was specified in the guidelines.
Procedure to allot T-bills
To foster liquidity in the market, the Treasury issues securities consistently and predictably
through a regular schedule of auctions. In Bangladesh, Multiple-units Auction Model is
followed. Two types of bids may be submitted at the auction:
a) Competitive bids
b) Non-competitive bids
Competitive bids specify both the quantity of the security sought and a yield. If the specified
yield is within the range accepted at the auction, the bidder is awarded the entire quantity sought
(unless the specified yield is the highest rate accepted, in which case the bidder is awarded a
prorated portion of the bid. Noncompetitive bids specify only the quantity of the security sought.

11. Let us discuss the procedure that BANGLADESH BANK follows to allot T-bills to competitive
and non-competitive bidders through T-bill auctions. In Bangladesh, T-bills are quoted on a 364-
day discount basis. We define the bank discount rate (BDR) as BDR = D/M * 364/t, where t is
the number of days from settlement to maturity, and D is the discount from par, D = M - P, M
being the par or maturity value, and P being the price. Hence the discount from par is given by D
= BDR x M x t/364, while P = M - D. Example: The WSJ on Monday, Feb 7, 1994 gives the ask
quote on the May 05, '94 T-bill as 3.21%. (If we were to buy the bill, we would buy at the ask).
The quote is for Friday, February 4. The market convention used in the WSJ is that two days are
needed for settlement; under this convention settlement would take place on Tuesday, Feb 8.
There are 86 days between Feb 8 and May 5. The discount on a $10,000 par bill is D = 3.21% x
10, 000 x86/364 = 75.84, and the price is P = 10, 000 - 75.84 = 9924.16. Conversely, assume the
price of the T-bill were $9,900. The discount amounts to D = 10, 000 - 9, 900 = 100, and the
bank-discount rate equals BDR =100/10000 * 364/86 = 4.23%.
T-BILLYeild
The values of Treasury securities are often summarized by the yield curve, which plots the yields
of all non-callable securities against their maturities. An example of the yield curve on August
27, 2009 (Auction no #255) is given below. This curve has an upward-sloping, concave shape.
Securities having maturities of less than five years are highly concentrated, because shorter-term
securities are auctioned more frequently and because many previously issued longer-term
securities fall in that maturity range.
Yield Volatility of T-bills in Bangladesh
(As of 27-07-2010 Auction no.255)
T-Bill Yield 28 days 91 days 182 days 364 days 2 years 5 years
28 days 6.84% --
91 days 8.52% 1.68% --
182 days 9.15% 0.63% 0.63% --
364 days 9.76% 0.61% 0.61% 0.61% --
2 years 10.62
%
0.86% 0.86% 0.86% 0.86% --
5 years 10.69 0.07% 0.07% 0.07% 0.07% 0.07% --

12. %
Source: Bangladesh bank
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 91-dayu T-bill is higher than that of 28-
day T-bill and so on.
Here the yield spread between the 91-day T-bills and 28-day T-bills is 1.68%, which is the
maximum than those of others. The reason is that the demand of T-bills gradually decreases with
term to maturity.
Call Money Rate
is the interest rate banks charge a broker for the funding of loans to investors who buy on
margin. This is also known as broker loan rate. In the call money market, participants enter into
lending and borrowing for overnight. The transaction takes place due to immediate liquidity
need. This may arise from various sources like temporary inability to meet the mandatory 4%
cash reserve requirement (CRR) demanded by the central bank, sudden shortage of fund to meet
the liabilities 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. It is quite affected by certain seasonality. During the Eid especially

13. when there is a surge of deposit withdrawals, the banks find themselves in immediate liquidity
crisis. There is a direct and positive relationship between T-bill rate and call money rate. When
there is a seasonal cash crisis, banks rush to the call money market. In this situation, call money
rate peaks. Naturally investors of T-bills are not available at that time unless otherwise they are
offered higher yield rate.
Difference with the basic definition
However, in Bangladesh, two and five year securities are also regarded as T-bills since they are
zero coupon securities.
REPO
Repo is a commitment of the seller to the buyer to buy back the instrument as and when the
buyer intends to sell. This is an arrangement between seller and buyer.
Earlier in Bangladesh, there was a premature encashment facility for the investors of T-bills.
Premature encashment facility is a procedure of buying back the security when cash is needed
giving amount and accrued interest. This is also called discounting the T-bills. Currently, instead
of Discounting Window, Repo facility is opened for the investors. Here instrument isn't required,
rather it is lined. Investors can borrow either full or partial amount against the bill. If an investor
borrows 100% against the bill, then maximum 95% discounted value will be provided. There is
also a Repo auction that is held side by side of the T-bill auction. The yield rate of Repo is
determined through bid offer and bid acceptance, and this yield is higher than the yield of T-bill.
For example, let us assume that, T-bill yield = 8%, Repo yield = 9%, then, Net yield = 1%. To
whom Repo facility will be provided is dependent upon the liquidity in the market. Repo auction
is held for 1 and 7 days tenure.
Reverse Repo
When a bank or financial institution has excess liquidity, it can deposit it to Bangladesh bank.
This procedure is frequently known as Reverse Repo. There is also a Reverse Repo auction that
is held side by side of the T-bill auction. Reverse Repo auction is also held for 1 and 7 days
tenure.

14. Suggestions
Introducing new instruments will create adequate opportunity for investment of short-term
excess fund, which in turn will increase liquidity and further reduce dependency on the call
money market
The instruments may be introduced be as new Instruments in Bangladesh Money Market are
explained here. 14 days T-bills: this new lesser maturity bill will give the investors greater
liquidity preference in the short term. And give an out let for earning return on ideal excess fund.
Capital market in Bangladesh
History of capital market
Capital market started in USA at Wall Street in 1653. 1t came to Mumbai, the commercial
capital of India around 1890. However, investment in shares boomed in late 1970s. It took many
years to come to the land, now comprising Bangladesh. The origin of stock market in
Bangladesh goes back to April 28, 1954 when a stock exchange was formed under the name East
Pakistan Stock Exchange Association at Narayanganj. Trading started in 1956. It was renamed
East Pakistan Stock Exchange Ltd. Transferred to Dhaka in 1958 and again renamed Dhaka
Stock Exchange Ltd in 1964.
Trading remained suspended during the Liberation War in 1971. The Dhaka Stock Exchange
resumed operation in 1976 with nine listed companies as against 452 today. Capital market in
Bangladesh got momentum with the establishment of Securities and Exchange Commission in
1994. A big wing was added to the capital market with the incorporation of Chittagong Stock
Exchange on April 1, 1995. Operation of CSE started on October 10, 1995.

15. The Capital market, an important ingredient of the financial system, plays a
significant role in the economy of the country.
Regulatory Bodies
The Securities and Exchange Commission (SEC) was established on June 8, 1993 as capital
market regulator in Bangladesh through Securities and Exchange Commission Act, 1993 ( Act
15 of 1993). The commission ensures compliance of capital market related laws, rules and
regulations etc. by the intermediaries and persons and institutions related with capital market.
Basic laws of the capital market are as follows;
a. Securities Act, 1920
b. Securities and Exchange Ordinance, 1969
c. Securities and Exchange Commission Act, 1993 and
d. Depository Act, 1999
Bangladesh Bank exercises powers under the Financial Institutions Act 1993 and
regulates institutions engaged in financing activities including leasing companies and
venture capital companies.
Participants in the Capital Market
The SEC has issued licenses to 27 institutions to act in the capital market. Of these, 19
institutions are Merchant Banker & Portfolio Manager while 7 are Issue Managers and 1(one)
acts as Issue Manager and Underwriter.
I) Stock Exchanges There are two stock exchanges (the Dhaka Stock Exchange (DSE) and the
Chittagong Stock Exchange (CSE)) which deal in the secondary capital market. DSE was
established as a public Limited Company in April 1954 while CSE in April 1995. As of 30 June
2000 the total number of enlisted securities with DSE and CSE were 239 and 169 respectively.
Out of 239 listed securities with the DSE, 219 were listed companies, 10 mutual funds and 10
debentures.
The Dhaka Stock Exchange (DSE)

16. The Dhaka Stock Exchange Limited (DSE) was established in 1954, but its commercial
operation started in 1956. Due to nationalization policy trading activities of DSE remained
suspended during the post liberation period and resumed again 1976. DSE is a self-regulatory
not-for-profit organization. As a self-regulatory organization DSE supervises the function of
listed companies. Administration of DSE is run by Dhaka Stock Exchange (Board and
Administrations) regulations, 2000. The board of directors consists of 24 members, 12 directors
are elected by direct votes of DSE members and 12 directors are nominated by elected members
from non-DSE members with the approval of the commission. The Chief Executive Officer
(CEO) is also a non-voting member. DSE hires the CEO of DSE which requires commission’s
approval. The CEO conducts the daily affairs of DSE. Now there are 234 members in DSE of
194 members are registered by SEC for conducting securities business. According to the rules
every member must be corporate body. Transaction and transfer of most of the securities listed
on DSE are executed electronic form. At presented DSE expanded its on-line trading activities
into the divisional and district towns of the country.
The Chittagong Stock Exchange (CSE)
The Chittagong Stock Exchange Limited (CSE) was set up in 1995. It is also a self-regulatory
not-for-profit organization and its management structure is same as DSE. The Chittagong Stock
Exchange Limited (CSE) started first on-line trading system in Bangladesh capital market in
1998 and at present it is carrying out trading activities from Dhaka, Chittagong. Sylhet, Rajshahi,
Barisal, Cox’s-Bazar and Khulna.
Compliance Officer
As per the securities laws every intermediary institution has to designate an officer as
compliance officer whose main responsibility is to ensure particular firms compliance with
securities laws. As a primary regulator, if an intermediary does not comply with the laws
properly the compliance officer has to report to the chief officer of the related intermediary. If
violation of securities laws continues then the compliance officer shall report to the commission.
Book Building Method

17. Book Building Process of IPO pricing is a free pricing regime that values the company on its
performance, both past and future, keeping in mind its investment, earning forecast, economic
scenario etc. The commission is examining possibility of introducing Book Building System for
IPO pricing on selected basis.
Trading of Securities in the Exchanges
In DSE and CSE trading of securities is done through automated system. As a result volume of
transaction has increased substantially over the years. Now trading is done in the following four
market segments:
a. Public market
b. Spot market
c. Block market
d. Odd-Lot market
O-T-C Market
Securities and Exchange Commission (Over-the-Counter) Rules, 2001 was issued in 2002 under
which securities de-listed from the exchanges and securities not listed with the exchanges but
have been issued obtaining consent from the commission could be traded. CSE has provided the
platform but this facility has not yet been used.
Settlement of Securities transaction in the Exchanges
Mechanism of settlement of securities transactions is elaborately specified in DSE and CSE
settlement of Stock Exchange Transactions Regulations, 1998. It also categorizes securities into
A,B, G,N and Z based on profitability, operation and failure to hold AGM and sustaining loss
that ultimately exceeds paid up capital. This categorization helps investors to know about the
fundamental and attractiveness of security.
During the FY 2006-07, governance scenario of listed company improved remarkably. In this
period number of “A” category companies increased and number of “B” and “Z” category
companies decreased and increased respectively.
Securities Trading in the Exchange through Borrowing

18. In a bullish market securities price continues to increase and the investors may opt for investing
more than his equity availing loan from the brokers. A per DSE/CSE (Member’s margin)
Regulations, 2000 investors could invest more than his own resources and help reaping profit
from the bullish market.
Likewise supply of securities could also be increased through short-sale mechanism. Short-sale
refers to selling of securities that the seller does not own. As per Dhaka Stock Exchange (Short-
sale) Regulations, 2006 any person with a securities borrowing arrangements could sale
securities without owning it. This mechanism helps increasing supply of securities and could be
a win-win situation for seller, lender and brokerage firm.
Securities Issue through Private Placement
Rules that are required to be complied with for issuance of securities through private placement
is Securities and Exchange Commission (Issue of Capital) Rules, 2001 under which applicants
has to furnish certain information and documents to the commission. While according consent
the commission imposes conditions that include timely preparation of financial statements and
furnishing of the same to the commission, execution of all transactions except petty cash items
through company’s bank account. These conditions help issuer companies elevate their corporate
governance status and make them ready for raising capital through public offering.
Rights Issue
Share issue to existing shareholders by listed companies in proportion to their capital is approved
by the commission under Securities and Exchange Commission (Rights issue) Rules, 2006. As
per the said rules, such rights issue and price are required to be approved by the shareholders in
general meeting.
ii) Investment Corporation of Bangladesh (ICB)
The Investment Corporation of Bangladesh was established in 1976 with the objective of
encouraging and broadening the base of industrial investment. ICB underwrites issues of
securities, provides substantial bridge financing programs, and maintains investment accounts,
floats and manages closed-end & open-end mutual funds & closed-end unit funds to ensure

19. supply of securities as well as generate demand for securities. ICB also operates in the DSE and
CSE as dealers.
iii) Specialized Banks
Bangladesh Shilpa Bank (BSB), Bangladesh Shilpa Rin Sangstha (BSRS), BASIC Bank Ltd.,
some Foreign Banks and NCBs are engaged in long term industrial financing.
3. Product of capital market: a) Shares, b) Debentures, c) Mutual funds, d) Bonds, e)
Derivatives, f) Future and options.
4. Players of capital market: a) Investors, b) PLCs, C) Stock Exchanges, d) Brokers and
Dealers, e) Merchant banks, f) Securities and Exchange Commission, g) CDBL.
5. Parameters used to measure size of capital market: a) Number of listed companies, b)
Number of securities, C) Size of market capitalization, d) Index, e) Daily trade volume, f) GSP
ratio to market capitalization,
6. Efficiency indicators of capital market: a) PE multiple, b) Dividend yield, c) Liquidity, d)
Visible presence of regulators, e) Exit route regulation for sick PLC.
Capital market development:
The World Bank is already working with the Government and Bangladesh Bank on some of
these key issues, and we shall be ready to work further with them within the limits of our own
comparative advantage. We have been extremely pleased to see the coordinated approach of the
Bangladesh Bank, Ministry of Finance, the SEC and the National Board of Revenue to work
with IPDC to bring the first securitization transaction to market in Bangladesh. This has been one
solid step towards mobilizing finance for entrepreneurs and has confounded those skeptics who
thought that securitization is “too sophisticated” for Bangladesh. Perhaps those skeptics would
benefit from seeing the collected talent and enthusiasm for development gathered here in this
room today. We would very much like to hope that the next securitization will be another
transaction close to our heart, that of the securitization of a portion of the toll revenues of the

20. Jamuna Bridge. The IPDC loan securitization was a long time in the making and the Jamuna
Bridge securitization appears to be following the same path. This is a transaction which all
experts agree would have a major positive impact not only on capital market development in
Bangladesh, but also in mobilizing taka finance for other strategic infrastructure developments
such as the proposed Padma Bridge. We can only hope that the Jamuna Bridge securitization
will enjoy the same long term success. To facilitate this process, it would be useful to have
designated counterparts from the Government and Bangladesh Bank. Such a crucial market as a
domestic bond market needs excellent domestic regulation and supervision if investors and
borrowers are not to be disappointed or worse. It cannot be created by outsiders.
Presently, Bangladesh capital market has achieved phenomenal growth in size, depth and
maturity. All indicators of capital market showed an increasing trend during last couple of years.
Increased investors' participation, demand for stocks is pumping to price hike in the market.
Other indicators of the capital market also recorded a significant growth. Market capitalization of
DSE, a remarkably increased during last three years that reflected in the ratios of market
capitalization to the country's GDP at current market price. The ratio of market capitalization of
DSE to GDP rose to 39.1 percent in end FY10 from 5.2 percent in FY06 and from 2.3 percent of
FY00. Except 13.1 percent of 1996's bubble, the ratio was almost in horizontal level with around
below 3 percent up to FY04. The capital market developments and its sustainability depend on
market fundamentals at least in the medium term, and the fundamental strength of the market
essentially comes from financial strength of the listed companies. Also, strong regulatory
environment created and maintained by the regulatory bodies and participation of institutional
investors and professional market analysts help orderly market operations. The market witnessed
that last few years many fundamental companies with strong financial strength have been listed
in the market. The main regulatory body SEC and the Government of Bangladesh and others
related regulatory authorities have continued their all efforts to develop the Bangladesh capital
market that reflected in the market trends. The Bangladesh capital market is now maturing
gradually in terms of depth and breathe and approaching to more shock resistant operational
mode.
Measures Supporting Capital Market Development

21. The Securities and Exchange Commission (SEC) undertook several measures to strengthen
capital market through build-up the confidence of the investors in capital market during FY10:
1. For the benefits of investors and capital market, Dhaka Stock Exchange (DSE) is advised
to provide over-the-counter (OTC) facility to the issuers, which have been delisted by the
exchange, excluding those securities which have been delisted upon application by the issuers
concerned.
2. For the benefits of the investors, deposit refund money is made directly into unsuccessful
IPO applicants' bank account.
3. Stock Exchanges are advised that a stock broker can open maximum 15 branches and
offices within one kilometer periphery of the main office.
4. For investment decision and for avoidance of confusion, all listed companies are advised
for making the detailed quarterly financial statements available in their website.
5. Maturing of all closed-end mutual funds has been fixed. According to this directive no
mutual fund shall have maturity for more than 10 years. However, the close-end mutual funds
which have already passed 10 years after launching are allowed to continue a little more but must
retire within 31 December 2011.
6. Banks, other financial institutions and insurers are advised to form separate subsidiary
companies to run brokerage and dealer activities. The subsidiaries must be formed by 31 March
2010.
7. New criteria for margin loans for mutual funds have been set. According to the new
criteria, the funds that will trade 7.5 percent higher than their latest net asset value (NAV) will
not qualify for the loans.
8. In order to increase the supply of shares mandatory provision has been made for
companies having paid-up capital more than Taka 0.50 billion must apply for IPO to off-load
shares in the capital market.

22. 9. To cool down the stock market margin loan criteria has been reset. According to the new
criteria investors are not entitled to get margin loan to buy equity shares exceeding P/E ratio 40.
Previously it was at 50.
10. Plan to increase the number of mutual funds, merchant banking license to financial
institutions.
11. Setting up of Bangladesh Institute of Capital Market to train the investors and the
officials working in the intermediaries agencies.
Table 1.1: Indicators of capital market development
FY
03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Number of listed securities 260 267 259 277 281 294 308 279
Isuued capital & debt (billion
taka) 36.1 46.8 52.8 64.7 83.7 109 147.18 213.11
Market capitalization (billion
taka) 69.2 142.4 213 205.3 412.2 789.4 1001.9
2276.9
8
Turnover (billion taka) 30.6 24.8 74.1 46 164.7 209.2 892.79
2714.2
8
General price index 830 1319 1713
1339.
5
2149.
3
3000.
5
3010.2
6
6153.6
8
GROWTH IN PERCENT
Number of listed securities 1.2 2.69 -3 6.95 1.44 4.63 4.76 -9.42
Isuued capital & debt 3.1 29.64 12.82 22.54 29.37 30.2 35.05 44.8
Market capitalization 5.6
105.7
8 49.58 -3.62
100.7
8 91.51 26.92 127.27
Turnover 12.3 -18.95 198.7 -37.92 258.0 204.5 326.76 204.02

23. 9 4 1
General price index 4.7 58.92 29.87 -21.8 60.46 39.6 0.33 104.42
Capital market securities
BOND MARKET IN BANGLADESH
Bond market acts as buffer of equity market. On the one hand, bond markets are essential for a
country to enter a sustained phase of development driven by market-based capital allocation and
increased avenues for raising debt capital. On the other hand, the central position occupied by
domestic bond markets in markedly increasing the resilience of a country’s financial system and
insulating it against external shocks, contagion and reduction of access to international capital
markets is established. This market in Bangladesh has been found very inefficient with respect to
number of issues, volume of trade, number of participant, long-term yield curve, interest rate
policy etc. In view of this, the present study has been undertaken aiming at identifying the
problems that impedes the growth and development of Bond Market in Bangladesh. The study
has found that the size of debt market of Bangladesh is very low as compared to other SAARC
Countries; has huge growth potentiality; and identified important impediments to the growth and
development of Bond Market in Bangladesh such as risk and return factor, liquidity and
government policy factor, issue management factor, investment policy factor, macro-economic
and regulatory factor, and market & issue related factor. The study has suggested some important
policy measures such as regulatory change, establishment of long-term yield curve, offering
fiscal benefits, encouraging companies raising funds through corporate bond issues, keeping
treasury rate low etc. for the development of Bond Market in Bangladesh. Bond markets in most
countries are built on the same basic elements: a number of issuers with long-term financing
needs, investors with a need to place savings or other liquid funds in interest-bearing securities,
intermediaries that bring together investors and issuers, and an infrastructure that provides a
conducive environment for securities transactions, ensures legal title to securities and settlement
of transactions, and provides price discovery information. The regulatory regime provides the
basic framework for bond markets and, indeed, for capital markets in general. Efficient bond
markets are characterized by a competitive market structure, low transaction costs, low levels of

24. fragmentation, a robust and safe market infrastructure, and a high level of heterogeneity among
market participants.
Bangladesh Government Treasury Bonds
(BGTBs) Auctions:
Treasury Bonds, bearing half yearly interest coupons, with tenors of 5-year, 10-year, 15-year and
20-year are auctioned in every month. 48 auctions of these instruments were held in FY10. A
total of 767 bids for Taka 218.49 billion were received and 159 bids for Taka 87.85 billion were
accepted, of which Taka 39.41 billion was devolved on BB/PDs. The amount of outstanding
bonds stood at Taka 396.26 billion at the end of June 2010 as against Taka 314.83 billion at the
end of June 2009. The outstanding amount of bonds at the end of FY10 was higher than 25.86
percent that of end of FY09. The weighted average yield-to maturity for the treasury bonds
ranged from 7.47 percent to 9.41 percent in FY10. It was found that the yield rates on all tenors
of treasury bonds were decreased sharply during the year under the report. It is mentionable that
in FY09, bids for a total of Taka 239.96 billion were received, of which Taka 124.71 billion was
accepted and Taka 55.98 billion was devolved on BB/PDs. The overall weighted average yield-
to-maturity ranged from 9.20 percent to 13.07 percent in FY09.
Bangladesh Government Islamic Investment Bond (Islamic Bond)
The operations of 6-month, 1-year and 2-year Bangladesh Government Islamic Investment Bond
(Islamic Bond) introduced in FY05 continued in FY10. This Government Bond is operated in
accordance with the rules of Islamic Shariah. As per the rules, Bangladeshi institutions,
individuals and non-resident Bangladeshis who agree to share profit or loss in line with Islamic
Shariah may buy this bond. As of end June 2010 the total sale against this bond amounted to
Taka 23.4 billion while balance of total amount of financing stood at Taka 15.4 billion and the
net outstanding against the bond stood at Taka 8.0 billion. As of end June 2009 the total sale

25. against this bond was Taka 16.4 billion against the balance of total financing of Taka 12.1 billion
and the net outstanding of Taka 4.3 billion.
Corporate bond
ACI Bond
Authorities of Advanced Chemical Industries Limited (ACI), sponsor of ACI 20 per cent
Convertible Zero Coupon Bonds, have stated the following: (1) As per the maturity schedule, the
record date of ACI 20 per cent Convertible Zero Coupon Bonds is March 6, 2011. The
bondholders whose name will appear in the Depository List on the record date will be entitled to
get the redemption of 1st Series of Bonds, (2) As per the announced features, 80 per cent of the
redemption value will be paid in cash and rest 20% can be converted into ACI shares. The
bondholders, who do not want to exercise the convertibility option, shall notify in writing their
intention by five working days from the record date (March 13, 2011) to the address of Bond
Department, ACI Limited, 245, Tejgaon Industrial Area, Dhaka-1208.
(3) The NAV per share as per last audited financial statements (2009) is Tk 156.16 and the
conversion strike price is Tk 171.78 as per announced formula, (4) If any bondholder gets
fraction or odd lot number of shares through conversion, the fraction or odd lot shares shall be
credited to suspense account and will be sold out in the market. The equivalent selling price
against the odd lot or fraction of shares will be paid to the respective bondholders and (5) After
record date of 1st Series of Bonds, the number of series in each lot will be reduced to four from
five. — DSE Online
Mudaraba Perpetual Bond (MPB) of Islami Bank Bangladesh Limited.
Brief Overview of the Bank
1. Date of Incorporation: March 13, 1983
2. Commencement of Business: March 30,1983
3. Authorized Capital: Tk. 5,000 million.
4. Paid up Capital: Tk. 3,456.00 million (Pre issuance of MPB)

26. 5. No of Branches: 176
Table 1.2: Details of the Issue
Description No. of Units Offer Value
In Taka
Amount
Tk.
Pre-IPO Placement 1,500,000 1,000 1,500,000,000
Public Offering 1,500,000 1,000 1,500,000,000
Total Value of Bond after IPO 3,000,000 1,000 3,000,000,000
Table 1.3 Basic information of the Issue:
Sl No. Category Description
1
Name of the Bank Islami Bank Bangladesh
Ltd.
2
Size of the Issue Tk. 3,000 m (Tk. 1,500 m
private placement & Tk.
1,500 m IPO
3
Unit Price Tk. 1000
4
Market Lot
5
5
Term Perpetual (no maturity
period)

27. 6
Profit Distribution
a) MPB will carry 1.25
weight ages for distribution
of profit.
b) Not less than 65% of the
income generated by
deployment of MPB fund
and
c) An additional rate of
profit equivalent to 10% of
the rate of dividend
declared by the Islami Bank
Bangladesh Limited every
year. No portion of
dividend will be distributed
to the MPB holders.
7 Minimum Subscription Tk. 5,000 or multiple of Tk.
5,000.
8 Credit Rating MPB has been rated as A+ by
Credit Rating Information and
Services Limited (CRISL)
9 Trustee Investment Corporation of
Bangladesh (ICB)
10 Manager to the Issue ICB Capital Management
Limited (A subsidiary
company of ICB)
Purpose of the Issue

28. The main purpose of the bond is to raise fund to meet the capital adequacy ratio of the Bank.
Since the raising of Tier-1 Capital has impact on share value dilution and dividend paying
capacity of the bank, the IBBL has been looking for alternate sources of Tier-2 Capital as a
subordinated investment instrument and identified the issuance of Mudaraba Perpetual Bond to
resolve the issue of capital adequacy.
Table 1.4: Dividend Information of the Bank
Year Cash (%) Bonus (%) Right (%) Total Dividends (%)
31.12.200
6
15% 10% - 25%
31.12.200
5
- 25% - 25 %
31.12.200
4
- 20% - 20 %
31.12.200
3
- 20% 200% 220 %
31.12.200
1
- - 100% 100 %
Salient Features Of Mudaraba Perpetual Bond of Islami Bank Bangladesh Ltd. (IBBL)
1) It has no redemption facility & pre-determined interest rates.
2) MPB will share income derived from investment activities and also get an additional rate
of profit equivalent to 10% of the rate of dividend (no portion of dividend will be
distributed to the MPB holders.
3) MPB will be issued to meet the capital adequacy ratio of the Bank.
4) Term: Perpetual (no maturity period).
5) The Minimum subscription amount is Tk. 5,000 or multiple of Tk. 5,000.
6) MPB as a Mudaraba instrument it will get priority over the shareholders in respect of
getting profit and also refund of principal in case of liquidation of the bank.
7) The Bondholders will however stand subordinated to the Depositors in respect of the
payment of both profit and refund of principal.
8) MPB will be listed with both Bourses of the country and will remain freely transferable
depending on the market demand.

29. 9) IBBL has already agreed to create floating charge to the extent of Tk. 3,000 million on the
present and future assets of the bank in favour of the trustee in order to secure the interest
of the Bondholders.
10) The bond will be further secured by the corporate guarantee of the IBBL.
11)MPB will be treated as a Tier-2 Capital as a subordinated investment instrument that will
save from dilution effect & enhance dividend paying capacity of the bank.
Profit Distribution features of MPB
All Mudaraba Fund holders/ Mudaraba depositors of the Bank will share income which is
derived from investment activities i.e., income from use of Mudaraba Funds. Income under
this category will mean and include profit, dividend, capital gain, rent and any other income
derived from investments.
Table 1.5: Example of estimated Rate of Profit on MPB for 2006 based on the actual
performance of the Bank for the last 5 years will be as follows:
Sl.
No.
Particulars 2006 2005 2004 2003 2002
1 Profit on Mudaraba
Savings Bond (8 years)
at 1.25 weightage
10.85
%
10.39% 8.81% 10.04% 10.79
%
2 Dividend Declared 25% 25% 20% 20% 25%
3 10% of rate of dividend 2.50% 2.50% 2.00% 2.00% 2.50%
4 Estimated Rate of Profit
on MPB (1+3)
13.35
%
12.89% 10.81% 12.04% 13.29
%
5 Remarks Based on Final Rate of Profit.
6 Entitlement Entitlement will be based on Record Date/Book Closure
Risk Factors

30. 1) Rule and principles of utilization & distribution of profit of such funds as in vogue in
IBBL and shall be subject to change and modification from time to time.
2) There is a risk that the issuer may fail to satisfy the terms of the obligation with respect to
the timely payment of profit due to adverse market condition.
3) Entrance of a new competitor like new bank or financial institution or expanding services
of existing competitors may increase the market competitor and may adversely affect the
profitability of the bank.
4) Changes in Government policy, which are not conductive to financial and banking
business may hamper the future growth and profitability of the bank.
Table 1.6: BRAC Bank 25% Subordinated Convertible Bonds
BRAC Bank 25% Subordinated Convertible Bonds
Opening date for subscription December 5, 2010
Closing date for subscription December 9, 2010
For Non-Resident Bangladeshi Quota,
subscription closes on:
December 18, 2010
Issuer: BRAC Bank Limited
Purpose: To raise Tier 2 Capital (subject to regulatory
approval) and undertake normal commercial
banking activities with the proceeds as
permitted by the Bangladesh Bank.
Lead Arranger: RSA Capital Limited
Issue Manager: IDLC Finance Limited
Trustee: The City Bank Limited

31. Investors: 90% of the total Issue Size shall be offered to
institutional investors including onshore and
offshore investors and the remaining 10% shall
be offered to public through IPO.
Issue Size: BDT 3,000,000,000 (Bangladesh Taka Three
Billion)
Issue Type: Subordinated Convertible Bond Issue (“Bond”)
of BRAC Bank Ltd. with qualification as Tier 2
Capital.
Tenor: 84 Months from the date of issue,
Face Value: bullet repayment.
Market Lot: Each Bond will have a Face Value of BDT
1,000 (One Thousand).
Mutual Funds
Mutual funds are professionally managed investment schemes that collect funds from small
investors and invest in stocks, bonds, short term money market instruments, and other securities.
This ensures a diversified portfolio for the investors at much less efforts than through purchasing
individual stocks and bonds. Mutual funds are usually managed by fund managers who
undertake trading of the pooled money and are responsible for managing the portfolio of
holdings. Generally, mutual funds are organized under the law as companies or business trusts
and managed by separate entities. Mutual funds fall into two categories: open-end funds and
closed-end funds. In Bangladesh, the number of mutual funds is small having low issued capital.
At present, there are only 33 mutual funds
1JANATAMF( First Janata Bank Mutual Fund )1STBSRS( 1st Bangladesh Shilpa Rin Sangstha
M.F. ) 1STICB( 1st ICB M.F. )1STPRIMFMF( Prime Finance First Mutual Fund )
2NDICB( 2nd ICB M.F. )3RDICB( 3rd ICB M.F. )4THICB( 4th ICB M.F. )5THICB( 5th ICB
M.F. )6THICB( 6th ICB M.F. )7THICB( 7th ICB M.F. )8THICB( 8th ICB
M.F. )AIBL1STIMF( AIBL 1st Islamic Mutual Fund )AIMS1STMF( Aims 1st

32. M.F. )DBH1STMF( DBH First Mutual Fund )EBL1STMF( EBL First Mutual
Fund )GRAMEEN1( Grameen Mutual Fund One )GRAMEENS2( Grameen One : Scheme
Two )GREENDELMF( Green Delta Mutual Fund )ICB1STNRB( ICB AMCL 1st NRB Mutual
Fund )ICB2NDNRB( ICB AMCL 2nd NRB Mutual Fund )ICB3RDNRB( ICB AMCL Third
NRB Mutual Fund )ICBAMCL1ST( ICB AMCL 1st M.F. )ICBAMCL2ND( ICB AMCL Second
Mutual Fund )ICBEPMF1S1( ICB Employees Provident MF 1: Scheme 1 )ICBISLAMIC( ICB
AMCL Islamic Mutual Fund )IFIC1STMF( IFIC Bank 1st Mutual Fund )IFILISLMF1( IFIL
Islamic Mutual Fund-1 )MBL1STMF( MBL 1st Mutual Fund )PF1STMF( Phoenix Finance 1st
Mutual Fund )PHPMF1( PHP First Mutual Fund )POPULAR1MF( Popular Life First Mutual
Fund )PRIME1ICBA( Prime Bank 1st ICB AMCL Mutual Fund )TRUSTB1MF( Trust Bank 1st
Mutual Fund )
Debentures
A type of debt instrument that is not secured by physical asset or collateral. Debentures are
backed only by the general creditworthiness and reputation of the issuer. Both corporations and
governments frequently issue this type of bond in order to secure capital. Like other types of
bonds, debentures are documented in an indenture.
DEBARACEM( Aramit Cement Ltd.(Deb-14%) )DEBBDLUGG( Bangladesh Luggage Ind. Ltd.
(Deb-14%) )DEBBDWELD( BD Welding Electrodes Ltd.(Deb-
15%) )DEBBDZIPP( Bangladesh Zipper Ind. Ltd.(Deb-14%) )DEBBXDENIM( Beximco
Denims Ltd.(Deb-14%) )DEBBXFISH( Beximco Fisheries Ltd.(Deb-
14%) )DEBBXKNI( Beximco Knitting Ltd.(Deb-14%) )DEBBXTEX( Beximco Textiles Ltd.
(Deb-14%) )
Capital market securities (DSE): (Main Board as on February 2011)
Table 1.7: Capital market securities (DSE):
Total Number of Listed Securities 476

33. Total Number of Companies 229
Total Number of Mutual Funds 33
Total Number of Debentures 8
Total Number of Treasury Bonds 203
Total Number of Corporate Bonds 3
Total number of
Shares/Certificates:
(No. in mn)
Total Number of Shares & Mutual
Fund Certificates of All Listed
Securities*
15,673
Total Number of Shares of All
Listed Companies
13,268
Total Number of Certificates of All
Listed Mutual Funds
2,393
(No. in ' 000)
Total Number of All Listed
Debentures
409
Total Number of All Listed Gov.
T-Bonds
4,672
Total Numberof All Listed
Corporate Bonds
7,336
Total Issued Capital of : (Figure Tk.in mn) (FigureUS$ in mn)
All Listed Securities 719,316 10,105.59

34. All Companies Shares 220,543 3,098
All Mutual Funds 23,183 326
All Debentures 140 2
All Listed Govt. T-Bonds 468,113 6,576
All Listed Corporate Bonds 7,336 103
Total Market Capitalization of: (Figure Tk.in mn) (FigureUS$ in mn)
All Listed Securities 2,349,353 33,006
All Listed Companies Shares 1,843,471 25,899
All Listed Mutual Funds 30,477 428
All Debentures 576 8
All Listed Govt. T-Bonds 468,113 6,576
All Listed Corporate Bonds 6,716 94
Conversion Rate: BDT against
USD
71.18
Table 1.8: Sectoral Performance - February 2011
DSE Sectoral Performance - February 2011
Sector Market Capitalisation in
mn
% of
total
Marke
t Cap
Turnover Tk. in mn % of
total
Turnove
r
February January February January
Financial Sector

35. Banks 561,617.62 863,038.59 29.72 38,847.87 66,308.47 33.81
Financial
Institutions
260,221.58 358,110.22 13.77 19,244.78 25,902.01 16.75
Insurance 102,568.39 159,153.82 5.43 6,064.29 11,614.28 5.28
Mutual Funds 30,476.60 39,774.31 1.61 4,069.48 10,281.43 3.54
Total 954,884.19 1,420,076.9
5
50.54 68,226.42 114,106.1
9
59.39
Manufacturing
Foods 44,488.99 60,815.97 2.35 1,831.64 3,191.74 1.59
Pharmaceuticals 150,418.71 197,966.28 7.96 4,711.34 8,308.06 4.10
Textile 72,982.86 113,573.28 3.86 8,465.27 15,211.57 7.37
Engineering 89,177.70 142,247.97 4.72 6,833.76 8,150.19 5.95
Ceramics 29,921.39 55,384.39 1.58 2,009.12 3,343.06 1.75
Tannery 11,498.95 15,685.41 0.61 629.03 1,121.21 0.55
Paper & Printing 668.80 1,084.90 0.04 6.35 6.88 0.01
Jute 563.36 880.90 0.03 34.94 45.39 0.03
Cement 43,816.28 66,265.68 2.32 2,012.51 2,973.30 1.75
Total 443,537.05 653,904.79 23.47 26,533.96 42,351.40 23.10
Service &
Miscellaneous
Fuel & Power 207,119.69 292,616.55 10.96 8,518.04 12,584.36 7.41
Service & Real
Estate
16,242.27 27,113.91 0.86 724.62 1,238.21 0.63
IT 3,140.86 4,643.77 0.17 331.12 527.99 0.29

36. Telecommunicatio
n
188,906.97 320,426.20 10.00 3,547.66 5,053.28 3.09
Travel and
Leisure
8,837.65 13,793.65 0.47 2,156.57 4,065.75 1.88
Miscellaneous 60,116.82 81,396.06 3.18 4,721.61 6,959.01 4.11
Total 484,364.26 739,990.14 25.63 19,999.61 30,428.60 17.41
Bond
Corporate Bond 6,716.23 3,990.11 0.36 127.11 83.05 0.11
Total 6,716.23 3,990.11 0.36 127.11 83.05 0.11
Grand Total 1,889,501.7
3
2,817,961.9
8
100 114,887.1
0
186,969.2
4
100

37. Table 1.9: Capital market securities: CSE (June 2010):
Indicators
Chittagong Stock
Exchange
No. of companies 204
No. of mutual funds 26
No. of debentures 2
No. of treasury bonds -
No. of corporate bonds -
Total No. of Listed Securities 232
Figures in million (TK)
No. of shares of all listed companies 6,730.54

38. No. of certificates of all listed mutual funds 1,225.28
No. of debentures of all listed debentures 4.34
No. of all listed govt. T-bonds --
No. of all listed corporate bonds --
Total No. of Tradable Securities 7,960.16
Figures in million (TK)
Issued capital of all companies 184,214.21
Issued capital of all mutual funds 12,565.50
Issued debentures 4,335.85
Total issued capital 210,115.56
Figures in million (TK)
Total Market Capitalization 2,534,393.27
All Share Price Index 18116.0515
Problems:
1. The Political Situation: The People’s Republic of Bangladesh has been a parliamentary
democracy since September 1991. The present government is headed by the Awami League
which has an absolute majority, but the opposition party has stepped up its nationwide program
of strikes, processions, and mass meetings. These activities have weakened the government’s
intentions to foster changes such as the development of the financial market. In addition, certain
commercial and financial regulations are outdated in that they tend to focus on institutions rather
than functions. Governance and accountability are lacking in certain areas, and there are
elements of inefficiency in the financial system, mainly concerning the state-owned banking
sector. Although the government is aware of these problems, it has been slow to improve
governance and develop strong institutional capacity. The problems created by these weak
institutions are compounded by an increasingly confrontational.

39. 2. A sense of urgency is missing in policymaking, despite the growing imbalances in the
economy and crowding out as Bangladesh continues to channel vast monetary resources into
servicing bad loans. Given that macroeconomic changes can happen in short periods of time and
that nonperforming loan, which account for a third of the loan portfolio, can create financial
sector vulnerability, the bad-loan situation could trigger a severe liquidity crisis nationwide. It
can take decades to build a fixed-income market in the wake of such crises. This issue clearly
needs immediate and focused attention.
3. Certain omissions or drawbacks of the broader laws and regulations directly affect
development of the fixed-income market.
4. The government securities market in Bangladesh is small, does not provide much of a
yield curve to support a corporate bond market, and does not provide intermediaries with skills
and a profit base to support the corporate bond market.
5. Regulators and Regulations: One impediment at the regulator and regulation level is the
overlapping authority between the two financial market regulators, Bangladesh Bank and the
Securities and Exchange Commission (SEC), and no clear jurisdiction over the fixed-income
market. In general, BB regulates the commercial banks and their activities, while the SEC
regulates the NBFIs, the two stock exchanges, and the capital market. A second problem is that
the SEC has no authority to issue rules and regulations, and the procedure as a whole is long and
drawn out. As a result, the SEC has not proposed any regulations for the issuance of bonds or
debentures. All rule proposals must first be submitted to the Minister of Finance for approval and
then passed on for approval from Ministry of Law. Furthermore, potential issuers have to look at
various sets of regulations and follow a long and cumbersome procedure.
6. Investors: On the investor side, few investors are sophisticated enough to think about
investing in bonds. Most of them don’t have even financial literacy.
7. Intermediaries. Intermediaries in Bangladesh lack many of the skills needed to foster an
active local corporate bond market. As mentioned earlier, commercial banks dominate the
financial sector and not enough intermediaries are skilled in securities. Few are able to identify
issuers and investors and bring them to the market. They provide little or no research analysis on

40. industries or companies to encourage investment in the local debt market. Too few private
merchant banks are able to conduct financial advisory and trust services. Nor do any feel
motivated to become a market maker for an issue. Hence the market is illiquid, with large
spreads. At the same time, the fee structure and pricing are high enough to allow intermediaries
to make money, but because transactions are so limited, the intermediaries seldom make money.
Even if they are able to participate, intermediaries are reluctant to take any risk in dealing.
8. Growth of mutual fund in Bangladesh has been slow. Only recently there has been a rush
for new funds. Many banks and financial institutions are in the queue with proposals for their
funds. Mutual fund is often a misunderstood subject in Bangladesh. Many investors do not
understand the difference between mutual fund shares and other company shares.
9. The Securities and Exchange Commission will have to be more efficient and
professional. It simply cannot run with the present manpower. It needs more professionals, more
training at home and abroad and more logistic support. But it is just not possible to attract the
right kind of professionals with the current pay structure.
10. 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.
11. Price manipulation: It has been observed that the share values of some profitable
companies has been increased fictitiously some times that hampers the smooth operation of DSE
12. Delays in settlement: Financing procedures and delivery of securities sometimes take an
unusual long time for which the money is blocked for nothing.
13. Irregulations in dividends: Some companies do not hold AGM and eventually declare
dividends that confused the shareholders about the financial position of the company.

41. 14. Some members being the directors of listed companies of DSE look for their own interest
using the internal information of share market
15. Many companies of DSE don’t focus real position of the company as some audit firms
involve in corruption while preparing financial statements.
16. As the DSE is small market, the spread/cost ratio is relatively higher which is a more
important factor for capitalization.
Prospects:
1. A large number of new investors from across the country are entering the market.
Institutional investors are active in the market. Asset management companies are growing and
their activities are visible. A number of proposals for new mutual funds are awaiting approval.
2. Regulatory policies should be framed with long term vision. In recent months, some
policy decisions are being taken to address current problems at the cost of long term market
interest. These policy changes include fixation of minimum size of new public issue, imposing
restriction on private placements, disqualifying private sector companies under direct listing and
discouraging new mutual funds.
3. Many of the stocks are overpriced and this is a serious risk factor for the inexperienced
investors. Entry of new companies in the market can help reduce gap between demand and
supply and help bring stability in the market.
4. Immediate entry of at least two or three large companies could be extremely helpful for a
balanced growth of the market. Currently, Grameen Phone alone accounts for a large portion of
the market capitalization. As a result, normal movement of its price affects the index
substantially and entire market is influenced by it.
5. BTCL with its huge asset is another public sector company that could make immense
contribution to supply side of the market.

42. 6. Private placements have been stopped in case of smaller companies. It is true that scope
of private placement has been misused in some cases recently and the problem called for
intervention.
7. In the interest of improving supply of shares in the market, direct listing could also be
allowed for the private sector companies with some modifications. There should be an improved
price discovery mechanism so that general investors get the shares at an acceptable price and
manipulations are controlled.
8. SEC has taken very crucial initiatives to publicize and educate the investors about
fundamentals to deal in share transactions.
Table 2.0: Overview of SAARC Markets
Name of
the
Capital
Markets
Indices
Name
Indices
Year
ending
2008
Indices
Current
Jun 2009
Listed
Companies
Market
Cap
in US$
mn 2008
Turnover
in US$
mn
2008
PE
Ratio
(2008
)
Yield
%
(2008)
Colombo
Stock
Exchange
CSE
Milanka
1631.3
4 2721.64 235 4285.9 1022.6 6.53* 4.72*
Dhaka
Stock
Exchange
DSE
GEN
2795.3
4 3010.26 276
15138.5
1 9687.67 18.42 2.48
Karachi KSE 100
5865.0
1 7177.64 652 23500
350.00*
* - -
Bombay
Stock
Exchange SENSEX
9647.3
1
14493.8
4 4921
647204.
8
309178.
7 13.77 1.78

43. Recommendations
Bond market
1. The Government bonds must come first. To increase the attractiveness of these bonds
and to ensure their soundness, Bangladesh Bank will need to continue its initiatives to develop
the secondary market, lower transaction costs and improve upon the market infrastructure to
support secondary market liquidity. The Bangladesh Bank has already achieved a great deal to
this end in a very short time. It was not so long ago that government debt market trading was
effectively zero; now we see a disciplined, organized market taking shape with maturities in
traded securities out to ten years.
2. All issues of debentures are rated by independent rating agency prior to issue. Companies
issuing bonds/debentures to public may be rated periodically to keep track of issuing company's
financial position.
3. Public utilities and infrastructure projects be asked to raise a part of debt through issue of
marketable bonds.
4. Coupon rates and all other issuing conditions of debentures be determined by market
forces.
5. Investment in bonds/debentures approved by SEC may be given tax-exempt status up to a
certain limit.
If all the above things can be done, then this could pave the path for a well-functioning bond
market that can change the existing bank-oriented financial system to a multilayered system,
where capital markets can complement bank financing.
Capital market securities other than Bnods
• Rules, Regulations, and Regulators. The role of the BB and SEC in regulating the fixed-
income market needs to be clearly defined in detail so that appropriate regulations can be written
for the public, private, and secondary markets. These regulations should ensure that each market

44. is encouraged and protected. In view of situations around the world, it likely is best to have the
SEC regulate the fixed income market. But whichever agency is chosen, the regulator must be
educated appropriately to ensure that it fully understands the product and is able to supervise the
markets, monitor the risks in the markets and the intermediaries, and enforce its power where
necessary to ensure a quality market.
• Central Market Infrastructure. Bangladesh should consider whether to develop a central
clearing, settlement, and depository institution. Such an entity would support both the equity and
debt markets.
• Market Participants. There are too few professional participants in the Bangladesh market
to create an effective secondary market in fixed-income instruments. Activities in the market are
as yet too limited because the government is unable to create an effective yield curve. When such
a base is established, market participants will know their relative value for issuing and investing,
which in turn will attract new participants to the market. The government also needs to support
private initiatives to bring intermediaries to the marketplace. They, in turn, bring the trading
mentality to the market that is essential for a secondary market. The best way to do this is to
create incentives for professional people to establish their own profitable business. With such a
base, the market will drive itself and private initiatives will ensure diversity in fixed-income
instruments. To build investor confidence, the market needs strong accounting rules and
regulations comparable to international standards. To that end, the government should strengthen
and supervise the accounting rules and controlling body.
• Macroeconomic. At a more general level, to foster market development, Bangladesh
needs to bring more competition into the financial sector through deregulation and privatization.
The country appears to be moving in that direction, but the speed is slow. The government needs
to accelerate its efforts in this area.
• Not only will a bond market require good financial foundations, but long-term investment
institutions will also need to be developed with demand for longer maturity assets. The
insurance and pension markets are currently not fully developed in Bangladesh. These markets
should be reformed as they are the natural buyers of long-term securities.

45. • Systems of market makers (specialists) may be evolved to facilitate market.
• At a more general level, to foster market development, Bangladesh needs to bring more
competition into the financial sector through deregulation and privatization. The country appears
to be moving in that direction, but the speed is slow. The government needs to accelerate its
efforts in this area.
• Broader Financial System. Ideally, there are several ways that Bangladesh might work to improve
operations in its government securities market, to create a market that provides an interest rate structure
that supports the entire financial system and a benchmark for corporate bond offerings. However, the
analysis performed for this study was not sufficient to determine whether and if so when certain changes
might best be suited for Bangladesh. But some suggestions can be made which Bangladesh might
consider over time, as it seeks to improve operation of its government securities market. More
specifically, instead of issuing tax-free and nontransferable government bonds to the retail market, the
government should consider issuing its bonds in the marketplace. It might issue T-bills and T-bonds with
a broader maturity base, transparent pricing, which are tax-neutral and transferable. To start with, efforts
might focus on building an effective money market (O/N–365 days), and from that base it may be
possible over time to create new short-term instruments such as futures, short-term interest rate swaps,
and a USD/Taka forward market. It is important to build a more sophisticated interbank deposit market
with different maturities. This will help create the everyday price fixing needed to price other financial
products (for example, leasing agreements), and it can help create a forward rate agreement (FRA)
market. Creating an effective yield curve will help provide a foundation for ultimately creating a diverse
secondary market.
• Provisions can be made to ensure investment of the generated fund in the prescribed
priority sectors.
• To force the listed companies to publish their annual reports with actual and proper
information that can ensure the interest of investors.
• Person being the director of listed company should not be allowed to be a member of
DSE
• There should be complete transparency in brokers’ transactions with the clients.

46. Conclusion
The capital market is the engine of growth for an economy, and performs a critical role in acting
as an intermediary between savers and companies seeking additional financing for business
expansion. Vibrant capital is likely to support a robust economy. While lending by commercial
banks provides valuable initial support for corporate growth, a developed stock-market is an
important pre-requisite for moving into a more mature growth phase with more sophisticated
conglomerates. Bangladesh's stock market is poised for rapid development. For this the SEC,
DSE, CSE and all market players should work together with the support of the government.
Market confidence is sure to erode if conflicting signals are received from different authorities.
At the same time investors will have to understand that in any stock market there are ups and
downs and they cannot blame others whenever stock prices slide down. Fortunately, investors
are getting matured gradually and hopefully we may not have to see shouting and slogan in front
of the exchanges any longer. Bangladesh should really focus on improving governance and
developing advanced market products, such as derivatives, swaps etc.
Bibliography