money market and the capital market are the two different types of the financial markets where in
the money market is used for the purpose of short term borrowing and lending whereas the capital
market is used for the long-term assets i.e., the assets which have the maturity of more than one
year. Money markets are unorganized markets where banks, financial institutions, money dealers
and brokers trade in financial instruments for a short period of time. Trading in the money market
is done mostly through over the counter (OTC) i.e. no or little use of exchanges. They provide
businesses with short-term credit and play a major role in providing liquidity in the economy over
the short term. On the contrary, the capital market is a type of financial market where financial
products like stocks, bonds, debentures are traded for a long duration of time. They serve the
purpose of long-term financing and long-term capital requirement. Capital Market is categorized
into two section, first being the primary market where the securities are issued and offered to the
public for the first time and second is the Secondary Market where the previously issued securities
are traded amongst different types of investors.
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Overview of Capital Market in Bangladesh
1. Assignment On
Overview of Capital Market in
Bangladesh
Submitted To: Prof. Zahidul Islam
Course Instructor: Investment & Portfolio Management
Course Code: [FIN 403]
Submitted By: Fara Ul Fath Shawron
ID: 2215 Batch: 26th
Date of Submission: 26 February 2020
2. Table of Contents
Introduction..................................................................................................................................... 3
Number of Industries ...................................................................................................................... 4
Different Money Market Instruments Traded in Bangladesh......................................................... 6
Characteristics of Money Market of Bangladesh............................................................................ 8
Over the Counter Market ................................................................................................................ 8
Demutualization of Market............................................................................................................. 8
Regulations Implied by the SEC..................................................................................................... 9
Current banking Rates (CRR, SLR)................................................................................................ 9
Main Functions of the Securities and Exchange Commission...................................................... 10
Central Depository of Bangladesh Limited (CDBL).................................................................... 12
3. Introduction
money market and the capital market are the two different types of the financial markets where in
the money market is used for the purpose of short term borrowing and lending whereas the capital
market is used for the long-term assets i.e., the assets which have the maturity of more than one
year. Money markets are unorganized markets where banks, financial institutions, money dealers
and brokers trade in financial instruments for a short period of time. Trading in the money market
is done mostly through over the counter (OTC) i.e. no or little use of exchanges. They provide
businesses with short-term credit and play a major role in providing liquidity in the economy over
the short term. On the contrary, the capital market is a type of financial market where financial
products like stocks, bonds, debentures are traded for a long duration of time. They serve the
purpose of long-term financing and long-term capital requirement. Capital Market is categorized
into two section, first being the primary market where the securities are issued and offered to the
public for the first time and second is the Secondary Market where the previously issued securities
are traded amongst different types of investors.
4. Number of Industries
There are total 589 listed companies of Bangladesh that are operating in different sectors. The
Securities Exchange commission of Bangladesh has categorized these companies into 22 sectors.
These industries are illustrated in the following:
1. Banking Sector: 30 firms
2. Cement Sector: 7 firms
3. Ceramic Sector: 5 firms
4. Corporate Bond Sector: 2 firms
5. Debenture Sector: 8 firms
6. Engineering Sector: 39 firms
7. Financial Institutions: 23 firms
8. Food & Allied Sector: 17 firms
9. Fuel & Power Sector: 19 firms
10. Insurance Sector: 47 firms
11. IT Sector: 10 firms
12. Jute Sector: 3 firms
13. Miscellaneous Sector: 13 firms
14. Mutual Funds Sector: 37 firms
15. Paper & Printing Sector: 3 firms
16. Pharmaceutical & Chemicals: 32 firms
17. Services & Real Estate: 4 firms
18. Tannery Industries Sector: 6 firms
19. Telecommunication Sector: 2 firms
20. Textile Sector: 56 firms
21. Travel & Leisure Sector: 5 firms
22. Treasury Bond: 221 firms
5. These are the following companies that are categorized under these Broad industries:
6. Different Money Market Instruments Traded in Bangladesh
Money Market an integral part of the financial market of a country. It provides a medium for the
redistribution of short-term loanable funds among financial institutions, which perform this
function by selling deposits of various types, certificate of deposits and discounting of bills,
Treasury bills etc. The participants in the money market are: the central bank, commercial banks,
the government, finance companies, contractual saving institutions like the pension funds,
insurance companies, savings and loan associations etc. The instruments that are generally traded
in the money market constitute: treasury bills, short-term central bank and government bonds,
negotiable certificates of deposits, bankers’ acceptances and commercial papers like the bills of
exchange and promissory notes, mutual funds etc.
Treasury Bills: Bangladesh Bank issues Treasury bills with maturity of three, six, twelve and two
years. A set amount is paid at maturity and the tax revenues and other sources of government funds
are utilized to make payment to owners of these Money market instruments.
7. Commercial Paper: Commercial papers are short term obligation that are unsecured promissory
notes. These Commercial papers are issued by firms to pay short term cash for financing working
capital necessity.
Certificates of Deposit or CD: Usually this money market instrument is offered by banks to raise
fund for a short time period. The return is higher than Treasury bills as this promissory note issued
by bank entitles the bearer to obtain interest.
Bankers Acceptances: Bankers acceptance is a short-term credit investment requested by non-
banking institution that is backed by a banking institution to make payment. It is quite similar to
Letter of Credit, but it is not tradeable and also the term for this instrument is 90 days.
8. Characteristics of Money Market of Bangladesh
The money market of Bangladesh reached its present phase through a series of changes and
evolution. Initially, after liberation, money market was the major constituent part of the financial
market of the country. Capital market, its other segment was a relatively smaller part. All financial
institutions of the country were nationalized after liberation. The growth and evolution of money
market in the country took place during the period from 1971 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. However, in this period a vast financial superstructure with large
network of commercial bank branches was established in the country. Simultaneously, specialized
financial institutions under government sector also emerged with the objective of mobilizing
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
disbursement goals, and predetermined rates of interest fixed by the authority. However, rate of
interest in the call market was flexible but due to prevalence of liberal refinance facility at
concessional rates from Bangladesh Bank, the activities of call money market remained
insignificant.
Over the Counter Market
Over-the-Counter (OTC) means the facilities provided by an exchange for the purpose of buying
or selling of unlisted or delisted securities from the stock exchanges. The OTC Market provides
an alternative to stock exchange listing for securities of issuers that either choose not to be listed
on Dhaka Stock Exchange or not to meet the relevant listing requirements. OTC Securities is
termed for any security that is not listed on stock exchange.
Demutualization of Market
Recently Government and BSEC decided to demutualization of Dhaka Stock Exchanges. DSE is
the first and biggest stock exchange of the country. Demutualization is the modern, popular and
current trend among stock exchanges all over the world. Bangladesh has started its journey to get
their exchanges demutualized in 2011. Previous record of Demutualization of other stock exchange
(Like: London Stock Exchange), the performance of demutualized exchanges has improved in
9. terms of operational profitability and efficiencies along with governance scale. But there are some
challenges and risks associated with demutualization. There are many reasons of the
demutualization of Dhaka Stock Exchange (DSE). The main reason of the demutualization of
Dhaka Stock Exchanges (DSE) is Stock market crash in 1996 and finally in 2010-11.
Demutualization means turning a non-profit organization into a profit-oriented organization and
separating controlling functions from controller’s functions, empowering controller and taking
decisions without being motivated by the market players. Different stake holders of capital market
and civil society also support and demand for demutualization of exchanges.
Regulations Implied by the SEC
Stock Exchange commission of Bangladesh have implied some strict regulations to control the
stock market and behavior of the firms. To exercise powers confined within the Securities and
Exchange ordinance act 1969 SECB has states regulations that are mandatory for the listed
companies board and administration. This regulation mainly includes how the nomenclature of the
gazette will be defined, the general requirement to constitute Board of Directors for a particular
listed firm, How the listed firms should structure their Board, Quorum of the Board Meeting,
Proper criteria for fitting Directors, The extent of power of the Board of Directors, Strategic
planning for the exchange, Code of Conduct for Board Directors, Code of Ethics, Management of
the exchange, general principles for BOD, Audit and Risk management, Appeal, conflict
mitigation, TREC holding affairs etc.
Current banking Rates (CRR, SLR)
Cash Reserve Ratio (CRR) is the share of a bank’s total deposit that is mandated by the Bangladesh
Bank to be maintained with the latter in the form of liquid cash whereas SLR (Statutory Liquidity
Ratio) is the ratio of compulsory ratio of the deposit that bank has to maintain in form of cash,
gold, other securities prescribe by Bangladesh Bank. CRR and SLR are the basic tools in the
economy which manage inflation and the flow of money in the country. Bangladesh bank controls
bank capacity of lending through CRR and SLR. In the Fiscal year FY19 the state-owned banks
have suffered losses due to less liquidity stress and wide access to public sector deposits.
Bangladesh Bank hence address the issue of Taka liquidity which includes lowering CRR from
6.50 to 5.50 percent of total time and demand liabilities. According to Bangladesh Bank’s Fiscal
10. Regulations the Statutory Liquidity Ration for scheduled banks were reported to be 13 percent in
December 2019.
Main Functions of the Securities and Exchange Commission
• Regulating the business of the Stock Exchanges or any other securities market.
• Registering and regulating the business of stock-brokers, sub-brokers, share transfer
agents, merchant bankers and managers of issues, trustee of trust deeds, registrar of an
issue, underwriters, portfolio managers, investment advisers and other intermediaries in
the securities market
• Registering, monitoring and regulating of collective investment scheme including all
forms of mutual funds.
• Monitoring and regulating all authorized self-regulatory organizations in the securities
market.
• Prohibiting fraudulent and unfair trade practices relating to securities trading in any
securities market.
• Promoting investors’ education and providing training for intermediaries of the securities
market.
• Prohibiting insider trading in securities.
• Regulating the substantial acquisition of shares and take-over of companies.
• Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of
securities, the Stock Exchanges and intermediaries and any self-regulatory organization
in the securities market.
• Conducting research and publishing information.
Bangladesh Securities and Exchange Commission is regulated under the Act of “Bangladesh
Securities and Exchange Commission Act, 1993”
The major Regulations that BSEC implemented are elaborated in the following:
11. Investment Corporation of Bangladesh (ICB)
The policies of the Investment Corporation of Bangladesh are:
• To act on commercial consideration with due regard to the interest of industry, commerce,
depositors, investors and to the public in general.
• To provide financial assistance to projects subject to their economic and commercial
viability.
• To arrange equity support and loans for projects singly or through consortium of financial
institutions including banks.
• To encourage and develop entrepreneurship in the country.
• To diversify investments.
• To inspire small and medium savers for investment in securities.
• To create employment opportunities.
• To encourage and broaden the base of Investment in agro and information &
communication technology (ICT) sectors.
The regulations Followed by the ICB are:
12. Central Depository of Bangladesh Limited (CDBL)
What is a depository?
A depository is like a bank for shares instead of money. Instead of holding shares in the form of
certificates, investors have accounts in the depository and are able to move securities and settle
stock exchange transactions by an electronic update of their accounts.
Virtually all established markets have depositories including India, Japan, Malaysia, Pakistan, Sri-
Lanka and Thailand, UK and USA.
The core service of a depository is the efficient delivery, settlement and transfer of securities
through a computerized book entry system.
Central Depository of Bangladesh
Central Depository Bangladesh Limited (CDBL) was incorporated as a public limited company on
20th August 2000 to operate and maintain the Central Depository System (CDS) of Electronic
Book Entry, recording and maintaining securities accounts and registering transfer of securities;
changing the ownership without an physical movement or endorsement of certificates and
execution of transfer instruments, as well as various other investor services including facilitation
of the secondary market trading of Treasury Bills and Government Bonds issued by the
Bangladesh Bank.