The capital markets of Bangladesh include the money market, taka treasury bond market, capital market, and foreign exchange market. The money market comprises interbank lending and treasury bill auctions. The taka treasury bond market consists of primary bond issues and secondary trading. The primary and secondary trading of equity securities takes place through the Dhaka and Chittagong stock exchanges. The Bangladesh Securities and Exchange Commission regulates the capital market and related activities. While the capital market has grown significantly in recent decades, it still faces challenges like a lack of foreign participation, insufficient listed companies, and an absence of a vibrant bond market. However, opportunities for further development include establishing an active secondary bond market and trading platforms for small cap

1. CAPITAL
MARKETS
OF
BANGLADESH
An introduction & overview…
KASHFIA SHARMEEN
Assistant Professor
Bangladesh Institute of Capital Market

2. FINANCIAL MARKETS
Money Market Taka Treasury Bond Market
Capital Market Foreign Exchange Market

3. MONEY MARKET

4. ◊ The money market comprises banks and financial institutions as intermediaries,
◊ 20 of them are primary dealers in treasury securities.
◊ Interbank clean and repo based lending, BB's repo, reverse repo auctions, BB bills
auctions, treasury bills auctions are primary operations in the money market, there is
also active secondary trade in treasury bills.
◊ Commercial paper has been introduce in 2013.

5. TAKA TREASURY
BOND MARKET

6. ◊ The Taka treasury bond market consists of primary issues of treasury bonds of
different maturities (2, 5, 10, 15 and 20 years), and secondary trade therein through
primary dealers.
◊ 20 banks performing as Primary Dealers participate directly in the primary auctions.
◊ Monthly data on primary and secondary trade volumes in treasury bills and bonds
and data on outstanding volume of treasury bonds held by non residents can be
accessed at Monthly data of Treasury Bills & Bonds.

7. CAPITAL MARKET

8. ◊ The primary issues and secondary trading of equity securities of capital market take
place through two (02) stock exchanges in Bangladesh.
◊ The instruments in these exchanges are equity securities (shares), debentures and
corporate bonds.
◊ The capital market is regulated by Bangladesh Securities and Exchange Commission
(BSEC).
◊ 20 of them are primary dealers in treasury securities.

9. FOREIGN EXCHANGE
MARKET

10. ◊ Towards liberalization of foreign exchange transactions, a number of measures were
adopted since 1990s.
◊ Bangladeshi currency, the taka, was declared convertible on current account
transactions (as on 24 March 1994).
◊ Investment abroad of resident-owned capital is subject to prior Bangladesh Bank
approval, which is allowed only sparingly. Bangladesh adopted Floating Exchange
Rate regime since 31 May 2003.

11. Role of the Capital
Market in the Economy

12. ◊ Last decade our GDP broke the 7% barrier and now it is growing at a rate
of 7.8%.
◊ As on April 30, 2018 total domestic credit (private and public sector) stood
at BDT 972,474 cr while market capitalization of DSE stood at BDT
400,629 cr which apparently shows scope for borrowers to rely on capital
market instead of banks.
◊ Around one crore people are indirectly depend upon the income from
capital market as 2.6 million beneficiary account owners are involved in this
market.

13. History of Capital
Market of Bangladesh

14. Particular of the Event Date
Incorporated as East Pakistan Stock Exchange Association Ltd 28 April, 1954
Starting of Formal trading 1956
Renamed as Dhaka Stock Exchange 23 June, 1962
Trading started in Bangladesh 13 May, 1964
Starting of DSE all Share Price Index Calculation 16 October, 1986
Starting of Automated Trading 10 August, 1998
Starting of Central Depository System 24 January, 2004
Book Building method has been introduced 2010
DSE become correspondent member of WFE 14 October, 2012
The Exchange Demutualization act passed by Parliament 29 April, 2013
Inauguration of ‘DSE-Mobile’ for trading 9 March, 2016
Agreement signing with the consortium of Shenzhen and
Shanghai Stock Exchange
14 May, 2018

15. Regulator of
Capital Market

16. ◊ The Bangladesh Securities and Exchange Commission (BSEC) was established on 8th
June 1993.
◊ The Commission consists of a Chairman and four Commissioners who are appointed
for fulltime by the government.
◊ The Commission has overall responsibility to formulate securities legislation and to
regulate the market accordingly.
Bangladesh Securities and Exchange
Commission (BSEC)

17. ◊ Securities and Exchange Ordinance, 1969
◊ Bangladesh Securities and Exchange Commission Act; 1993
◊ Depository Act 1999
◊ Exchanges Demutualization Act 2013
Securities Related Ordinance, Act, Rules and
Regulations

18. ▪Securities and Exchange Rules, 1987
▪Credit Rating Companies Rules, 1996
▪Margin Rules, 1999
▪Securities and Exchange Commission (Issue of Capital) Rules, 2001
▪Securities and Exchange Commission (Over-the-Counter) Rules, 2001
▪Bangladesh Securities and Exchange Commission (Public Issue) Rules, 2015
▪Securities and Exchange Commission (Right Issue) Rules, 2006
▪Securities and Exchange Commission (Private Placement of Debt Securities) Rules, 2012
▪Bangladesh Securities and Exchange Commission (Research Analysis) Rules, 2013
▪Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015
▪Securities and Exchange Commission (Regarding Meeting) Rules, 1994
▪Securities and Exchange Commission (Appeal) Regulations, 1995
▪Securities and Exchange Commission (Merchant Banker & Portfolio Manager) Rules, 1996
▪Securities and Exchange Commission (Stock Broker, Stock Dealer & Authorized Representatives) Rules, 2000
▪Securities and Exchange Commission (Market Maker) Rules, 2000
▪Securities and Exchange Commission (Mutual Fund) Rules, 2001
▪Securities and Exchange Commission (Security Custodian Service) Rules, 2003
▪Securities and Exchange Commission (Asset based Securities Issue) Rules, 2004
▪Depository Regulations, 2000
▪Depository (User) Regulations, 2003
▪Corporate Governance Code
Important Rules Framed by the Commission

19. ◊ The Chairman
◊ The Commissioners
◊ The Executive Directors
◊ The Directors
◊ The Deputy Directors
◊ The Assistant Directors
Structure of the Commission

20. STOCK EXCHANGES OF BANGLADESH
Dhaka Stock Exchange Chittagong Stock Exchange

21. Stock Exchanges
Both are Limited Companies
13 Maximum Board Members
7 Independent Directors
4 Shareholding Directors
1 Strategic Partner Director
Board of Directors are responsible for policy making and independent management is
responsible for day to day operation of the exchange.
Established in 1995;
Established in 1952

22. ◊ Equity
◊ Mutual Fund
◊ Corporate Bond
◊ Treasury Bond
◊ Debenture
Products of Stock Exchanges

23. Categories of Securities
A-Category Companies: Companies which are regular in holding the annual general meetings and
have declared dividend at the rate of ten percent or more in the last English calendar year.
B-Category Companies: Companies which are regular in holding the annual general meetings but
have failed to declare dividend at least at the rate of ten percent in the last English calendar year.
G-Category Companies: Green-field companies of which shares are listed with the DSE before the
company goes into commercial operation and prior to listing the said company declares the year of
first declaration of dividend.
N-Category Companies: Newly listed companies except green-field companies which shall be
transferred to other categories in accordance with their first dividend declaration and respective
compliance after listing of their shares.
Z-Category Companies: Companies which have failed to hold the annual general meeting when due
or have failed to declare any dividend based on annual performance or which are not in operation
continuously for more than six months or whose accumulated loss after adjustment of revenue reserve,
if any, exceeds its paid up capital.

24. Number of Securities
◊ “A Group (Equity)" Scrips traded in Public Market = 207
◊ "B Group (Equity)" Scrips traded in Public Market = 13
◊ "G Group (Equity)" Scrips traded in Public Market = 0
◊ "N Group (Equity)" Scrips traded in Public Market = 13
◊ "Z Group (Equity)" Scrips traded in Public Market = 32
◊ "MUTUAL FUNDs" traded in Public Market = 35
◊ "CORPORATE BONDs" traded in Public Market = 1

25. Sector wise Listed Securities

26. Market Scenario over last 25 years
1993 Key Indicators 2018
149 Total number of listed Securities 576
139 Total number of Companies 305
6 Total number of Mutual Funds 37
4 Total number of Debentures 8
- Total number of Treasury Bonds 221
- Total number of Corporate Bonds 1
15,654 Total Market Capitalization (TK in
millions)
38,47,347.80
1.16 Market Cap to GDP ratio (%) 17.19
418.75 Composite Index -
- DSE Broad Index 5,405.46
Sourse: BSEC, 2018

27. THE MARKET CRASH
The Crash of 1996 The Crash of 2010

28. The Crash of 1996
◊ The scenario of stock market crash in 1996 and crash in 2010-11are totally different.
◊ The number of BO account holders was only 300,000. Paper shares used to be sold in
front of DSE and it was not easy for investors to identify fake and original shares. There
was no automated trading system and adequate surveillance.
◊ The General Price Index (DGEN) increased by 139.3% during 1991-1995 and then
DSE suffered the biggest crash on December 1996 where index fall by 551 point in a
single day.
◊ Once the stock market bubble burst, it lost over 2,982 points in the following one year.

29. The Crash of 2010
◊ After the cruel crash in 1996 Bangladesh stock market had started growing from 2006
due to listing of a few profitable government entities and Multinational Companies
(MNCs). Together with individual investors nearly all commercial banks involved
themselves intensely in stock market.
◊ Step by step, the bullish market transformed into a bubble and on December 05, 2010,
the Dhaka Stock Exchange General Index (DGEN) reached at the record high of
8918.5, almost 5.6 times higher than December 2006. Concurrently, market
capitalization and turnover increased by 11.1 times and 61.7 times respectively.
◊ However, when the bubble burst on December 19, 2010 the DGEN witnessed its biggest
one day fall of 6.7 percent and since then the market has become bearish with almost
no positive movement of stock prices.

30. Current Market
Scenario

31. INDEX
DSE Broad Index (DSEX) DSE 30 Index (DS30)
DSEX Shariah Index (DSES)

32. 3000
3500
4000
4500
5000
5500
6000
6500
7000
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Broad Index DSEX Upward Trajectory
Source: Dhaka Stock Exchange, IDLC
Broad Index DSEX since Inception

33. 2403.6
2647.8
3259.2
3159.8
3412.4
4228.9
3861.0
2012 2013 2014 2015 2016 2017 2018
MARKET CAPITALIZATION FROM 2012-2018
Market Cap (BDT bn)
Source: BCES, 2018
Market capitalization of Bangladesh over time

34. 17.3%
16.8%
16.1%
12.3%
8.5%
6.5%
5.9%
3.6%
3.6%
3.4%
6.0%
Bank
Telecommunication
Pharmaceuticals & Chemicals
Fuel & Power
Food & Allied
NBFI
Engineering
Cement
Textile
Miscellaneous
Others
Source: Dhaka Stock Exchange, IDLC
Industry wise Market Capitalization (BDT bn) and contribution to the total
Equity Market capitalization (%)

35. 14.8%
17.5%
19.1%
20.9%
31.1%
42.1%
61.5%
70.2%
75.1%
109.7%
115.5%
118.2%
119.6%
143.2%
165.7%
176.8%
203.9%
Bangladesh
Colombo
Shenzhen
Pakistan
Shanghai
Indonesia
Germany
India
Philippine
UK
Thailan
Malaysia
Japan
Canada
USA
Taiwan
Singapore
Market Cap to GDP
*Data of Bangladesh as of October, 2018, data of other country based on 2017
Source: DSE monthly review, World Bank, IDLC
Comparison of the Market Cap to GDP of Bangladesh with Peer economies’

36. 7.0x
15.3x
17.1x
17.9x
20.1x 20.1x 20.1x
25.4x
Pakistan Bangladesh Thailand Vietnam Malaysia Indonesia Philippine India
Market PE
*Data of Bangladesh as of October, 2018, data of other country based on 2017
Source: DSE monthly review, Bloomberg
Comparison of the Market PE of Bangladesh with Peer economies'

37. Sector wise PE
of Bangladesh

38. Source: DSE monthly review, January 2018

39. Incentives given by Government
◊ Reduction of Corporate tax in the budget FY 18-19 to stock
market.
◊ Reducing Income tax by 2.5% from existing 42.5% for banks,
insurance companies and NBFIs
◊ For public listed companies, it has been cut down from 27.5%
to 25%.

40. Challenges of our
Capital Market

41. CHALLANGES
Foreign participation
in the Market
Insufficient no of
listed companies
Dearth of quality stocks
with strong corporate
governance
Absence of vibrant
bond market

42. 7
14
12
18
18
14
17
12
20
14
11
9
6
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Number of IPO in Bangladesh from 2006-2018
No of IPO
373
1,006
827
1,905
2,865
1,690
1,818
1,664
1,314
1,037
909
442
362
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Size of IPO in Bangladesh from 2006-2018 (Tk in cr)
Size of IPO
Source: PBIL research
less Companies are listed in Stock Market-Why?

43. Window of Opportunities
In our Capital Market

44. Opportunities
Active secondary
bond market
Diversification of
asset class
Trading platform for
Small cap companies
Setting up- Clearing House
& Settlement Company