The absence of derivatives trading in Bangladesh highlights structural and regulatory gaps in the capital market. These challenges have made it difficult to introduce financial instruments like options and futures, which are common in more developed markets.
One of the biggest hurdles is the lack of a regulatory framework. The Bangladesh Securities and Exchange Commission (BSEC) has not yet established clear rules for derivatives trading. Without these, managing risks like market manipulation or excessive speculation becomes challenging.
Additionally, the capital market in Bangladesh is still in its developing stages, with a limited number of institutional investors. This lack of market maturity makes introducing derivatives a daunting task.
Moreover, most investors in Bangladesh are unfamiliar with complex financial products like derivatives. Without proper knowledge, demand for these products remains low. Liquidity is another significant obstacle to introducing derivatives in the market. Even equity trading struggles to maintain consistent activity, and adding derivatives to this environment risks exacerbating these liquidity issues.
Furthermore, Bangladesh's financial market lacks the advanced technology and systems required for derivatives trading. Robust trading platforms, clearinghouses, and risk management tools are essential but are not yet available. Additionally, issues like currency volatility and economic instability discourage the use of derivatives. Regulators also worry about systemic risks if these instruments are misused.
Addressing these challenges to build a derivatives market in Bangladesh will require multiple steps. First, the BSEC needs to create clear guidelines for the trading, clearing, settlement, and reporting of derivatives. Pilot programmes could help test these rules and allow for improvements before scaling up.
Investors need to learn how derivatives work; workshops, seminars, and partnerships with academic institutions can help bridge this gap. Inclusion of derivatives in university curricula would prepare future investors and professionals. Encouraging institutional investors like mutual funds, insurance companies, and pension funds to participate can improve market stability and trading volumes. Market makers can also be introduced to ensure liquidity by guaranteeing the presence of buyers and sellers.
Introduction of derivatives could deepen market activity and offer investors better tools for managing risks. However, this must be done gradually, with a strong focus on regulatory reforms, infrastructure upgrading, investor education, and liquidity enhancement. With the right steps, Bangladesh can successfully integrate derivatives into its capital market and unlock new opportunities for growth.
Md. Jakaria Hossain
Student of North South University
[email protected]
