Separate DSE floor proposed for trading govt-approved securities

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Siddique Islam
Creation of a separate floor at the Dhaka Stock Exchange (DSE) has been proposed for trading only government-approved securities aiming to bring dynamism in the secondary bond market.
Besides, the proposed platform will run along with the existing over-the-counter (OTC) trading system of the government securities, official sources said.
The proposal came at special meeting on development of the country's secondary bond market, held at the central bank Thursday with the Executive Director of the Bangladesh Bank (BB) Yasin Ali in the chair.
Senior officials of the different related organisations, including the Ministry of Finance, the Securities Exchange Commission (SEC), the DSE, the Office of the Chief Controller of Insurance and the Central Depository Bangladesh Limited (CDBL) attended the meeting.
Visiting International Monetary Fund's Consultant T Rabi Sankar, who is also Deputy General Manager of the Reserve Bank of India (RBI), the central bank of India, presented a keynote paper at the meeting.
The participants at the meeting discussed various issues relating to development of the country's secondary bond market and decided to work jointly to activate the market.
The officials of the Chief Controller of Insurance have already started process to amend the existing insurance act intending to allow more investment in government securities by the insurance companies, particularly the life insurance ones.
Currently, the life insurance companies are allowed to invest a maximum of 30 per cent of their total life funds available.
The primary dealers (PDs) earlier proposed to amend such act allowing more investment from the life insurance companies for development of the country's secondary bond market.
"We will examine the proposals for development of the secondary bond market," a BB senior official, who attended the meeting, told the FE Thursday.
He also said the different organisations involved in the bond market will discuss the issue further.
Under the proposals, the PDs will initially operate the new platform at the DSE like brokerage firms to facilitate investors, especially small ones.
Sources, however, said some selective brokerage firms, which have higher net-weight, will also be able to trade such bonds on behalf of the PDs in future.
The authorities concerned took the move aiming to develop the secondary bond market as a new window for investments for banks and financial institutions, the sources added.
"We are taking steps to bring dynamism in the secondary bond market," Chief Executive Officer of the DSE Salahuddin Ahmed Khan, who also attended the meeting, told the FE.
He also said: "We are hopeful about creating an effective secondary bond market within a few months."
The trading of bonds has started in the DSE since January 1, 2005 aiming to facilitate the general investors.
The general investors are yet to participate in the trading of saving instruments due mainly to higher transaction costs and other problems, sources in the market said.
"One or two banks have transacted in bonds to meet their internal demand. But general investors have not bought such bonds," a DSE senior official said.
Earlier, the central bank selected nine PDs - eight banks and a non-banking financial institution (NBFI) - to handle government-approved securities in the secondary bond market and issued a guideline for them.
The central bank has already amended the guidelines for PDs allowing commission and liquidity support to activate the secondary bond market.
Under the amended guidelines, each of the bank and non-bank PDs will underwrite a minimum of 12 per cent and 4.0 per cent of the auction amount respectively for fiscal year 2007- 08 until further notice.
"The PDs will be paid underwriting commission at a rate that may be determined by the government from time to time," the central bank said in its amended guidelines, issued recently.
The PDs will subscribe and underwrite primary issues and make secondary trading deals with two-way price quotations.
A PD will not short-sell any particular issue and will not hold a short position in secondary dealings. The PDs will not act as inter-bank or inter-dealer brokers as specified in the guideline.
Currently, four government bonds - 5-year, 10-year, 15-year and 20-year -are being traded in the markets.