BB to introduce DVP system by month-end
Wednesday, 16 December 2009
Siddique Islam
The central bank is going to introduce a 'delivery versus payment' (DVP) system by the end of this month to boost transactions of the government securities in the secondary market.
"The new settlement system will come into effect from January 1, 2010," a senior official of the Bangladesh Bank (BB) told the FE Tuesday.
The BB official also said the central bank is now working on introduction of the settlement system aiming to bring dynamism in trading of securities in the secondary market by minimising counterparty risk.
Under the new system, the central bank will take responsibility of both securities and fund to avoid any counterparty risk.
Currently, the BB transfers fund from the sellers account to buyer bank accounts in case of repurchase agreement (repo) and reverse repo.
In South Asia, India and Pakistan have already introduced the DVP settlement system to boost the transactions in their secondary markets.
"The central bank will play a role of a catalyst to settle the deals of securities on the same day under the new arrangement," another BB official said, adding that the DVP system is imperative for improving the country's secondary market.
The market operators welcomed the BB's latest move, saying that the new international standard transaction settlement system might help boost the trading of securities in the secondary market.
"The counterparty risk will be totally removed after introduction of the DVP system that would be able to attract banks, particularly foreign commercial banks, in the secondary market transaction," a senior treasury official of a private commercial bank told the FE.
Currently, three treasury bills (T-bills) are being transacted through auctions to adjust the government borrowing from the banking system.
The T-bills have 91-day, 182-day and 364-day maturity periods.
On the other hand, four government bonds -- 5-year, 10-year, 15-year and 20-year -- are being traded.
A focus group on secondary market and settlement systems of bond market earlier recommended that the central bank could act as an interim agent to ensure DVP for settlement of the government securities in secondary market.
"Due to low capital base of many of the players in the market it is essential to have a DVP in place," the group suggested in its report, submitted to the central bank for taking necessary measures for improvement of the market.
The group revealed that many banks did not transfer securities in time mainly due to lack of training and system faults. "This is a significant concern as transfer of securities is mandatory for deal settlement and may cause serious reconciliation problems," the group observed.
The central bank is going to introduce a 'delivery versus payment' (DVP) system by the end of this month to boost transactions of the government securities in the secondary market.
"The new settlement system will come into effect from January 1, 2010," a senior official of the Bangladesh Bank (BB) told the FE Tuesday.
The BB official also said the central bank is now working on introduction of the settlement system aiming to bring dynamism in trading of securities in the secondary market by minimising counterparty risk.
Under the new system, the central bank will take responsibility of both securities and fund to avoid any counterparty risk.
Currently, the BB transfers fund from the sellers account to buyer bank accounts in case of repurchase agreement (repo) and reverse repo.
In South Asia, India and Pakistan have already introduced the DVP settlement system to boost the transactions in their secondary markets.
"The central bank will play a role of a catalyst to settle the deals of securities on the same day under the new arrangement," another BB official said, adding that the DVP system is imperative for improving the country's secondary market.
The market operators welcomed the BB's latest move, saying that the new international standard transaction settlement system might help boost the trading of securities in the secondary market.
"The counterparty risk will be totally removed after introduction of the DVP system that would be able to attract banks, particularly foreign commercial banks, in the secondary market transaction," a senior treasury official of a private commercial bank told the FE.
Currently, three treasury bills (T-bills) are being transacted through auctions to adjust the government borrowing from the banking system.
The T-bills have 91-day, 182-day and 364-day maturity periods.
On the other hand, four government bonds -- 5-year, 10-year, 15-year and 20-year -- are being traded.
A focus group on secondary market and settlement systems of bond market earlier recommended that the central bank could act as an interim agent to ensure DVP for settlement of the government securities in secondary market.
"Due to low capital base of many of the players in the market it is essential to have a DVP in place," the group suggested in its report, submitted to the central bank for taking necessary measures for improvement of the market.
The group revealed that many banks did not transfer securities in time mainly due to lack of training and system faults. "This is a significant concern as transfer of securities is mandatory for deal settlement and may cause serious reconciliation problems," the group observed.