BB to launch DVP system to gear up transactions of securities
Thursday, 2 April 2009
Siddique Islam
The central bank is going to introduce a 'delivery versus payment' (DVP) system shortly to gear up transactions of the government approved securities in the secondary market, officials said.
Under the new settlement system, the Bangladesh Bank (BB) will take responsibility of both securities and fund to avoid any counterparty risk.
Currently, the central bank transfers fund from the sellers account to buyer bank accounts in case of repurchase agreement (repo) and reverse repo.
"We're now working on introduction of the settlement system aiming to bring dynamism in trading of securities in the secondary market through minimising counterparty risk," a BB senior official told the FE Wednesday.
He also said the central bank will issue a circular in this connection within this month asking the banks and financial institutions to follow the new settlement practices of securities to avoid any financial risk.
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 under the new arrangement," another BB official said, adding that the DVP system is imperative for improving the country's secondary market.
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 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 central bank is going to introduce a 'delivery versus payment' (DVP) system shortly to gear up transactions of the government approved securities in the secondary market, officials said.
Under the new settlement system, the Bangladesh Bank (BB) will take responsibility of both securities and fund to avoid any counterparty risk.
Currently, the central bank transfers fund from the sellers account to buyer bank accounts in case of repurchase agreement (repo) and reverse repo.
"We're now working on introduction of the settlement system aiming to bring dynamism in trading of securities in the secondary market through minimising counterparty risk," a BB senior official told the FE Wednesday.
He also said the central bank will issue a circular in this connection within this month asking the banks and financial institutions to follow the new settlement practices of securities to avoid any financial risk.
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 under the new arrangement," another BB official said, adding that the DVP system is imperative for improving the country's secondary market.
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 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.