Capital market far from being ready for diversification

Stakeholders including the securities regulator have laid much emphasis on removal of major barriers like legal bottlenecks and the inadequate financial literacy of many investors before diversifying the local capital market.
They also listed the limited regulatory capacity and the lack of the required level of professionalism of many stakeholders as the other major barriers constraining the market diversification, which is crucial for its further development.
The securities regulator and stakeholders said they proved major hurdles to introduction of new products for diversifying the local market.
A diversified capital market has different products like bonds, debentures, debt instruments, equity instruments, derivatives, options and structured financial instruments.
But the capital market in Bangladesh has only two products such as equities and bonds.
The ministry of establishment last month gave its consent to create 341 more posts as part of the move to enhance the working capacity of the Bangladesh Securities and Exchange Commission (BSEC).
Prof. Helal Uddin Nizami, a BSEC commissioner, said introduction of new products also required amendment to existing rules.
"Some bodies of the securities regulator are working to bring amendments to securities rules in an effort to introduce new products. Infrastructure is also required for introducing a commodity market," Prof. Nizami said.
Nizami expressed his hope that the commodity exchange would be launched by June, 2017 and the Exchange Traded Fund (ETF) by June, 2016.
Another BSEC commissioner Arif Khan said the country's capital market was yet to get ready to introduce new products as the investors' financial literacy was still not up to the mark.
He said the scope of speculations would be created, if the barriers were not removed before introducing the new products.
"We have already formed a committee to formulate a guideline on introducing a nationwide Financial Literacy service. It is expected that the commodity market will be introduced in 2017 after formulating relevant rules and regulations," Mr Khan said.
According to him, across the world, bonds occupy a greater part of a diversified capital market. In view of that the market in Bangladesh is yet to be developed properly.
"The bond market cannot be developed without joint efforts of the ministry of finance (MoF), the Bangladesh Bank (BB), the revenue board and the securities regulator," Mr Khan said.
Former chairman of the securities regulator Faruq Ahmad Siddiqi said the small size of the local capital market remained the main barrier to making it diversified.
"First of all, the bond market should be developed through proper coordination of the securities regulator and the central bank," Mr. Siddiqi said.
Dhaka Stock Exchange (DSE) Managing Director Dr. Swapan Kumar Bala said legal constraints were holding back the market diversification.
"Previously, technology was one of the major barriers to introducing new products. The premier bourse has introduced next-generation trading software having the capability of supporting trade in new products," Mr Bala said.
He said the regulator would decide whether the ETF would be launched under a new guideline or after amendment to the existing rules.
An ETF is a pooled investment vehicle with units that can be bought or sold throughout the day on a stock exchange at a market-determined price. Like a mutual fund, an ETF offers investors a proportionate share in a pool of stocks, bonds and other assets.   
A core committee of the securities regulator recommended launch of the ETF as a collective investment scheme under the existing Securities and Exchange Commission (Mutual Fund) Rules, 2001, officials said.
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