Fresh initiatives to activate secondary bond market
Sunday, 30 September 2007
Siddique Islam
A series of fresh initiatives have been taken to activate the country's secondary bond market through revamping trading of the government approved securities in the stock exchange.
The authorities concerned have taken the move to develop the secondary bond market as a new window for investments for banks and financial institutions, official sources said.
The initiatives were taken at a joint meeting of the Ministry of Finance, Bangladesh Bank (BB), the Securities and Exchange Commission (SEC), the Dhaka Stock Exchange (DSE) and nine primary dealers (PDs) held at the DSE Thursday last.
During the meeting, the central bank proposed to create an alternative platform exclusively for PDs to promote transactions of the government bonds in the stock exchange.
While the SEC suggested that at least top 10 brokerage firms, which have higher net-weight, might be treated as the PDs to activate trading of the government bonds, meeting sources said.
The meeting decided that the PDs will have to take responsibility for marketing of the bonds through creating awareness among the investors.
Besides, the meeting gave a PD bank the responsibility to submit a report relating to transaction costs of the bonds in the stock exchange within a week.
"We want to resolve the problems hindering trade in bonds in the stock exchange. We have to do it," Chief Executive Officer of the DSE Salahuddin Ahmed Khan told the FE Saturday.
He also said the DSE will continue its efforts to activate the country's secondary bond market.
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 as 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.
A series of fresh initiatives have been taken to activate the country's secondary bond market through revamping trading of the government approved securities in the stock exchange.
The authorities concerned have taken the move to develop the secondary bond market as a new window for investments for banks and financial institutions, official sources said.
The initiatives were taken at a joint meeting of the Ministry of Finance, Bangladesh Bank (BB), the Securities and Exchange Commission (SEC), the Dhaka Stock Exchange (DSE) and nine primary dealers (PDs) held at the DSE Thursday last.
During the meeting, the central bank proposed to create an alternative platform exclusively for PDs to promote transactions of the government bonds in the stock exchange.
While the SEC suggested that at least top 10 brokerage firms, which have higher net-weight, might be treated as the PDs to activate trading of the government bonds, meeting sources said.
The meeting decided that the PDs will have to take responsibility for marketing of the bonds through creating awareness among the investors.
Besides, the meeting gave a PD bank the responsibility to submit a report relating to transaction costs of the bonds in the stock exchange within a week.
"We want to resolve the problems hindering trade in bonds in the stock exchange. We have to do it," Chief Executive Officer of the DSE Salahuddin Ahmed Khan told the FE Saturday.
He also said the DSE will continue its efforts to activate the country's secondary bond market.
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 as 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.