Secondary market for corporate bonds should grow properly

The growth potential of Bangladesh is yet to be fully realised, despite the country has an 'amazing growth' story in recent years.
Paul Smith, the president and chief executive officer (CEO) of CFA Institute, USA, told the FE in an interview.
"……..I think the growth potential of Bangladesh is yet to be fully reaped. The country's population is very young, and the adoption of information technology in business and in communications is very fast," Smith noted.
The CFA (Chartered Financial Analysts) credential is the most respected and recognised investment designation in the world.
The Board of Governors of the CFA Institute, USA, so far approved 147 charter societies, including the CFA Society Bangladesh, aiming at investment profession globally by promoting the ethics and professional excellence of the CFA charter holders.
Smith, the president and CEO of the CFA Institute, USA, said the country's stock market is still relatively small compared to the size of the economy.
"The secondary market for corporate bonds is almost non-existent. These markets need to grow and function properly for Bangladesh to realise its growth potential."
The percentage of the country's market capitalisation to GDP ratio is around 19 per cent, whereas the same ratios of other countries, including India, having significant size of economy are ranging 35 per cent to above 150 per cent.     
 While stressing the need for faster growth of economy, Smith also suggested that the Bangladesh would need a 'financial services industry' that is much bigger than the one it has today.
"The financial service industries in the country, especially the insurance and pension industries, are still very small. They have a lot of room to grow," said Smith.
On November 12 last, the Board of Governor of the CFA Institute, USA recently approved the newly emerged CFA Society Bangladesh. Some 54 Bangladeshi professionals so far achieved the CFA designation.
Asked about the implications of the CFA Society Bangladesh for the country's economy and stock market, Smith said the local society can contribute to the country's financial markets in a number of ways.
"They can help create a pool of qualified and ethically-committed investment professionals by promoting the CFA designation in the country," Smith mentioned.
"Remember that these professionals possess exactly the same qualification as their peers in New York or in London," Smith said while attributing the CFA charter holders of Bangladesh.
He said the CFA Charter holders can engage with the regulators and government agencies and assist them in formulating financial market policies and rules and in promoting ethical practices.
"CFA Institute will fully support all the good work of CFA Society Bangladesh."
In his answer to another question regarding the short-term investments, Smith said individual investors are very active in the stock market of Bangladesh.
"The country needs to create a strong base of institutional investors, such as insurance companies and pension funds to have long-term oriented investment objectives," Smith observed while emphasizing the importance of investors' education.
He said the Bangladesh Securities and Exchange Commission (BSEC), the stock exchanges and CFA Society Bangladesh can play critical roles in developing the stock market.
"Enhance enforcement mechanisms, and promote fairness in regulation across markets. Work with the industry to encourage investment practices that enhance investor safeguards and market integrity."
For diversifying the capital market, the president of CFA Institute Mr. Smith suggested to keep pace with new investment products and services to ensure they are serving investors.
While mentioning the correlation between taxation policy and development of stock market Smith said,"…the taxation policy of the country can help bring long-term orientation among investors."
He said the capital gains from long-term holdings can be taxed at lower rates than the capital gains from short-term holdings.
In this regard, Smith, who earlier was the manager of hedge funds, said the asset management industry of Bangladesh is still very small.
"During the economy transition process, the country will have more middle-class families and individuals, no doubt a healthy pension system will be developed and the capital market will continue to grow, hence the asset management industry is set to grow healthily."
The total assets under the asset management industry are about 2.0 per cent of total market capitalisation of Bangladesh.
Smith also said an effective regulatory environment is also very important for the growth of capital market and asset management industry.
"Investors deserve an underlying investment environment that is fair and transparent, and they have the right to be served by professionals who act as fiduciaries of their savings," Smith said.
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