The guidelines by the securities regulator for general investors to participate in primary auctions of T-bonds would increase their accessibility of such securities but would not help the bond market thrive.
In the "process flow" published on Thursday, the Bangladesh Securities and Exchange Commission (BSEC) set out the role of the brokerage firms that will forge a link between investors and member dealer banks or primary dealer banks to help them purchase T-bonds from auctions conducted by the Bangladesh Bank. But T-bonds will have to be available in the first place so that investors can buy them.
The prevailing trend is that the government sells bonds to the Bangladesh Bank at lower interest rates to keep the cost of borrowings low.
That even makes auctions for T-bonds irrelevant or not lucrative for primary dealer banks let alone individual investors of the capital market.
"The demand [for T-bonds] will remain thin if the government does not come out of its motive of collecting funds at lower interest rates," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (RPI).
Funds, such as pension and gratuity funds and even the social security fund that the government is going to form should purchase T-bonds to boost the demand side, he added.
Echoing the view of Mr Mansur, Ashequr Rahman, managing director of Midway Securities, said bond yields should be better to attract funds.
T-bonds that remain undersubscribed in auctions [the primary market] will not attract investors in the secondary market too, as is the case with undersubscribed shares in an Initial public offering, he said.
"So, the primary market of the T-bonds is very important. That market should be vibrant for the sake of the secondary market," he added.
The government should issue long-term maturity bonds to strengthen the supply side, Mr Mansur said. Such securities provide yields at higher rates.
Long-term bonds have been issued on a limited scale and the holders of the bonds do not want to trade those in the secondary market.
Experts and secondary market operators, however, appreciated the move to improve the accessibility of T-bonds for general investors.
Until now, investors have had little scope of buying the fixed-income assets as the investment instruments have not been much available in the secondary market, and they did not have access to the BB auctions.
How to participate in BB auctions
As per the BSEC directive issued on Thursday, a stock broker will open a bank account with a member dealer (MD) bank to collect money from its client who intends to purchase T-bonds.
Investors' funds worth at least Tk 0.1 million or its multiples will be transferred into the bank account from the consolidated customers' account (CCA).
The stock broker will also open an omnibus BO (beneficiary owner's) account with the CDBL (Central Depository Bangladesh Limited) for the auction and maintain a Business Partner Identification (BPID) Number.
An MD bank will take part in the auction on behalf of the stock broker, and the fund will be transferred to the central bank.
On completion of the auction, the purchased units of the T-bonds will be transferred into the broker's omnibus BO account, and subsequently the units will be sent to its client's BO account.
Tanay Kumar Roy, head of equity research at IDLC Securities, said a greater number of investors will now engage in bond auctions -- via brokerage firms, and so there is a possibility that liquidity flow will rise in the secondary bond market under the stock exchanges.
Concerns arising out of the new system
But multiple channels to trade T-bonds may curtail the chance of the secondary market to flourish, said Ashequr Rahman, MD of Midway Securities.
Investors now get three platforms for offloading such fixed-income securities. They can offload holdings through the MI module of the central bank. In absence of any buyer there, they can request the dealer bank to purchase securities. And the third place is the secondary market.
"The secondary market should be the only option for offloading the T-bonds to make the bond market vibrant," added Mr Rahman.
Another concern is that stock brokers that will be playing a vital role in facilitating the access to auctions will get a nominal charge for the task.
The existing brokerage commission rate is 0.1 per cent of a transaction volume, and the whole amount charged on each transaction cannot exceed Tk 1,000. The commission payment for bond trading at the current rate is lower than what brokers get against transactions of equity-based securities.
That may dissuade brokerage firms from taking on the responsibility.
Mr Rahman, however, would like to look at the situation optimistically. He said, "It's a start and the brokerage commission rate can be revised time to time,"
An official of another brokerage firm said T-bonds would be an alternative investment option for investors when the equity market is volatile.
"As a result, the funds will stay in the market."
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