The securities regulator has further extended the time for market intermediaries to invest at least 4 per cent of their portfolios in listed debt securities to March 2024.
The time extension came following pleas of market intermediaries against the backdrop of the moribund state of the market.
Stock brokers say they could not comply with the investment requirement due to a shortage of additional funds and a limited number of listed debt securities to choose from.
To purchase the stipulated amount of debt securities, they will have to offload equity-based holdings from their own portfolios. In that case, the equity market will face further selling pressure.
Moreover, a majority of the stocks have been stuck at the floor, making it impossible to sell those for a lack of buyers.
The listed debt securities include 11 corporate bonds, 241 Treasury bonds and one green sukuk bond.
Most of the listed corporate bonds are perpetual, only 10 per cent of which have been offloaded in the secondary market.
On the other hand, Treasury bonds are yet to be available in the secondary market. The Bangladesh Securities and Exchange Commission (BSEC) created an opportunity for brokers to participate in auctions of such fixed-income securities conducted by the Bangladesh Bank but to no avail.
The move was aimed at increasing availability of the investment instrument for individual investors via stock brokers, but not a single stock broker has participated in the auctions.
The third option is green sukuk bonds, of which 25 per cent, equivalent to Tk 7.5 billion, were issued through an IPO (initial public offering).
In such a situation, both the associations of merchant bankers and stock brokers recently urged the securities regulator to extend the timeframe for compliance with the mandatory provisions of investing in fixed income securities.
In May 2021, the regulator asked merchant bankers, portfolio managers, asset managers and stock dealers to invest at least 3 per cent of their own portfolios in listed debt securities by June 2022.
Later, the market intermediaries were given an extended time until June 30 this year, with another provision of making at least 1 per cent investment in listed Treasury bonds. This 1 per cent was on top of the 3 per cent investment in listed debt securities.
The directives were aimed at reducing risk through diversification of the portfolios of market intermediaries.
Secretary General of the Bangladesh Merchant Bankers Association (BMBA) Md. Riyad Matin said most of the merchant bankers preferred Treasury bonds to other fixed-income securities.
"But the supply of such instrument is not adequate," he said.
In the latest directive, the BSEC said the market intermediaries that were required by their own or their parent company's charter to conduct business in accordance with Shariah regulations shall comply with the aforesaid obligations by investing in Shariah-based debt securities.
Md. Sajedul Islam, senior vice president of the DSE Brokers Association of Bangladesh, said stock brokers have investments worth around Tk 55 billion in their own portfolios.
"The stock brokers are required to purchase debt securities worth around Tk 1.65 billion which is yet to be possible due to a shortage of funds and insufficient amount of the securities."
Meanwhile, some asset management companies said they had injected the required amount of funds into Treasury bonds. They purchased T-bonds from the primary dealer banks that participated in the BB auctions.
Shahidul Islam, chief executive officer (CEO) of VIPB Asset Management, said around 18 per cent of the portfolios of their five mutual funds had been invested in debt securities.
© 2024 - All Rights with The Financial Express
