The market structure of the Bangladesh share market can be understood by examining its components, participants, regulations, and trading mechanisms. Here’s an overview:
Stock Exchanges:
The stock exchanges in Bangladesh are essential institutions that facilitate the trading of securities, providing a platform for investors to buy and sell shares of publicly listed companies. Here are the primary stock exchanges in Bangladesh-
Dhaka Stock Exchange (DSE): Established in 1954, it is the primary stock exchange in Bangladesh, hosting the trading of equities, bonds, and mutual funds.
Chittagong Stock Exchange (CSE): Founded in 1995, it is the second-largest stock exchange, primarily dealing with equity securities.
Regulatory Bodies:
The primary regulatory body overseeing the Bangladesh stock market is the Securities and Exchange Commission of Bangladesh (SEC). Here’s an overview of its role, functions, and significance:
The SEC was established in 1993 under the Securities and Exchange Commission Act, 1993, as an independent regulatory authority. It operates under the jurisdiction of the Ministry of Finance, Government of Bangladesh, with the mandate to regulate and supervise the country’s capital markets.
Although the central bank of Bangladesh plays a role in regulating the banking sector, which has significant interactions with the capital markets.
Participants:
In the Bangladesh stock market, various participants play distinct roles in the buying, selling, and trading of securities. Here’s an overview of the key participants:
Investors: Individuals who invest their personal funds in stocks, bonds, and mutual funds through brokerage firms. Affluent individuals with substantial investable assets who often engage in direct equity investments or portfolio management services.
Institutional Investors:
- Commercial banks and investment banks participate in the stock market by investing their own funds or managing portfolios on behalf of clients.
- Life and non-life insurance companies invest premiums received from policyholders in securities to generate returns.
- Asset management companies manage mutual funds, pooling funds from investors and investing them in diversified portfolios of stocks and bonds.
- Institutional investors managing pension funds invest in securities to fund future pension obligations.
- Overseas entities such as foreign funds, asset management firms, and sovereign wealth funds invest in the Bangladesh stock market.
Intermediaries:
- Full-Service Brokers: Offer a wide range of services, including research, advisory, and execution of buy/sell orders on behalf of clients.
- Discount Brokers: Provide execution-only services at lower commission rates, primarily catering to self-directed investors.
- Depository Participants (DPs): Facilitate the holding and transfer of securities in electronic form through the Central Depository System (CDS), operated by the Central Depository Bangladesh Limited (CDBL).
- Asset Management Companies (AMCs): – Manage mutual funds, collective investment schemes, and other investment vehicles, pooling funds from investors and investing them in diversified portfolios.
Market Makers: Designated brokerage firms act as market makers, providing liquidity by quoting bid and ask prices for securities and facilitating trading. In the Bangladesh share market, market makers play a crucial role in facilitating trading activities and ensuring liquidity. They are typically appointed by the stock exchanges and are responsible for providing continuous bid and ask prices for certain securities listed on the exchange. By quoting prices and providing liquidity, market makers help reduce bid-ask spreads and ensure smoother trading for investors. This role contributes to the efficiency and stability of the Bangladesh share market.
Issuers: In the Bangladesh share market, issuers typically include publicly traded companies that offer shares of their stock to investors through initial public offerings (IPOs) or subsequent offerings. These companies span various industries such as banking, telecommunications, manufacturing, and energy. Additionally, the government of Bangladesh may also act as an issuer by issuing bonds or treasury bills to raise funds for financing public projects or managing fiscal deficits. These issuers play a key role in the development and functioning of the Bangladesh share market by providing investment opportunities for investors and contributing to the overall economic growth of the country.
Regulators: The primary regulator overseeing the securities market is the Bangladesh Securities and Exchange Commission (BSEC). Established in 1993 under the Securities and Exchange Commission Act, the BSEC is responsible for regulating and overseeing the activities of the country’s stock exchanges, as well as ensuring investor protection, market integrity, and maintaining fair and efficient capital markets.
The BSEC regulates various aspects of the securities market, including:
- Licensing and supervision of stock exchanges, brokerage firms, merchant banks, and other market intermediaries.
- Approval of public offerings, including initial public offerings (IPOs) and subsequent offerings.
- Enforcement of securities laws and regulations to prevent fraud, market manipulation, and insider trading.
- Monitoring and surveillance of trading activities to maintain market integrity and stability.
- Investor education and awareness initiatives to promote a better understanding of investing and financial markets.
In addition to the BSEC, other regulatory bodies in Bangladesh, such as the Ministry of Finance and the central bank, Bangladesh Bank, may also have oversight roles in certain aspects of the financial system. However, the BSEC remains the primary regulatory authority specifically tasked with overseeing the securities market in Bangladesh.
While primarily responsible for regulating the banking sector, Bangladesh Bank also plays a role in overseeing the financial stability and systemic risk aspects of the stock market.
Auction Mechanisms:
- Opening Auction: Determines the opening price of securities based on the orders accumulated overnight.
- Closing Auction: Establishes the closing price of securities based on the orders received during the last minutes of the trading session.
Equity Market:
- The primary segment where shares of publicly listed companies are traded.
- Companies raise capital through Initial Public Offerings (IPOs) and subsequent secondary offerings.
Bond Market:
- Involves the trading of government bonds, corporate bonds, and other debt securities.
- Provides avenues for borrowing and lending, as well as diversifying investment portfolios.
Derivatives Market:
Currently at a nascent stage, with plans for introducing derivatives such as futures and options to manage risk and enhance market efficiency.
Market Infrastructure:
- Trading is predominantly conducted electronically through computerized trading systems operated by the stock exchanges.
- Settlement of trades occurs through the Central Depository System (CDS), operated by the CDBL, which facilitates the transfer and registration of securities in dematerialized form.
Challenges and Future Directions:
- Enhancing transparency in trading activities and corporate disclosures to instill investor confidence.
- Improving market depth and liquidity to attract greater participation from institutional and foreign investors.
- Strengthening regulatory oversight and enforcement mechanisms to combat market manipulation and insider trading.
- Promoting innovation, diversification, and product development to deepen the capital markets and support economic growth.
In summary, the market structure of the Bangladesh share market comprises multiple components, participants, and trading mechanisms, underpinned by a regulatory framework aimed at ensuring transparency, integrity, and investor protection. Despite facing various challenges, the market continues to evolve, driven by ongoing reforms and initiatives aimed at fostering its development and integration into the global financial system.
Source:-
Book: Investment Opportunity
Author: Hasan Kabir Jony
