7-point proposal to boost securities market

FE Report (September 26, 2010)

The Primary Dealers Bangladesh Limited (PDBL) has proposed a seven-point proposal including introduction of the market driven interest rate on the government treasury bills and bonds.

"Introduction of the market driven interest rate will encourage investors to invest more funds in the government securities that will also help raise the number of participants in the market," a senior PDBL member told the FE Saturday.

He also said the PDBL has submitted the proposals to the central bank recently for bringing dynamism in the country's securities market.

The PDBL has prepared such recommendations using Sri Lankan experience on securities market, he added.

A 15-member PDBL delegation visited Sri Lanka from June 7 to June 11 this year to explore the market potentialities and gather experience of primary dealership business.

"We're securitising the proposals considering the country's overall economic situation," a senior official of the Bangladesh Bank (BB) told the FE Saturday without elaborating.

The country's primary dealer banks and financial institutions' apex body also requested the central bank to take joint coordinated promotional activities on government securities among domestic and foreign investors.

Under the initiative, Debt Management Department (DMD) of the central bank and the PDBL may take up jointly coordinated promotional activities on government securities among domestic and foreign investors.

"We also want to amend or activate the existing law aiming to increase investment in government securities by the insurance companies and different funds like provident fund, pension fund and superannuation fund," the PDBL member added.

He also said accounting process of revaluation gain or loss on held for trading (HFT) of securities would be revised to know the real position of the financial statement of financial institutions.

Currently, the securities that are held by the banks in addition to meet their statutory liquidity requirement (SLR) will be identified as held for trading (HFT).

Besides, the securities that are held by the banks to meet their SLR with the central bank will be treated as HTM (held to maturity).

The PDBL has proposed to allow only PD banks and financial institutions for participation in the primary auction of the government securities.

"We've also recommended introduction of electronic trading and bidding platform for the government securities," he said, adding that the PDBL wants repurchase agreement (repo) support under the standing facility in addition to existing assured liquidity support in order to minimise PDs liquidity risk exposure.

The central bank of Bangladesh earlier selected 15 PDs - 12 banks and three non-banking financial institutions (NBFI) - to handle government-approved securities in the secondary bond market and issued a guideline for them.

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.