Overview of Bangladesh Capital Markets

Introduction

Overview of Bangladesh Capital Markets

Capital Market mainly refers to the Stock and Share market of the country. When banking system cannot totally meet up the need for funds to the market economy, capital market stands up to supplement it. Companies and the government can raise funds for long term investments via the capital market. The capital market includes the stock market, the bond market, and the primary market. Securities trading on organized capital markets are monitored by the government; new issues are approved by authorities of financial supervision and monitored by participating banks. Thus, organized capital markets are able to guarantee sound investment opportunities. This paper reveals the various aspects of the Capital Market in Bangladesh.

Definition

Capital market can be termed as the engine of raising capital, which accelerates industrialization and the process of privatization. In other words, capital market means the share and stock markets of the country. It is a market for long term fund.

Objectives

Capital market, being an essential element of today’s economy, demands an intensive and special attention. The objective of this study is to look into every aspect of Bangladesh capital market and identify its various pros and cons along with some recommendations to overcome the existing problems. The specific objectives of this study are:

• To give an overall idea about the capital market-its structures, functions, importance, etc.
• To identify the current situations of our capital market of Bangladesh.
• To compare the relative conditions of Bangladesh capital market to other countries of the world.
• To sort out the problems associated with our capital market.
• To suggest some practicable solutions to these problems.

Functions

The functioning of an efficient capital market may ensure smooth flotation of funds from the savers to the investors. When banking system cannot meet up the total need for funds to the market economy, capital market stands up to supplement. To put it in a single sentence, we can therefore say that the increased need for funds in the business sector has created an immense need for an effective and efficient capital market. It facilitates an efficient transfer of resources from savers to investors and becomes conduits for channeling investment funds from investors to borrowers. The capital market is required to meet at least two basic requirements: (a) it should support industrialization through savings mobilization, investment fund allocation and maturity transformation and (b) it must be safe and efficient in discharging the aforesaid function. It has two segments, namely, securities segments and non-securities segments.

Features of the Capital Market

1. Link between Savers and Investment Opportunities: Capital market is a crucial link between saving and investment process. The capital market transfers money from savers to entrepreneurial borrowers.
2. Deals in Long Term Investment: Capital market provides funds for long and medium term. It does not deal with channelizing saving for less than one year.
3. Utilizes Intermediaries: Capital market makes use of different intermediaries such as brokers, underwriters, depositories etc. These intermediaries act as working organs of capital market and are very important elements of capital market.
4. Determinant of Capital Formation: The activities of capital market determine the rate of capital formation in an economy. Capital market offers attractive opportunities to those who have surplus funds so that they invest more and more in capital market and are encouraged to save more for profitable opportunities.
5. Government Rules and Regulations: The capital market operates freely but under the guidance of government policies. These markets function within the framework of government rules and regulations, e.g., stock exchange works under the regulations of SEBI which is a government body.

Rules and Regulations

DSE follows following rules for conducting safe, efficient, and reliable stock trade in Bangladesh.
Listing Terms

• Listing Regulation 1999
• Direct Listing
• Process of Listing
• Settlement of Stock Exchange TR -98
• Automated Trading Regulations – 99
• Investors Protection Fund Regulation – 99
• Margin Rules – 99
• Members Margin Regulation – 2000
• DSE Board & Admin Regulation - 2000

Problems

Securities markets in Bangladesh encountered problems both from supply side issues and demand side issues. The status and development of Bangladesh stock market has to be examined when to diagnose the problems and perceive their causes. Some problems of the Capital Market of Bangladesh are mentioned below:

• Lack of infrastructure and physical facilities
• Existence of only dealer-broker-members (no specialist/market maker)
• Market dominated largely by unsophisticated investors
• Lack of diversity in products' availability in the market 
• Inefficient capital market—both operational and informational
• Lack of proper and adequate disclosures
• Certifiers of financial statements and property evaluators of the company are the same/identical
• Management and Owners (Councilors) of DSE are entwined
• Lack of enforcement with the compliance of rules and regulations
• Corporate governance—sponsor-owners are managing the firm. In al-most all cases, no professional managements are hired to run the affairs of the listed company.
• Lack of ethical orientation, education about capital & securities markets.
• Lack of trust, self-respect among interest groups. These are important preconditions for building up a healthy and investment friendly market atmosphere.
• Lack of potential securities and narrow options for the investors.
• Disclosure problem-inadequate disclosure, concealment of facts or some-times fabricated disclosures appear in the annual reports. 

Measures to Be Taken to Resolve the Problems

Capital market development is related with the financial deepening, which in turn, depends on effective financial intermediation as well as on the availability of a wide variety of financial instruments. So now a days in respect of socio economic condition in Bangladesh it is a burning needs to overcome or resolve the problem of capital markets. The following measures can be undertaken for the development of capital market:

• The listed companies that pay regular dividend should be given tax incentives and tax rebates as well.
• The mode of privatization of industries will be implemented through public issue of shares. This will deepen the securities market, diffuse ownership and bring in market disciplines.
• The government should off-load its equity holdings in SOEs and MNCs through stock market. This will improve the supply of securities in the market.
• Bond market needs to be developed. The implementation of government securities with medium-term and long-term maturities will also broaden the base of bond market.
• Establishment of a separate judicial security tribunal for dealing with cases related to securities market.
• Disclosure of information to the public in the fullest possible dissemination system can make the people aware about the latest situation.

Conclusion

In Bangladesh we have a capital market that is yet to be further nurtured to get the fruit out of it. Without doing this we cannot undergo heavy industrialization and other capital based development. We have various problems like the market has been suffering from inadequacy of good scripts. Out of around three thousands public companies, only two hundred and twenty have issued securities keeping` a large number away from the securities market. It is further observed that Government is still holding lion portion of many blue chip company shares. We must overcome these sort of problem to strengthen our capital market. Various methods and policies may be adapted regarding this, but the investors’ mindset is one of the most important thing that must be changed to ensure the development of the market. If we can strengthen the market properly, it is only then we can have a sound economy in terms of capital and related developments in our country.