Publication: Bangladesh - Non-Lending Technical Assistance on Capital Markets
Date
2011-06
ISSN
Published
2011-06
Author(s)
World Bank
Abstract
The Bangladesh stock market experienced
significant volatility in late 2010 and early 2011 which
took stock values high above fundamentals and threatened the
stability of the financial system. This note takes a
systematic look at the capital markets underpinnings in
Bangladesh, including the regulatory framework, the
rule-making bodies and enforcement issues. It also addresses
systemic weaknesses responsible for market instability which
was observed at the end of 2010 and early 2011. The note
analyses the outlines specific areas of potential
vulnerabilities of securities markets, as assessed against
appropriate practice guidelines for stability,
sustainability, transparency, and enforcement. A plan of
action going forward is also suggested. This note draws on a
considerable amount of prior analytical work. Bangladesh
capital markets remain ineffective. The government debt
securities markets are illiquid preventing the Bangladesh
financial system from relying on a market-based yield curve.
Bangladesh has yet to develop an active money market.
Trading of treasury bills in the secondary market is limited
because these instruments, along with treasury bonds, make
up the statutory liquidity reserve and are therefore
generally held until maturity by commercial banks and other
financial institutions. Trading is also thin in repurchase
agreements, for two main reasons. First, commercial banks
have a weak treasury function, and most do not actively
manage liquidity. Second, there is no standard master
repurchase agreement, a gap that should be addressed to
support orderly development of the repo market.
Citation
“World Bank. 2011. Bangladesh - Non-Lending Technical Assistance on Capital Markets. © Washington, DC. http://openknowledge.worldbank.org/entities/publication/b64a1a9a-bc50-582c-b730-f1641b27100c License: CC BY 3.0 IGO.”