Detail Masterplan 2012 2022
Detail Masterplan 2012 2022
1.1 Introduction
The capital market of Bangladesh is considered to be one of the emerging markets in the context of the
global financial system. The market has immense potentials for countrys industrialization, development of
infrastructure in particular and economic growth in general. The extent of volatility in the capital market is
more pronounced in Bangladesh than elsewhere in the world. The government and the Securities and Exchange Commission (SEC) have undertaken a good number of initiatives to meet Bangladesh's development financing requirements with a particular focus on developing long term infrastructure financing and
strengthening financial stability through promotion of capital market. In this regard formulation of a Master
Plan is of crucial importance.
Besides Planning, it is also of utmost significance to establish appropriate arrangements to ensure the successful implementation of the Master Plan for the development of Bangladesh capital market. A large number of reforms are necessary to put the capital market on a trail of sustainable growth. The implementation
arrangements have to be robust so that timely and consistent implementations of policy actions can take
place. It is also required to guard against policy reversal, where the implementation arrangements will come
in action once more.
The arrangements must be flexible so that any unforeseen events can be properly addressed. In order to
engage highly skilled knowledgeable human resources, adequate resources must be allocated. A monitoring and evaluation framework, with a feedback loop, must be at work to make the process accountable.
This will allow the changes to be made to the plan when the situation demands. Trans-partisan commitment
from the highest level of the government and all stakeholders is also necessary in this regard. This is a prerequisite for the successful implementation of the Master plan. Adequate technical assistance is required
from time to time to support implementation and ensure consistency with international standards of best
practices.
The master plan aims to achieve transparency, accountability and efficiency in the market and strengthen
the Securities and Exchange Commission as a regulatory body. In this backdrop and having recognized
the need for vibrant capital markets to meet the national growth targets, the Securities and Exchange
Commission hereby adopts this Master Plan for Bangladesh capital market development.
1|Page
Implementation arrangements ;
Legal and Regulatory Initiatives ;
Bond Market Initiatives;
Financial Market Infrastructure Initiatives;
Institutional Investor Initiatives;
Derivatives and Securitization Initiatives;
Taxation Initiatives
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Responsi
ble Party
SEC
Initiative
Time Frame
Immediate
Short Term
Immediate
Short Term
Short Term
Short Term
SEC
SEC
I5
Short Term
SEC
I6
Short Term
Long Term
SEC
I7
Reevaluate master plan/road map and modify based on lessons learned from M&E
Short Term
Long Term
SEC
I1
I2
I3
I4
SEC
We recognize that there will be a multitude of reforms necessary to put the capital markets on a sus
tainable growth/development path. This is a large task to undertake and finance. The costs of imple
menting these reforms are likely to be significant. Implementation is likely to be a complex process re
quiring political will, persistence, patience, adequate resources, flexibility and significant skill in manag
ing the competing interests of all of stakeholders in the process. The implementation arrangements will
be robust to ensure the timely and consistent implementation of policy actions, and to guard against
policy reversal. These implementation arrangements will include:
Leading the implementation effort will be a complex task. The people in the leadership positions will
need to be wellexperienced in Bangladeshs capital markets and wellrespected by the industry. We
recognize that it is unlikely that it would be possible to attract qualified persons to undertake such a
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challenging task under the government pay scale, so arrangements need to be made to provide ade
quate compensation in order to attract and retain qualified leadership.
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Responsi
ble Party
SEC
Initiative
Time Frame
Immediate
Short Term
Immediate
I10
Immediate
I11
Amend (Parliament) section 9 of the SEC Act to empower SEC to appoint requisite num
ber of staffs
Institute a program and establish a forum for high level coordination of the SEC and BB*
Execute MOU between SEC and BB on the collection and sharing of supervisory informa
tion
Authorize SEC to enter MOUs with foreign regulators within parameters
immediate
Short Term
I16
I17
Activate Joint Inspection Team and conduct joint inspections of jointlyregulated insti
tutions (e.g. merchant banks, etc.)
Develop uniform margin standards applicable to entire financial sector*
Codify the securities laws
Immediate
Long Term
Immediate
Short Term
I18
I19
I20
Medium Term
Short Term
Short Term
I21
Short Term
SEC
SEC
SRMIC/SE
C
SEC/BICM
Short Term
SEC
Short Term
Short Me
dium Term
Short Term
Short Term
SEC
SEC
Medium Term
Short Long
Term
BB/MoF
SEC
I8
I9
I12
I13
I14
I15
I22
I23
I24
I25
I26
I27
I28
Immediate
Short Term
Parlia
ment
Parlia
ment
Parlia
ment
SEC & BB
SEC & BB
MoF/MoF
A
SEC & BB
SEC & BB
SEC
SEC
Exchanges
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I#
I29
I30
I31
I32
I33
Initiative
Time Frame
Adopt market conduct rule for intermediaries addressing account statement, internal
controls, KYC, and compliance monitoring by third parties
Begin strict enforcement of laws against insider short swing profits
Revisethe Takeover Rules
*
Develop bettercalibrated riskbased capital requirements
Short Term
I36
Begin the transition to riskbased supervision and utilizationof early warning systems to
minimize risk of failure of an intermediary
Discontinue practice of disclosing investigations
Enhance investigation and enforcement capacity by recruiting and training lawyers and
investigators
Establish a specialized Capital Market Tribunal (CMT)*
I37
I38
I34
I35
I39
I40
I41
I42
Responsi
ble Party
SEC
Short Term
Medium Term
Short Me
dium Term
Short Long
Term
Immediate
Short Term
SEC
SEC
SEC
Immediate
Short Term
Immediate
Short Term
Short Term
Parlia
ment
Parlia
ment
SEC
Short Term
SEC
Medium Term
Short Term
Short Term
SEC
SEC
SEC
SEC
SEC
SEC
It is recognized that the SECs ability to perform the five essential functions of a regulator must be
strengthened, and we are committed to undertaking a number of initiatives to enhance the SECs abili
ties in these five areas, namely:
kets (e.g. potential international institutional investors) to assess/evaluate compliance with the various
laws and regulations (this is especially the case with respect to rules, regulations, orders and directives).
Some Initiatives are intended to address this problem.
We recognize that the SEC is, at its core, a law enforcement agency, yet it does not have a General
Counsel, and has very few lawyers on its staff. This is a serious deficiency which significantly reduces the
SECs effectiveness, not only in making rules and developing legislation, but in conducting investigations
and in enforcement. Initiative 23 is intended to rectify this problem.
2.2.4 Authorization of Participants and Practices
Given the preponderance of individual, relatively unsophisticated investors in the capital markets (indi
cating a low capacity to gather and analyze information), and the general lack of transparency (indicat
ing a high cost of obtaining information), it can be argued that one of the most important functions of
the SEC is to act in its capacity to authorize market participants1 and their practices. The challenges fac
ing the SEC in this regard range from a lack of internal capacity to oversee the stock exchanges to the
lack of a complete, comprehensive and credible system of assuring the professional integrity, knowledge
and proficiency of market professionals and holding them accountable for their actions.
Initiatives 18 through 2427 are intended to address these challenges. Consumers should be able to rely
on the SECs certification and authorization process to weed out bad actors (i.e. those who are poorly
trained, illinformed, unprofessional and/or unethical). SEC intends to enhance the professionalism, in
tegrity and accountability of the brokerage industry. While professionals in the brokerage industry are
already required to obtain training, they are not required to demonstrate their proficiency and knowl
edge, and they are not held accountable in the event they (or their subordinates) fail to adhere to pro
fessional standards. We recognize that this is a standard international best practice, and that its adop
tion in Bangladesh will raise the standards of our capital markets.
The SEC also authorizes the issuance of securities by issuers. This process has tended to be excessively
slow in Bangladesh and it has often been pointed out as a factor contributing to the stock market bub
ble, as it had the effect of constraining the supply of securities in the face of strong demand stimulated
by excess liquidity and lax margin rules. The primary factor contributing to this delay appears to be the
lack of adherence of submissions to the SECs requirements. Initiative 28 is intended to provide a
mechanism to clearly communicate and provide guidance to the issuer community on the SECs re
quirements with respect to the issuance of securities, and will enhance transparency in this regard.
In this context the term market participant refers to market professionals, intermediaries, market operators
(i.e. the stock exchanges), and securities issuers.
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end to this culture. Consequently, around the globe stock exchanges are now increasing changing their
business model and restructuring themselves through demutualization.
Demutualization, which separates the trading rights from the ownership and management of exchanges,
is widely practiced form around the globe to improve the governance structure of the exchanges. We
believe that exchanges should be subject to higher governance standards than is the norm currently
practiced. The creation of a board structure with balanced representation from trading community and
independent category shall bring in smooth functioning culture combing the business need as well as
upholding the public interest.
The separate functioning of a chief regulatory officer within the demutualized exchange is expected to
offer better investor friendly structure and at the same time shall ensure more confidence from the in
vesting community resulting in higher business volume for the members of the exchanges. Initiative 26
is undertaken aiming to resolve the mentioned governance issue of stock exchanges.
2.2.6 Monitoring and Investigating Market Participants
Having certified that a market participant has reached a standard to qualify for an authorization, there is
an implied obligation on the SEC to monitor the holder of that authorization to ensure that (s)he or it
maintains those standards. Monitoring is the sustained and routine observation of participants and re
lies on information that is publicly available or voluntarily made available. Monitoring includes both off
site supervision activities (i.e. reviewing reports and documents filed with the SEC) and onsite inspec
tion activities (i.e. inspecting the operations regulated entities). Its goals are to ensure that the protec
tions afforded under the laws, rules and regulations are in place and are operating well.
Investigations are conducted to determine whether or not a violation of the law is, has or is about to be
committed. They rely on the use of the SECs statutory or contractual powers to obtain information that
otherwise would not be available to it. A regulators investigative capacity depends on the investigative
tools available to it (i.e. ability to subpoena relevant records and documents, compel testimony under
oath, etc.), its skill and expertise in conducting investigations (i.e. controlling documents, examining wit
nesses, etc.) and evaluating the information collected.
With inclusion of the provision of direct access to banking records, the SEC possesses adequate powers
and tools for both monitoring and investigating. The challenge facing the SEC is one of a lack of capacity
the lack of knowledgeable welltrained staff in sufficient quantities, and the lack of adequate informa
tion systems to support monitoring and investigating teams in their efforts.
new surveillance system, and we are committed to the immediate implementation of this system. We
are also committed to implementing an electronic data gathering and retrieval system to enable the SEC
to receive regular reports from brokers/dealers (for offsite supervision) and receive and disseminate
regular (corporate disclosure) filings from listed companies. Initiative 29 is designed to accomplish this.
We recognize that implementing Initiative 30 and 31 in conjunction with 25 will strengthen the SECs
ability to oversee the stock exchanges. I18 is for the SECs department responsible for monitoring the
stock exchanges (SRMIC) to undergo intensive training in stock exchange oversight. SEC shall begin con
ducting comprehensive examinations of the two exchanges in Bangladesh for the stock exchanges to
develop and submit to the SEC their plans for protecting investors in view of their new governance and
incentive structures adopted as a result of their demutualization. It is expected that the implementation
of these recommendations, along with the SECs expected adoption of a comprehensive stateoftheart
surveillance system and procedures2, and a climate of stricter enforcement resulting from the imple
mentation of initiatives to enhance enforcement discussed below, will result in a more closely, and ef
fectively supervised and regulated securities market; one in which the abuses of the recent past are less
likely to recur.
Onsite inspection of intermediaries has suffered as a result of the SECs resource constraints. As a mat
ter of necessity, there has been a lack of emphasis on the inspection of nonbroker intermediaries.
Once the SEC is staffed at higher levels it will increase its onsite inspection activities, especially with re
spect to nonbroker market participants (e.g. merchant banks, mutual funds, issue managers, etc.).
In addition to the limited inspection capability caused by lack of resources, much needs to be done in
terms of basic protections for investor when dealing with brokers. They relate to the right to periodic
customer account statements; knowyourcustomer (KYC) suitability protections; antimoney laundering
protections; internal systems and controls that are designed to ensure that a firm is properly managed
and customers' interests are protected; supervisory responsibility rules that hold the officers and man
agers liable for failure to supervise and strengthened risk adjusted capital adequacy rules tailored to the
level and type of risks to which a firm is exposed. Initiative 3739 are designed to address these issues.
We recognize that an effective takeover regime that allows minority shareholders with legitimate griev
ances to discipline management and other insiders provides an important incentive to company insiders
(management and controlling shareholders) to manage the company in the best interest of all of its
shareholders. This is especially important in Bangladesh because of its weak disclosure incentives. The
Takeover Rule in Bangladesh has been suspended pending a review. We are committed to completing
this review and implementing an effective Takeover Rule as soon as practicable.
Direct access to banking records is a key investigative tool for a securities regulator. It is also an IOSCO
requirement. Initiative 31 (Authorizing SEC direct access to banking records) is crucial to complete the
SECs investigative toolkit. The SEC has proposed an amendment to the SEC Ordinance to that effect and
this amendment will be adopted by Parliament as soon as practicable.
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A final matter with respect to investigations is the common practice of the SEC of disclosing investiga
tions to the public before any determination of wrongdoing has been made. This practice unfairly sub
jects persons or firms under investigation to unwarranted and unfair publicity and can bring the subject
of such an investigation into disrepute regardless of whether such investigation has any merit. We rec
ognize that the best international practice is to only disclose an investigation after a violation has been
determined, and to not disclose ongoing investigations or those that do not result in a determination of
a wrongdoing.
2.2.8 Enforcing Laws and Regulations
The capital markets in any country present an abundance of opportunities for bad actors to defraud in
vestors in securities. As mentioned earlier, the problem in Bangladesh is not so much related to the ab
sence of laws designed to protect investors, as there are abundant laws designed to govern the capital
markets and protect investors. The problem in Bangladesh is more the lack of a climate of strict en
forcement in which there is zero tolerance for such behavior. Few initiatives are intended to strengthen
the SECs enforcement capabilities and to promote such a climate of strict enforcement.
As a regulatory agency with a principal objective of enforcing the securities laws, the lack of lawyers and
qualified investigators is likely to be hindering the SECs enforcement capability. In recognition of this,
we commit to implementing initiative 33 (I33), which is intended to address this weakness.
We recognize that one of the principal impediments to the effective enforcement of securities laws and
regulations in Bangladesh is the court system itself. Cases may drag on for years and sometimes dec
ades in the court system. There were reportedly a large number of securities cases pending in the court
system as today, some of which stem from the stock market crash of 1996. Part of the problem is that
ordinary court dockets are seriously overcrowded, resulting in cases not being heard for months or even
years. A second part of the problem is that defendants can sabotage the enforcement process by filing
endless appeals. Initiative 40 will insure the establishment of a specialized Capital Market Tribunal
(CMT) that is appropriately constituted to ensure that its jurisdiction, functioning, status, the selection
and training of judges, and its appeal procedures would facilitate the timely and effective adjudication of
securities cases and help to improve the effectiveness of the SECs enforcement process.
Two factors significantly impede the SECs ability to sanction auditors who are not effectively monitoring
issuers of securities. First, the SECs efforts to discipline auditors pursuant to 12(b) (3) of the SEC 1987
Rules have been frustrated by the requirement to refer disciplinary actions against auditors to the Insti
tute of Chartered Accountants of Bangladesh (ICAB). A Financial Reporting Act (FRA) has been under
discussion for the better part of the last decade, and we recognize that its adoption is long overdue. Ini
tiative 41 is intended to address this matter. Second, the SEC does not have an Office of Chief Account
ant; an office which can monitor the performance of accountants who practice before the SEC (i.e. who
prepare and audit the financial statements of issuers of securities), and sanction them for poor perform
ance. Initiative 46 is intended to address this matter.
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Financial education deals with information and learning. It is essential to help people of the country to
better manage their financial life and favorable choices that will contribute to increase their wellbeing
too. Financial education should go handinhand with financial inclusion. If mass people do not have fi
nancial literacy, they will not be interested to the formal financial system and if they come forward
without financial literacy, there is every possibility that they will not be able to get the benefits.
Financial education should be started from the school level to make it effective. To include the financial
education in our text curriculum, a national policy may be taken. Organisation for Economic Co
operation and Development (OECD) started their campaign for financial education since 2008, which has
stressed to adopt National Policy for Financial Education by every member country and to start finan
cial education from school level.
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A longer range organizational enhancement that would encourage the development of a strong and in
dependent professional executive staff and further insulate the SEC from political influence is to en
hance the executive role and responsibilities of the Executive Directors and to transition the role of the
Members/ Commissioners to that of a policymaking, deliberative body. Under this structure, the Mem
bers/Commissioners would set policy, hear/adjudicate cases, and respond to staff initiatives and rec
ommendations. Executive Directors, rather than Members/Commissioners would have full responsibility
for the daytoday operation of the various SEC departments.
Finally, we recognize the crucial importance of the SECs integrity assurance programs i.e. the meas
ures the SEC has in place for detecting and deterring misconduct by SEC Members and staff and the ac
tions taken to detect and deter such conduct to the integrity of the markets and to the confidence of
market participants. The business of regulating the securities markets is complex and this complexity
will only increase in the future as the market develops and becomes more diverse. These changes will
also create new ethical challenges for the SEC. It is absolutely necessary that the SEC have a central set
of guiding principles to act as a legal and ethical compass for its staff and Members. The present SEC
Code of Conduct is incomplete. Therefore, we commit to undertaking a comprehensive Vulnerability
Assessment (VA) to assess where the vulnerabilities for misconduct lie and the effectiveness of existing
control mechanisms. Based on this assessment, a strategic analysis of the problem will be formulated
and a range of programs will be identified and implemented to address the issue of integrity in a cus
tomized and effective way (i.e. a comprehensive Integrity Assurance Program).
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We recognize that when interest rates on government securities are suppressed, financial institutions
are compelled to purchase government securities at a lower than marketdetermined yield, and secon
dary markets lack transparency, the government yield curve is not able to signal the true level of risk
free rates in the economy or accurately reflect the cost of funds at different borrowing horizons, infla
tion prospects and other macroeconomic fundamentals. In such a situation, pricing of corporate bonds
becomes an exercise in uncertainty which significantly impedes the development of corporate bond
markets. SEC is aware that Bangladesh Bank is taking measures to facilitate establishment of a reliable
reference benchmark yield curve.
2.3.2 Corporate Bond Market Initiatives
A second set of initiatives will focus on the corporate bond markets and are designed to reduce the
costs and uncertainties associated with issuing corporate bonds and to raise market awareness. We rec
ognize that one of the significant impediments to the issuance of corporate bonds has been the high
level of interest rates throughout the economy.
Another significant impediment to issuing corporate bonds has been the issuance process itself. Long
delays in the approval/registration process often result in changes in market conditions, or in the needs
of the issuer which lead to a withdrawal of the issuance application and a failed issuance effort. The
cost of issuance is also comparatively high in Bangladesh, some of which is undoubtedly attributable to
the length of time it takes for approval. Initiatives 4849 are intended to address these problems.
Finally, as bonds are comparatively complex securities both from the perspective of issuers as well as
investors, we are committing to undertake a series of road shows, perhaps jointly sponsored by the
SEC and the private sector, that may be beneficial in raising awareness of the intricacies of bonds and
bond markets. Initiative 50 is intended to address this issue.
Table 3 Bond Market Development Initiatives
I#
Responsi
ble Party
BB
BB &MoF
BB &MoF
Initiative
Time Frame
I43
I44
I45
I46
I47
I48
Monitor effect of DOS Circular No. 02 and consider further measures to stimulate trading
of government securities as required
Adopt a policy of creating liquid benchmark issues
Reduce and eventually eliminate fiscal deficits
I49
Develop separate clear and comprehensive rules for issuing corporate bonds
I50
Develop streamlined regime for private issuance of corporate bonds to qualified inves
tors *
Develop and implement a market awarenessraising campaign for corporate bonds
Short Term
Short Term
Immediate
Short Term
Immediate
Short Term
Short Term
Short Long
Term
Short Me
dium Term
Short Term
SEC
Medium Term
SEC
I51
BB
MoF& BB
MoF
SEC
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The need for participants to provide cash and securities 2 days ahead of settlement date;
The payment of cash dividends from issuers to end investors, rather than flowing through the
depository, causing delay, uncertainty and inefficiency; and
Lack of 'straight through processing' (STP), leading to manual rekeying of orders and file trans
mission, and increasing operational risk.
2.4.3 The need for brokers to provide cash and securities two days ahead of settlement date
For purchases, the buying broker must provide cash to the stock exchange clearing house on T+1; for
sales, the selling broker must ensure that securities are available at the CDBL by T+1. The need to pro
vide cash and securities 2 days in advance of settlement date means that (i) cash is inefficiently used,
and (ii) turnaround trades, where the same security is bought and sold for the same settlement date, are
not possible unless there is an existing balance in that security. We recognize that both of these factors
inhibit trading and hence lead to lower market liquidity and efficiency.
2.4.4 Lack of centralized cash dividend payments
At present, issuers must make all cash dividend payments directly to investors or to their agents. We
recognize that it would be more efficient for the CDBL to make these dividend payments, as it would be
better equipped than most issuers to process these payments in a timely manner. This would also re
duce the burden on issuers who would only need to make a single payment to the CDBL for all their de
materialized shares. We further recognize that this method is overwhelmingly preferred by most market
participants.
2.4.5 Lack of straightthrough processing (STP)
Presently STP in trading and settlement does not exist in Bangladesh. Thus data in one system must be
rekeyed into another system, or files must be manually sent from one system to another. The key objec
tive of STP is to avoid the need for human involvement in processing, as this can be costly, time
consuming and error prone. In Bangladesh, broker orders must be manually rekeyed into the stock ex
change systems. After the trading session, a file of settlement instructions must be sent manually by the
exchanges to CDBL.
Initiatives 5456 are intended to address the abovementioned weaknesses in Bangladeshs financial
market infrastructure.
In the year ended 30 June 2012, Central Depository Bangladesh Limited (CDBL) had operating income of
BDT 1,995 million against operating and administrative expenses of only BDT 107 million. The big dis
crepancy between operating income and expenses suggests that fees may be higher than they need to
be. Initiative 57 is to review and rationalize the CDBLs fees is intended to address this issue.
As the market in Bangladesh develops and more sophisticated and complex products are offered (i.e.
derivatives), consideration will be given to establishing a central counterparty (CCP). The main role of a
CCP is to become the legal counterparty to all qualifying trades shortly after they have been executed,
allowing trading participants to settle all trades with the CCP rather than with each other. We recognize
that a CCP reduces counterparty risk, provides trading anonymity, and improves the efficiency of the
overall settlement process. Initiative 60 is intended to address this issue.
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Initiative
Time Frame
Short Term
Short Term
Short Term
Short Term
Remodel the posttrade process so that movement of cash and securities both take place
on settlement date
Review and rationalize CDBL fees
Evaluate costs and benefits of a central counterparty (CCP) for cash equity securities and
derivatives (when introduced)
Responsi
ble Party
CDBL
CDBL, SEC
CDBL
Short Me
dium Term
Medium Term
Short Term
Medium
Long Term
SEC
SEC, CDBL
Exchanges
One of the major impediments of our capital market is that our retail investors are not aware of the risks
associated with the market. If the investors are not aware of the risks, they often involve themselves
with risky speculations and rumorbased decision making. As a result, not only the retail investors incur
huge losses, but it also damages the basic structure of the market, because our market is still dominated
by the retail investors. So, to retain them as well as to increase their participation, both financial educa
tion and financial inclusion are required.
Financial inclusion is required to bring mass people into the formal financial markets so that they can
enjoy the benefits of modern systems, safeguard themselves from deprivation and develop their savings
habits to contribute to the national economy. But at the same time, they should be protected from
competitions with bigger capitals, so small investors should be accommodated by institutional frame
work and provided with basic financial education.
Table 5 Initiatives to Expand the Institutional Investor Base
I#
I60
I61
I62
I63
I64
I65
I66
I67
Initiative
Time Frame
Require ICB Funds to comply with mutual fund rules concerning conflicts of interest
Adopt new legal/regulatory regime for mutual funds that broadens participation, allows
introduction of different types of mutual funds, strengthens investor protections, and
eliminates preferential treatment of statesponsored mutual funds
Assist the mutual fund industry in structuring and registering a mutual fund association
Develop plan for achieving industrywide compliance with minimum capital require
ments
Amend IDRA Act to provide for independence of IDRA
Adopt investment (and other) regulations as required by the IDRA Act 2010 and Insur
ance Act 2010
Acquire and implement an electronic data gathering and retrieval (EDGAR) system
Short Term
Short Me
dium Term
I68
I69
I70
Begin a national discussion on pension policy to include reforming the public sector pen
sion schemes and introducing pensions in the formal private sector
Adopt a national pension policy
Determine/allocate responsibility for regulating pensions
Undertake reform of public pension plans/schemes
I71
Responsi
bleParty
SEC
SEC
Short Term
Short Term
SEC
IDRA
Short Term
Immediate
Medium Term
Short Me
dium Term
Short Me
dium Term
Medium Term
Medium Term
Medium Term
IDRA
IDRA
Medium
Long Term
IDRA
MoF
MoF
MoF
MoF,
Pension
Regulator
Pension
Regulator
We recognize that because of ambiguities in the law, asset securitization remains under a cloud of un
certainty, requiring a risk premium in the pricing of such transactions that makes them less attractive.
We commit to reform the legal regime for asset backed securities to allow for the true sale status of
assets transferred in connection with a securitization, and to remove the legal ambiguities with respect
to the bankruptcy remoteness of such transactions (Initiative 69). We also commit to revising the tax
code to recognize the passthrough nature of such transactions, and to remove stamp duties (or sub
stantially reduce them) on the transfer of assets from the originator to the SPV. Finally, we recognize
that assetbacked securities are complex instruments and that potential issuers and investors alike need
to be informed of the advantages and drawbacks of issuing and investing in them. We commit to under
taking an awarenessraising campaign, perhaps jointly between the SEC and the private sector.
While derivatives tend to improve the functioning of the price discovery mechanism and provide hedg
ing and risk management tools to financial and nonfinancial firms, we recognize that their introduction
should be undertaken only after their respective underlying cash markets have achieved a certain de
gree of maturity, otherwise, they are likely to have a destabilizing effect on the markets. Some of the
issues that will need to be addressed for the introduction of derivatives in Bangladesh include the legal
framework and regulatory structure governing derivatives markets, the types of derivatives that are
likely to be successful in Bangladesh, the conditions under which their introduction would be advisable,
and the actions that can be taken to prepare for their introduction. As starting point, we will commission
(initiative 65) a study to measure the potential demand for three basic types of derivatives (financial,
equity and commodity).
Once it is determined which types of derivatives are likely to succeed and a plan is devised to sequence
their introduction, a decision will be made about regulatory structure. Some of the questions that will
be considered in this regard are:
Should there be a specialized regulator or should the task be assigned to existing regulators?
If the task is assigned to existing regulators, should all derivatives be regulated by a single regu
lator or should there be multiple regulators?
If multiple, how should the division of responsibilities be made by instrument type, or by type
of regulated entity?
Once the matter of regulatory responsibility is determined, we will ensure that the responsible regulator
will undertake to develop and oversee the adoption of comprehensive, specialized dedicated legal
framework to govern derivatives. We will also ensure that the tax authorities will recognize the special
nature of hedging transactions and will allow for income/losses from a hedge to be offset with in
come/losses from the asset it was employed to protect, and that the accounting profession will be pre
pared for hedge accounting under IAS 39.
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I73
I74
Initiative
Time Frame
Commission study to estimate the demand for 3 basic types of derivative instruments
Financial (i.e. interest rate, currency), Equity (i.e. index, single stock), and Commodity
(i.e. rice, jute, tea)
Determine regulatory structure & assign responsibility appoint highlevel commission
to study the matter and make recommendations
Adopt a comprehensive, specialized, dedicated legal framework for derivatives
Medium Term
Responsi
ble Party
SEC & BB
Medium Term
SEC & BB
Medium
Long Term
I75
Medium
Long Term
Desig
nated
Regulator
NBR
I76
Conduct readiness assessment for hedge accounting in accordance with IAS/BAS 39 and
develop and implement awareness campaign for accountants and auditors
Medium
Long Term
ICAB
I77
Medium
Long Term
I78
Reform legal/regulatory regime for ABS to include, true sale status of transferred re
ceivables, SPV as passthrough entity, bankruptcy remoteness of transaction.
Develop and implement campaign to raise awareness of ABS among potential issuers and
investors
Medium Term
Desig
nated
Regulator
SEC & BB
I79
Medium Term
SEC, BB
&Pvt Sec
tor
Page | 19
removal of the 0.1% ad valorem transaction tax on bonds and the elimination or substantial reduction
of stamp duties on transfers of assets in connection with securitizations .
Finally, a 10% tax credit for investments in ICB openend mutual funds gives ICB an unfair competitive
advantage over the other (private sector) operators of openend mutual funds. Initiative would be taken
to ensure a level the playing field between ICB and the private sector.
Table 7 Taxation Initiatives
I#
Initiative
Time Frame
I80
I81
I82
Short Term
Short Term
Short Me
dium Term
Short Term
I83
I84
I85
Responsi
ble Party
MoF/NBR
MoF/NBR
MoF/NBR
MoF/NBR
Short Term
MoF/NBR
Medium Term
MoF/NBR
Page | 20
Imme
diate
2012
Short Term
Medium Term
2013
2014
2015
2016
2017
20182022
01
Implement structure to in
clude authorization, account
ability , staffing and resource
allocations
02
Implement processes to in
clude monitoring, evaluation
(M&E), reporting of progress,
and amending implementa
tion plan to account for
evolving circumstances
03
04
Appoint Specialized/Expert
Working Committees with
considerable private sec
tor/industry participation
05
06
07
Long Term
I#
08
09
10
11
Short Term
Medium Term
2013
2015
2014
2016
Long Term
2017
20182022
21 | P a g e
I#
Imme
diate
2012
Short Term
Medium Term
2013
2015
2014
12
13
14
Restructure
organizational
structure and pay structure at
least to make equivalent to
Central Banks pay structure
16
17
18
19
20
21
22
23
24
Undertake (SRMIC/SEC) in
tensive training in stock ex
change oversight
15
2016
Long Term
2017
20182022
I#
Imme
diate
2012
Short Term
Medium Term
2013
2014
2015
25
26
Demutualization of Exchanges
27
28
Publish
(SEC)
guid
ance/guidelines for IPO Appli
cations
29
30
32
33
34
35
36
Develop
(SEC)
better
calibrated riskbased capital
*
requirements
37
38
2016
Long Term
2017
20182022
I#
Imme
diate
2012
Short Term
Medium Term
2013
2014
2015
39
40
41
42
43
44
45
Transition
(SEC)
Mem
bers/Commissioners
from
operational to policy focus
46
47
2016
Long Term
2017
20182022
Imme
diate
2012
Short Term
Medium Term
2013
2014
2015
2016
48
49
50
Long Term
2017
20182022
Short Term
Medium Term
2013
2014
2015
53
54
55
56
57
58
59
60
I#
51
52
2016
Long Term
2017
20182022
Imme
diate
2012
Short Term
Medium Term
2013
2014
2015
Adopt
(SEC)
new
le
gal/regulatory regime for
mutual funds that broadens
participation, allows introduc
tion of different types of mu
tual funds, strengthens inves
tor protections, and elimi
nates preferential treatment
of statesponsored mutual
funds
63
64
I#
61
62
2016
Long Term
2017
20182022
65
66
Imme
diate
2012
Short Term
Medium Term
2013
2014
2015
2016
Long Term
2017
20182022
I#
Imme
diate
2012
Short Term
Medium Term
Long Term
2013
2014
2015
2016
2017
67
68
69
Reform
(Govt.)
le
gal/regulatory regime for ABS
to include, true sale status
of transferred receivables,
SPV as passthrough entity,
bankruptcy remoteness of
transaction.
70
20182022