Presentation

on
Regulatory Framework of Capital Market

Prepared by
Mohammad Abul Hasan
Director
Bangladesh Securities and Exchange Commission
 Disclaimer

Views expressed in the presentation

belongs to presenter and do not
necessarily reflects the views of the
Commission

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 Purpose of this awareness Program

I) To provide an idea of financial market;

II) To provide an idea of regulatory
framework of capital market in
Bangladesh;
III) To provide an outline of securities related
laws, rules & regulations in Bangladesh

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 Some Concept

In general, security means a piece of legal document that gives its

holder financial claim.

As per Securities and Exchange Ordinance, 1969 Securities includes:

Stock;
Transferable shares;
Scrip;
Notes;
Debenture;
Debenture stock;
Bond etc. but does not include currency notes and instruments
maturity of which is 12 month and less.

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Some Concept

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 Some Concept (continue)

 Short Term Securities Market (Money Market)

The financial markets in which funds are borrowed or loaned for
short periods where securities with maturity of one year or less
are traded. Money markets securities are treasury bills, bankers
acceptances, commercial paper, negotiable certificates of deposits
etc.
 Long Term Securities Market (Capital Market)
The financial markets in which funds are raised by the issuer for
long term periods where securities with maturity of more than one
year are traded. Capital markets securities are common/preferred
share, debenture, bonds etc.

Financial Market

Money Market Capital Market

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 Some Concept

Financial Market:
Financial Market refers to a conceptual
“mechanism” rather than a physical
location. It refers to the mechanism by
which borrowers and lenders get together.

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 Financial Market Diagram
Financial System

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 Some Concept (continue)

Two Segment of Long Term Securities Market (Capital Market)

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 Some Concept (continue)
Long term securities market (capital market)

Primary Market
Primary markets are the markets in which issuers raise
funds by issuing new securities.

Secondary Market
Secondary Markets are markets in which existing,
previously issued securities are traded among investors.

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Division of Capital Market

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Organized Section Diagram

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Regulatory Framework of Capital Market

Framework means structure giving shape

and support. Some legal structure and
institutional structure is essential to run,
regulate and control of a capital market
which is called capital market regulatory
framework.

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Regulatory Framework of Capital Market

Division of Regulatory Framework

Legal Framework Institutional Framework

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Regulatory Framework of Capital Market

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Legal Framework of Capital Market

Law passed by the Parliament/Ordinance issued by the President

Rule/Regulation issued by the Commission
Order/Direction/Condition imposed by the BSEC

Regulation/By Laws issued By the SROs

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 Legal Framework of Capital Market
(Contd.)

Basic Act & Ordinance

The basic acts & ordinance that cover the capital
market are:

 Securities and Exchange Ordinance, 1969

 Bangladesh Securities and Exchange Commission Act,
1993
 Depository act, 1999
 Exchanges Demutualization Act, 2013
 Legal Framework of Capital Market
(Contd.)

The relevant acts that cover the capital market

are:

Companies Act, 1994

Trust Act, 1882
Insurance Act, 1938
Bank Company Act, 1991
Financial Institutions Act, 1993
Money Laundering Prevention Act, 2012

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Legal Framework of Capital Market (Contd.)
Rules/Regulation Framed By the Commission
 Insiders Trading Prohibition Rules, 1995
 Merchant Banker & Portfolio Manager Rules,1996
 Credit Rating Companies Rules,1996
 Margin Rules, 1999
 Stock Dealer, Stock Broker & AR Rules, 2000
 Market Maker Rules, 2000
 Issue of Capital Rules, 2001
 Over-the- Counter Rules, 2001
 Mutual Fund Rules, 2001
 Merger & Acquisition Rules, 2018
 Security Custodial Services Rules, 2003
 Issue of Asset Backed Securities Rules, 2004
 Public Issue Rules, 2015
 Right Issue Rules, 2006
 Securities and Exchange Rules, 1987(Framed by Govt. Before Establishment of SEC)
 Depository Regulations, 2000 (Issued under Depository Act 1999)
 Depository (Users) Regulations, 2003 (Issued under Depository Act 1999)
 Research Analysis Rules, 2013
 Private Placement of Debt Securities Rules, 2012
 Alternative Investment Rules, 2015
 Development of Investment Education and Training Rules, 2016
 Exchanges Traded Funds Rules, 2016
 Qualified Investor Offer by Small Capital Companies Rules, 2016
 Market Maker Rules, 2017
 Clearing and Settlement Rules, 2017
 Invesment Sukuk Rules,2019
 Risk Based Capital Adequacy Rules, 2019
 Exchanges Traded Derivatives Rules, 2019
 Short Sales Rules, 2019
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 Legal Framework of Capital Market
(Contd.)
 Regulations Framed By SROs
 Stock Exchange (Listing) Regulations, 2015
 Stock Exchange (Settlement of Transactions) Regulations,2013
 Stock Exchange (Settlement Guarantee Fund) Regulations,2013
 Stock Exchange (Automated Trading) Regulations, 1999
 Stock Exchange (Short Sales) Regulations, 2006
 Stock Exchange (Trec Holder’s Margin) Regulation, 2013
 Stock Exchange (Investors Protection Funds) Regulation, 2014
 Internet Trading Regulations
 Stock Exchange (Board & Administration) Regulations, 2013
 Stock Exchange (Trading Right Entitlement Certificate) Regulations, 2013
 Stock Exchange Bye Laws
 CDBL Bye Laws

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Institutional Framework of Capital Market

Bangladesh Securities and Exchange Commission

Over the Counter

Stock Exchanges CDBL
(OTC)

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 Institutional Framework of Capital
Market (Contd.)
Bangladesh Securities and Exchange
Commission

 Established in 1993 under BSEC Act, 1993

 Prime Regulator of Capital Market
 Administers Securities Laws
 Have Executive & Quasi Judicial Authority

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Institutional Framework of Capital Market
(Contd.)
Mission of the Commission

 Protection of the interest of the investors in

securities
 Regulation of securities market
 Development of securities market

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 Types of Securities

 On the basis of issuing authority (issuer):

Securities

Corporate Government Municipal

 Types of Securities….Contd .

Corporate

Money Market Securities Capital Market Securities

1.Commercial Paper
1.Debenture
2. Negotiable Certificate of Deposits (CDs)
2.Bond
3. Bankers’ Acceptances
3.Stock
4. Trade Credit
4.Preferred Stock
5. Other short term securities
 Types of Securities….Contd.
Municipal Securities: Local government agencies issue some securities to individual or institution to raise
fund for local developments. For example: Municipal Bonds. Municipal Bond is capital market securities.
There are basically two different types of municipal bond security structures: tax-backed bonds and
revenue bonds. There are also securities that share characteristics of both tax-backed and revenue bonds.
 Tax-Backed Debt
Tax-backed debt obligations are instruments issued by states, counties, special districts, cities, towns, and
school districts that are secured by some form of tax revenue. Tax-backed debt includes general obligation
debt, appropriation-backed obligations, and debt obligations supported by public credit enhancement
programs.The broadest type of tax-backed debt is general obligation debt. An unlimited tax general
obligation debt is the stronger form of general obligation pledge as it is secured by the issuer’s unlimited
taxing power. A limited tax general obligation debt is a limited tax pledge because for such debt there
is a statutory limit on tax rates that the issuer may levy to service the debt
 Revenue Bonds
The second basic type of security structure is found in a revenue bond. Such bonds are issued for either
project or enterprise financings in which the bond issuers pledge to the bondholders the revenues
generated by the operating projects financed. For a revenue bond, the revenue of the enterprise is pledged
to service the debt of the issue. The details of how revenue received by the enterprise will be disbursed are
set forth in the trust indenture.
 Hybrid and Special Bond Securities
Some municipal bonds that have the basic characteristics of general obligation bonds and revenue bonds
have more issue-specific structures as well. Some examples are insured bonds, bank-backed municipal
bonds, refunded bonds structured/asset-backed securities and “troubled city” bailout bonds.
 Types of Securities….Contd.

Government Securities

Money Market Securities Capital Market Securities

1. Treasury Bills 1. Treasury Bonds

2. Govt. Short Term Savings Certificates 2. Treasury Notes
3. Govt. Long Term Savings Certificates
 Asset Backed Securities

An asset-backed security (ABS) is a securities whose income payments and hence value
is derived from and collateralized (or "backed") by a specified pool of underlying assets. The
pool of assets is typically a group of small and illiquid assets which are unable to be sold
individually.

Pooling the assets into financial instruments allows them to be sold to general investors, a
process called securitization, and allows the risk of investing in the underlying assets to be
diversified because each security will represent a fraction of the total value of the diverse
pool of underlying assets.

The pools of underlying assets can include common payments from credit cards, auto loans,
and mortgage loans, to esoteric cash flows from aircraft leases, royalty payments and movie
revenues.

Unlike the corporate bonds or general obligation bonds, asset backed securities are issued
against specific receivables or future cash flows of an entity. Different types of receivables
are used as collateral to issue the bonds. These receivables are assigned exclusively for the
bonds issued and are separated from other assets of the entity. The separation process is
accomplished through creation of another legal entity independent from the originator. This
entity is created in the form of a trust and is called ‘Special Purpose Vehicle (SPV)’.
 Civil Prosecution

11.Final Ruling Order

10. Review Acceptance or Rejection
9. Review Petition
8. Penal Order Issuance
7. Place before Commission for Penal Provision
or
6. Warning
5. Hearing Proceedings Preparation
4. Hearing Conduction

3. Show cause cum hearing notice issuance

2. Filing Case in the Enforcement Department

1. Evidence of violation Detection

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Criminal Prosecution

Review
Appellate Division
High Court Division
Fine and/or Imprisonment
Hearing
Case filing in the Special Tribunal

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THANK
YOU

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