Having all the technical preparation accomplished by the Dhaka bourse, depository service provider and the Bangladesh Bank, the capital market is waiting for exchange trading of treasury bonds, and Bangladesh Bank Governor Abdur Rouf Talukder said this may start from the next week.
The central bank chief, while speaking as the chief guest at the inauguration programme of World Investor Week at the Securities Commission Building in the capital on Monday, said following the trial run next week, complete exchange trading of the government bonds might begin in two weeks as some government formalities were due.
Treasury bonds are the largest debt instruments through which the government borrows from the markets for various tenures and across the world sizable funds keep seeking for those due to the least default risk.
In Bangladesh, there are over 250 treasury bonds valued over Tk3 lakh crore now and the instruments historically have been beyond the reach and thoughts of the investors other than banks, insurers and non-bank financial institutions due to the lack of a vibrant secondary market platform.
The financial service providers who are compelled to invest in treasury instruments are the main investors of the government securities in Bangladesh. They take help from any of the 23 primary dealer banks for buying treasury bonds during issuance and they have to seek buyers in cases of exit before maturity and the transactions are done through BPID (Beneficiary Partner Identification) accounts with the Bangladesh Bank.
There were some 2,000 BPIDs last year, of which more than 80% were inactive in secondary trading. On the other hand, at least 5 lakh of the around 20 lakh beneficiary owner (BO) accounts were actively trading stocks and other listed securities in the Dhaka-Chattogram bourses.
DSE officially launched treasury bond-bills' secondary trading in the early 2000s but not a single trade took place after the first day due to the then inefficient trading cost structure and inconvenient trade settlement system between the money market and capital market.
In 2019, the Bangladesh Securities and Exchange Commission (BSEC), the Dhaka Stock Exchange (DSE) and the Bangladesh Bank entered a tripartite agreement where the DSE agreed to waive all listing fees for government bonds and having the rational tax structure from the government DSE also agreed to charge a feasible amount in trading and settlement of government bonds, while the central bank agreed to allow data exchange with the bourse and the Central Depository Bangladesh Ltd (CDBL) to let treasury bonds trade in the stock exchanges' debt platform.
M. Shaifur Rahman Mazumdar, acting managing director of the DSE, told The Business Standard, the DSE trading platform to trade treasury bonds, the business preparation and user acceptance tests – all have been done and the premier bourse is ready for the new era for the capital market.
Financial industry warmly welcomes the development
Opening a BPID was cumbersome for non-banks and a lack of treasury brokerage services in banks had been discouraging investors in the government bond market, while the capital market has already got a large number of mutual funds and institutional investors which need to invest in treasury instruments as part of their portfolio management strategy.
Treasury bonds are tradable in exchanges across the world, and lack of it had been working as an exit barrier for the institutional investors in Bangladesh, said Jamuna Bank Managing Director Mirza Elias Uddin Ahmed.
Now exchange trading would increase the liquidity in the treasury bonds' market. That means investors can sell their treasury bonds in seconds in the stock exchange platform, just like they trade stocks there.
Investors are going to get the secondary market for a vital and virtually risk-free asset class, said CFA Society Bangladesh President Md Shaheen Iqbal, also the deputy managing director of Brac Bank.
Not only institutional investors, but also individuals who want to diversify their portfolio, would find it convenient to trade treasury instruments in the stock exchange.
Iqbal, however, said treasury bond prices might go up or down based on the interest rate environment and as the long-term treasury bonds tend to be more volatile, non-expert investors should begin bond trading with the short-term ones.
Mirza Elias said, the public market yield curve for treasury bonds would be a great outcome of the secondary bond market as globally debt markets react to the reference bond pricing.
How the exchange trading will take place
In line with the 2019 tripartite agreement, the BSEC issued its relevant order last week to the capital market intermediaries instructing on how exchange trading of treasury bonds would take place.
The central bank's market infrastructure (MI) module where BPID holders and primary dealer banks were participating would remain the same.
The change is, now also the BO account holders can trade treasury bonds in the stock exchange.
One will have to buy or sell a lot of 1,000 treasury bond units having a face value of Tk100 each and just like "A category" stocks, the bonds will be sellable on the next-to-next working day.
Brokerage fee must not exceed 0.10% of the value and the clearing and settlement fee must be within 0.01% and Tk1,000 and the settlement fee would be effective from the beginning of 2023-24 fiscal year.
The BSEC may review the maximum brokerage charge from time to time.
Treasury bonds price would be allowed to go up or down by at best 2% a day, while the tick size would be Tk0.0001 which is Tk0.1 for stocks.
Tick size is the gap among securities price slabs.