Topic ……………

HOW TO DEVELOP THE CAPITAL MARKET OF

BANGLADESH

Submitted to:Professor M. Kismatul AhsanProfessor and ChairmanDepartment of Finance, University of Dhaka &Course InstructorCourse: D301, Corporate Finance and Portfolio Management Bangladesh Institute of Capital MarketSubmitted by :

Saied Mahmud Zubayer,ID-2015-01-06Md. Rafiqul Islam, ID-2015-01-02PGDCM, 1st Batch

Capital Market

Classification of Capital Market

Primary MarketSecondary Market

Functions of Primary Market

Opportunities in primary Market

Benefit from Primary Market Fund Raising and Exit Route to Investors Tax Benefit Reduced Reliance on Debt Finance Build market awareness Wealth Creation Opportunities for Merger/Acquisitions Deliver value to existing shareholders Provide liquidity for original stockholders Broaden the Corporate Governance Structure

Benefit from Primary Market Supervision and Control of Trading in

Securities Marketability of Securities Fair Value and Collateral Value of Securities Strengthen Image & Brand Value Creation Attract Foreign Investment Self Esteem and Social Recognition Further Capital Raising Option Better Succession Planning Retain talent

Role of Secondary Market Economic Barometer Pricing of Securities Safety of Transactions Contributes to Economic Growth Spreading of Equity Cult Providing Scope for Speculation Liquidity Better Allocation of Capital Promotes the Habits of Savings and Investment

Importance of Capital Market in the economy

The capital market is the market for long-term loans and equity capital.

Developing countries in fact, view capital market as the engine for future growth through mobilizing of surplus fund to the deficit group.

An efficient capital market may perform as an alternative to many other financing sources as being the least cost capital source

Intermediaries

Stock Exchanges: Merchant Banks : Stock Dealers Stock Brokers Depository Participant Asset Manager Security Custodian Trustee Market Maker Rating Companies Research Analyst

Problem of Capital Market (Primary and Secondary)

Gaps in Legal and Supervisory Framework, and Weak Implementation Capacity.

Inadequate Systems and Surveillance Shortage of Fundamental Securities Lack of Professional Standards Lac of Standard Bond Market. Absence of Strong Corporate Governance Small Market Size Low and unstable liquidity Small Number of Market Listing

Problem of Capital Market (Primary and Secondary)

Low Foreign Portfolio Investment and Integration of the Market

Low and unstable liquidity Lack of Professional Portfolio Management Information Asymmetry Price Manipulation Valuation Disparity Delays in Settlement Irregularity in Dividends Improper Financial Statement Lack of Proper Policy Framework Little knowledge of retail investors Quality Research and Analysis Absence of Central Clearing Company

How to overcome the problems and how to develop the capital market

Regularly Review Primary and Secondary Market Regulations.

Integrate the DSE with the International Financial System

Strong Surveillance Department Listing Fundamentally Sound, Well Reputed Companies Provide Fiscal Incentives Maintaining Professional Standard for Licensing Developing Bond Market Implementation of Demutualization of Stock Exchanges: Strong Monitoring System Establish a Centralized Settlement System Mount an Intensive Education and Promotion Campaign

How to overcome the problems and how to develop the capital market Central co-ordination of Regulators Flotation of Mutual Funds Proper Measure to Reduce Insider Trading Institutionalizations of the Market Listing of Companies with high Reputation: Attract more foreign investment Awareness development Higher standard of intermediaries Zero tolerance in governance Bond market liquidity Investments for development Strategic Alliance Establishment of Central Clearing Company

SWOT Analysis of Capital Market in perspective of DSE

Strengths The large number of active brokers, their agents and

dealers. Vast majority of the population. up gradation in software and hardware The 13 storied 756,000 sq. ft. greater efficiency in workings

between the brokers and the Exchange. strong corporate governance and regulatory compliance,. The growth rate of the economy is relatively higher

compared to other countries The country has a high national savings rate, particularly,

in private sector.  

SWOT Analysis

Weaknesses Trading is highly concentrated in equity products,. Inadequate managerial bandwidth and trained

investment professionals for market and product development.

Majority investors still lack skills to make knowledge-based investments.

Inadequate institutional investments in the secondary market.

Operating profitability has declined considerably in recent years

SWOT Analysis

Opportunities Creating efficient platform for raising finance as

against banking and other unorganized sources of capital for business entities.

Potentials for a SME platform,. Possibilities of strategic alliances with global and

regional exchanges to create a well-developed multi-asset market.

Creating more efficiency for market retail debt by developing the bond, convertible bond and other debt products.

SWOT Analysis Threats Post Demutualization may dilute members’

commitment. Sustained decline or status quo may lead to migration

of investors to other alternative investment modes and pull foreign investors out to other exchanges.

Slow pace of capital market reforms can make Bangladesh not an attractive investment destination in comparison to other countries in the region.

Popularity of substitutes in form of relatively wide reach of banking and micro credit industry.

Legal & Regulatory Issues

The Bangladesh Securities and Exchange Commission (“BSEC”) has already planned to take several initiatives to address the required reforms, as described in the Bangladesh Capital Market Development Market Plan, 2012

RECOMMENDATIONS FOR BOND MARKET DEVELOPMENT IN BANGLADESH

Measures for government bond market development

Measures for corporate bond market development

Findings & Conclusion

Developing economies, thus, look forward to their capital markets as the engine for future growth as its existence ensures mobilization of surplus funds to the ones suffering from deficit. In Bangladesh we have a capital market that is yet to be further fostered to get the fruit out of it. Without doing this we cannot undergo heavy industrialization and other capital based development.