It is very important and crucial to reform the capital market operations for the country’s economic growth and financial stability. The capital market, which includes the stock and bond markets, plays an important role in mobilising long-term funds, facilitating investment and driving economic development.
However, Bangladesh’s capital market has faced challenges such as small-scale or inadequate investors, lower investor confidence, lack of transparency, bureaucratic complexity, high market volatility and regulatory issues. The stock market is not running properly as per the size of the economy and fiscal budget.
Establishment of regulatory framework
The role of the primary regulator, Bangladesh Securities and Exchange Commission (BSEC), is central to overseeing market activities and its regulatory framework should be robust, transparent and impartial. It needs to enhance enforcement mechanisms to prevent manipulation, insider trading and unethical practices.
In a primary (BSEC) and secondary regulator (DSE, CSE), all recruitments should be transparent and knowledgeable, long-term experienced, morally and ethically standard personnel should get more priority from top to bottom.
The top personnel should administer the market without any interference from political or other external influences.
Adaptation of international standards
Implementing global best practices, such as International Financial Reporting Standards (IFRS) and International Organization of Securities Commissions (IOSCO) principles, can bring transparency and attract foreign investors.
Increasing investor confidence
Investor or public confidence is the most important factor for growing and sustainable development of capital anywhere in the world. Confidence should come from the regulator and the policymakers. It also comes from the topmost personnel of the primary and secondary regulators.
Attractive transparency and disclosure
A principal concern in the Bangladeshi market has been the lack of transparency in corporate governance and financial reporting. Reforms should mandate timely and accurate disclosures by listed companies, increasing accountability.
All four parties—issuer, issue manager, audit firms and the approving authority—should be capable, sincere, professional and honest.
Financial education and investor awareness programmes
Most retail investors in Bangladesh lack adequate knowledge about market mechanisms and risks. The government and regulatory bodies should focus on financial literacy programmes to educate the public about investment risks, rewards and market dynamics, as well as market depth.
Variation of financial instruments or products
Diversification of financial products will act as a key function through the development or reforms of the stock market in Bangladesh.
Explore the existing equity markets
The capital market in Bangladesh is heavily tilted towards equities, which increases volatility. The introduction of diversified instruments such as bonds, sukuks (Islamic bonds), derivatives and real estate investment trusts (REITs) will attract a broader spectrum of investors and reduce dependency on equities.
Developing corporate bond and introducing derivative market
A well-functioning bond market is crucial for long-term infrastructure and corporate financing. By simplifying the bond issuance process and providing incentives, Bangladesh can attract issuers and investors to this market segment.
Upgrading technology and trading platforms
Efficient, secure and transparent trading platforms are crucial for market operations. Investing in modern digital trading platforms and infrastructure can enhance the overall efficiency of the capital market.
Reducing settlement cycle risks
A faster and more secure settlement process, through digital systems, will reduce counterparty risk and improve market liquidity. Introducing blockchain technology for transparency in trade settlements could be a step forward.
Encouraging foreign investment
The trends of the last 12 years' statistics of Bangladesh's stock market show that foreign investors are not very serious or interested in increasing their investment in the stock market. They have faced supervisory issues such as the listing of bogus or weak companies, the implementation of the floor price, and the increasing margin loan and negative equity day by day.
Interpretation of investment restrictions
Bangladesh’s capital market needs to be more accessible to foreign investors by removing or simplifying barriers such as bureaucratic approval processes, tax and VAT complications, currency convertibility restrictions and the slow functioning of personnel with a lack of proper knowledge and experience.
Steady macroeconomic policies
All policies should be specific and long-term based, not handled on a case-by-case basis. To attract foreign investors, Bangladesh must maintain macroeconomic stability, with comprehensive monetary and fiscal policies. Exchange rate stability and manageable inflation are critical factors in ensuring a favourable investment climate.
Corporate governance and ethical practices
This is one of the most important elements for the reforms of Bangladesh’s money market and capital market operations. Corporate governance reforms should focus on ensuring that boards are independent and managements are accountable, responsible, dedicated and honest with professionalism for the greater interest of shareholders. Proper internal and external audits of company financials will foster trust.
Encouraging moral and ethical practices
Encouraging moral and ethical behaviour in both companies and market intermediaries such as brokerage firms, merchant banks, AMC and venture capital is essential. There should be stricter penalties for fraudulent practices.
Encouraging institutional investors
Institutional investors such as pension funds, insurance companies and mutual funds play a stabilising role in capital markets. Reforms should be geared towards increasing their participation in Bangladesh’s capital market for long-term investments.
Retail investor culture
With proper education and risk mitigation, attracting more retail investors is essential for broad-based participation. Digital tools and mobile trading platforms can make market participation easier and more inclusive.
Consistent and constant market policies
Market reforms require long-term stability in regulatory and economic policies. Consistent government policy that encourages investment and market participation is necessary to build trust among investors.
Policy support from the government
A supportive attitude from the government, in terms of tax incentives for investors, infrastructure financing, and promoting the listing of state-owned enterprises (SOEs), will be beneficial for market growth.
Inspiring SOEs to list on stock exchanges
Listing more state-owned enterprises (SOEs) can provide the market with strong companies, thereby boosting investor confidence. It also offers the government a means of raising capital for national projects.
Leveraging regional market opportunities
Bangladesh should look for opportunities to integrate its capital market with regional markets in South Asia, benefiting from the broader investor base and cross-border investments also.
Political and economic stability
Political instability can negatively impact market reforms and investor confidence. Continuous government support and political will are necessary for successful reform.
Corruption and governance issues
Corruption remains a challenge in Bangladesh, and tackling it is essential for maintaining a fair and transparent capital market.
Institutional capacity
Regulatory bodies like the BSEC, the Dhaka Stock Exchange, and the Chittagong Stock Exchange need increased institutional capacity, resources, and expertise to manage an evolving market.
In summary, reforming the capital market in Bangladesh is crucial for supporting the country’s economic goals and ensuring long-term financial stability.
By addressing regulatory, infrastructural, and governance challenges and practising moral and ethical standards, Bangladesh can create a more transparent, diversified, and investor-friendly stock market that supports sustainable economic growth.
Encouraging both domestic and foreign or international investment while focusing on transparency, efficiency, and investor protection will drive the next phase of capital market development in Bangladesh.
The author is a former CEO of an investment bank and AMC in Bangladesh
