Soon the trading of Treasury bonds on the stock exchange
Stakeholders bullish on stock market rebound thanks to risk-free tokens
JASIM UDDIN HAROON |
July 16, 2022 08:34:53
The highly publicized trading of Treasuries in the market could begin as soon as stakeholders have completed most of the procedures, including the trading simulation, raising hopes for a rebound in the stock exchanges.
Bonds have never been traded in the secondary market and have remained a hot topic in financial market circles.
Trading in government securities (G-Sec) with more than 250 bonds up for grabs is believed to help deepen the market, opening up opportunities for retail and institutional investors in risk-free fixed income instruments.
“We have completed more than 95% of the work on the road to commissioning,” says Dr Shaikh Shamsuddin Ahmed, a member of Bangladesh Securities and Exchange Corporation, the country’s equity regulator.
He hopes to “go live later this month”.
He said a final test with all the instruments will take place this week. “We performed a number of mock tests with the instruments.”
Previously, there were single and multiple instrument test simulations.
He said the trading simulation could last anywhere from 10 minutes to a few hours.
Previously, all stakeholders had signed a key operational agreement with the Ministry of Finance last June.
The country’s stock exchanges are now dominated by equity instruments, as only nine fixed-income corporate bonds remained listed on major exchanges.
Previously, 222 government bonds, worth a total of 550 billion taka, were listed on the Dhaka Stock Exchange (DSE) First Exchange between 2005 and 2011. But the trade never took off. Treasury bills with maturities of less than one year will not be traded.
In the absence of secondary trading, the Bangladesh Bank has introduced an alternative secondary trading of bonds through the MI module in which some banks have participated.
“It’s not really a secondary Treasury bond market because participants are limited among banks,” said an official from the central bank’s debt management department.
These exchanges within the interbank ecosystem under the Bangladesh Bank Market Infrastructure Module do not reflect secondary transactions.
Institutional shareholders, including banks and financial institutions, generally participate in the MI module.
Shahidul Islam, managing director of VIPB Asset Management Company, told the FE that the general public is very interested in Treasury bonds because they are risk-free and buy/sell unlimited.
Investing in national savings certificates is also risk-free. But for those short on cash, investing in Treasuries will have liquidity because investors can buy and buy on any business day, Islam notes.
“General investors will have another option through fixed-income instruments,” Islam said, adding that many people buy these bonds and bills through banks.
“On the institutional front, they will also have another area to invest in.”
Syed Al Amin Rahman, a senior DSE official who is familiar with the development, told the FE that it would be a big achievement for the market as Bangladesh lacked a bond market.
“We have a few corporate bonds but in a real sense, trading in the bond market will open up after the launch of government bonds,” Rahman said.
Those who avoid risk can invest in bonds, he hopes, adding that investors generally invest with an eye on returns and ideal for those who avoid risk.
CFA Society Bangladesh President Md. Shaheen Iqbal notes that inflation is now high, which may discourage investors from trading these types of fixed income instruments.
But he mentions that bond yields have risen lately and that investors can choose short-term bonds.
A long-term investment may lose money as the price may fall.
Existing investors in treasury bills have their holdings in participants’ custodian accounts with the Bangladesh Bank. They will now have to transfer the assets to any BO account in order to be able to sell them on the stock exchange.
The denomination of the bond will be 100,000 Tk and its trading pattern will be T+2, meaning there will be three days for final settlement.
In accordance with the Bangladesh Bank Order 1972, the BB provides functional and advisory services to the Government of Bangladesh on matters related to government debt management policy and issuance of various Treasury instruments.
To cover budget deficits, the government borrows funds from domestic sources by issuing marketable and non-marketable securities.
Marketable securities, such as 14-day, 91-day, 182-day and 364-day treasury bills and 2-year, 5-year, 10-year, 15-year, 20-year and 3-year FRTB treasury bills, are available on the market. Non-tradable securities include Sanchayapatras, Sanchayabonds and Prize Bonds.