Executive Summary

Money Market is an integral part of the financial market of a country. It provides a medium for the redistribution of short term loan-able funds among financial institutions, which perform this function by selling these short term securities that usually are highly marketable. The money market in Bangladesh is in its transitional stage. The various constituent parts of it are in the process of formation, while continuous efforts are being made to develop appropriate and adequate instruments to be traded in the market. At present Money market instruments such as Government treasury bills of varying maturity, Bangladesh Bank Bills, Certificates of Deposits, Bankers Acceptance or L/C and Repo and Reverse etc in limited supply are available for trading in the market. However, the short-term credit market of the banking sector experienced a tremendous growth since in recent years, a total of about 6000 branches of the scheduled banks provided short-term credit throughout the country in the form of cash credit, overdraft and demand loan. The paper first analyzes the current situation of the bond markets in Bangladesh: The bond market has played a limited role in the Bangladesh economy. The Bangladesh bond market is also rather shallow compared to the neighboring countries.

Introduction
Bangladesh's bond market represents the 'smallest' in South Asia, accounting for only 12 per cent of the country's gross domestic product (GDP), a World Bank report said. At US$7.35 billion, the size of the country's bond market is far smaller than the banking assets, estimated at nearly $32 billion-equivalent to more than 50 per cent of GDP, the bank's report on "South Asian domestic debt market" said. In Bangladesh, the bond market has only eight corporate bonds. "All were issued through private placement partly because of the public's little confidence in corporate debt as stemming from the large-scale default of publicly offered corporate bonds in the financial market's history." As the country's bond market remains less-developed, the report said Bangladesh should improve the efficiency of the primary market for government securities by gradually increasing the share of marketable government securities, thereby raising liquidity in the secondary market. Experts say deepening finance, including capital markets, has a strong causal impact on national economic growth. A deeper financial system is also associated with propoor slant to the growth process, they add.

Current capital market situation

The bond market is a financial market where participants buy and sell debt securities, usually in the form of bonds. Like emerging-market countries around the world, Bangladesh could benefit from having a local-currency, fixed-income securities market. At present, its main fixed-income financial products are bank deposits, bank loans, government savings certificates, term loans, treasury bills, and government bonds and corporate debt (syndicated loans, private placement, and debentures). But in general the corporate debt market is still very small compared with the equity market. Numerous factors in Bangladesh today suggest that Bangladesh will not be able to develop an active, local-currency fixed-income market. In this paper, we will discuss the current situation of our bond market, what the drawbacks are and what may be the remedy for overcoming these drawbacks. Bangladesh's bond market represents the 'smallest' in South Asia, accounting for only 12 per cent of the country's gross domestic product (GDP), a World Bank report said. At US$7.35 billion, the size of the country's bond market is far smaller than the banking assets, estimated at nearly $32 billion-equivalent to more than 50 per cent of GDP, the bank's report on "South Asian domestic debt market" Then, the paper analyzes the main impediments to the Bangladesh debt market include (I) the weak regulatory framework; (ii) supply-side constraints such as a lack of the benchmark bonds; (iii) demand-side constraints such as the limited investor base; (iv) a lack of intermediaries with expertise in debt products; (v) a lack of confidence in corporate borrowers; (vi) market distortions which are caused by the National Savings Scheme (NSS) offering above-market returns; and (vii) a lack of interest from private companies, including financial intermediaries and large business, in launching new debt products due to high fees. Finally, the paper offers a roadmap for the development of the Bangladesh bond market.

Before independence, the use of bonds as a means of resource mobilization was virtually non-existent in Bangladesh. Immediately after liberation, the government of Bangladesh reissued long-term bonds accepting the liabilities of the Income Tax Bonds and the Defense Bonds of the Pakistan government held by Bangladeshi nationals and institutions. The government also issued a 5% non-negotiable bond to Bangladeshi shareholders of nationalized industries. In addition, savings bonds were also issued to pay for the value of demonetized 100-taka notes in 1974. Most of these bonds are held by Bangladesh bank. The first effort to mobilize savings for use of development expenditure was the issue of Wage Earners Development Bonds in 1981 to be sold to Bangladeshi wage earners abroad. Later, a two-year special treasury bond was issued in January 1984 to be sold to individuals, public and private sector organizations including banks. In December 1985, another instrument, the National Bond, was issued to be sold to non-bank investors.

Capital Market-Problem & Solution

The problems of the capital markets in Bangladesh are structural, and, actually quite far-reaching than what meets the eye. As we all know, the capital markets here, notably the Dhaka Stock Exchange (DSE), is way overvalued due to, firstly, the DSE index calculations being incorrect. Secondly, there are big syndicates acting together to artificially influence the prices resulting in huge profits for them at the expense of the average investors who put in their hard earned lifetime savings. And last, but definitely not least, is the Securities and Exchange Commission (SEC) whose total policy and regulations favors the syndicates which primarily consists of high net worth people and the stock exchange members resulting in an artificial demand driven market. Until and unless these fundamental issues are addressed the capital markets here will fail to see the light of the day. So, if we look at the issues individually like the DSE Index, the syndicates, comprising of stock exchange members and the SEC we can find the common link, which is the stock exchanges and the SEC. So the question arises, what do we do about them? The answer, my dear readers, rests with the question, which is to solve the problems at the two exchanges and the SEC and you will get a vibrant, dynamic and progressive capital market whereby all players involved starting from the stock exchange members and employees, firms wanting to raise capital. The SEC and most importantly the investors will enjoy the economic benefits because the markets will multiply enormously resulting in big profits for all trickling down to higher salaries, higher returns, dividends, more employment and capital market growth which in turn will attract more capital for our markets which in turn creates a virtuous cycle of wealth creation!

The reasons for demutualization are many but here are a few. First and most importantly, in the case of Bangladesh, it is of rationalized governance. The corporate model of the exchange under demutualised structure will enable management to take actions that are in the best interests of customers and the exchange itself. With the separation of ownership and trading privileges, an exchange will achieve greater independence from its members with respect to its regulatory functions. There will be the requisite degree of transparency. Demutualised exchanges will be forced to account to their shareholders regarding the bottom line as well as corporate governance. Secondly, there will be more investor participation. The new corporation will be more profit orientated due to shareholder accountability. Unlike a mutual structure where often only broker-dealers maybe members, a demutualised exchange afford both institutional and retail investors the opportunity to become shareholders. A demutualised exchange will have greater flexibility to accommodate the needs of institutional investors as customers, and potentially, as owners. Thirdly, it is the resources for capital investment. A competitive stock exchange must be able to respond quickly to global competitive forces and technological advances. With the capital raised from initial public offerings or private investment and a heightened awareness of accountability to stakeholders, a stock exchange should have both the incentive and the resources to invest in the competitiveness of its information systems. So to be competitive, products and services must not only be timely and cost effective, but also reliable.

Steps taken by Govt. The government has undertaken several effective measures to check the share
scam and protect the interests of small investors, Finance Minister Abul Maal Abdul Muhith told the House Monday, reports BSS.

The light of the recommendations and observations of the committee constituted

to probe the recent abnormal rise and fall of the capital market, the government has taken up various steps to protect the interests of the investors.

The

steps include reconstitution of the Securities and Exchange Commission

(SEC) Continued by appointing a new chairman and three members, making an executive director of the SEC officer on special duty (OSD), filing a case against two executive directors, removing the CEO of the AB Investments Ltd, taking action against some persons under criminal laws for violating the securities law and more investigation into 14 issues.

The finance minister said initiatives have been undertaken for demutualisation of
Dhaka and Chittagong Stock Exchanges side by side with formation of a highlevel taskforce for observation, monitoring and evaluation of the capital market.

The government has constituted a joint inspection team comprised of SEC, DSE,
CSE and Bangladesh Bank and reconstituted the SEC advisory team.

"We hope that these steps would help check manipulation in the capital market
side by side with protecting the interest of the investors.

Disbursement of the much-talked-about one billion-dollar loan from India would

be started from the last part of the current year.

Disbursement has not started so far. But we hope that we will be able to get a
part of the disbursement from the last part of the year." The US$ 1.0 billion loan will finance 14 development projects, particularly for infrastructure building. The line of credit is the single largest loan to Bangladesh from any country, development bank or donor agency.

From the Analysis point of view

Aspirant establishes longer-term (20 year) capital market expectations (CMEs) at least every two years. The purpose of the CMEs is to (1) provide expected returns for portfolio mixes to be used in our wealth planning process; and (2) to help guide our portfolio construction and investment manager evaluation processes. In late 2010, we began the process of reviewing and, if appropriate, revising our CMEs and our client portfolios. This process will be completed by the second quarter of 2011. Meanwhile, throughout the year, we combine our own research with views from international governmental and non-governmental organizations, academia, and respected investment managers to develop a short-term view of the markets in which we invest. Unlike the CMEs, our Market Viewpoint presents our short-term views which are not a point estimate of returns, but rather a general sense of opportunity and risk in various markets. Our May 2010 Market Viewpoint presented a view centered around two core themes: (1) differentiated levels of economic growth around the world and (2) innovation by businesses around the world, enabled by technology and new business models. This Viewpoint evaluates the performance of our prior expectations and updates them. As a start, we preview some of the big themes and questions we hope to answer during our CME development process. Our analysis and expectations do not support the fear which we read in the headlines every day, so we categorize these questions into three things which should not keep you awake at night and three things which might. These categories were first presented in our quarterly Insight for the third quarter of 2010.

Conclusion
Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia region. It has two full-fledged automated stock exchanges namely Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) and an over-the counter exchange operated by CSE. It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capital market. It consists of Central Depository Bangladesh Limited (CDBL), the only Central Depository in Bangladesh that provides facilities for the settlement of transactions of dematerialized securities in CSE and DSE. The number of investors in 2009 increased by 500,000 and stood at nearly 2 million while the number of branches of broker houses throughout the country has reached 387 in the outgoing year from 272 in 2008. The DSE market capitalization surged to 27.54 billion U.S. dollars. The market capitalization increased to 30.95 percent of GDP in 2009 from 19.26 percent in 2008. The total amount of turnover in 2009 stood at over 1,475 billion taka with 120 percent rise from that in 2008. "2009 was really a good year for Bangladesh's capital market. This year will be a milestone in the history of Bangladesh's capital market."