A Capital Market for a Developed Bangladesh: Priorities for the New BSEC Commission-Restoring Confidence, Building New Markets, and Financing National Development

Bangladesh stands at a critical juncture in the evolution of its financial system. While the banking sector has traditionally dominated financial intermediation, the capital market has remained underdeveloped, volatile, and unable to fulfill its intended role as a long-term source of financing for businesses and national development projects.

The appointment of a new Bangladesh Securities and Exchange Commission (BSEC) presents an opportunity to undertake comprehensive reforms that can transform the capital market from a speculative trading venue into a trusted institution for capital formation, wealth creation, and economic growth.

The regulator (BSEC) was established on 8 June 1993 under the Securities and Exchange Commission Act, 1993 to replace the Capital Issues Act, 1947, which was considered inadequate for a modern and expanding capital market. In 1993, BSEC started with three principal objectives:
1. Protect investors’ interests.
2. Develop and regulate the securities market.
3. Formulate and enforce securities-related rules and regulations.
But, since then it has failed to achieve its objectives, although numerous SROs, Rules, and Notifications has been issued to bring investors confidence, established number one capital providers in financing public and private projects & corporates. Rather, market behavior in 1996 & in 2010 frustrated investors hugely, and could not satisfy investors even stakeholders in any time over a long 34 years.

During 34 years, various commission has worked for the capital market but could not satisfy stakeholders rather various negative rumors have infected market, good investors leave market, & market failed to attract foreign investors. The corporation then fully depends on Banks, corporate governance cannot be ensured, etc.

With all the above market inefficiencies, investors had the expectations to new democratic government to form an effective and efficient commission of BSEC. Finally, government has formed the long-awaited Commission.

Accordingly, stakeholders has huge expectations to the commission. The commission has challenges to fulfill the expectations. We want to keep confidence on the commission.

However, the primary expectation from the new Commission is to restore credibility and confidence in Bangladesh’s capital market by ensuring strict enforcement against market manipulation and insider trading, strengthening corporate governance and disclosure standards, protecting investors’ interests, and promoting a culture of ethics and accountability.

At the same time, the Commission should transform the market from a largely speculative equity market into a diversified financial ecosystem by developing corporate bond, sovereign bond, Sukuk, and commodity markets, attracting long-term institutional investors, facilitating the financing of national infrastructure projects through the capital market, and modernizing market infrastructure so that the market becomes an efficient, transparent, and trusted engine of economic growth and capital formation.

Again, I can prioritize some of the strategies for new commissions:

1. Restore Investor Confidence Through Governance and Enforcement:
The first responsibility of the new Commission must be rebuilding public trust. Investor confidence has been damaged by repeated episodes of market manipulation, insider trading, weak disclosures, and inadequate enforcement. Without confidence, no market can thrive.

The Commission should:
– Establish a zero-tolerance policy against market manipulation;
– Accelerate investigations and ensure visible enforcement actions;
– Introduce technology-driven surveillance systems;
– Publish enforcement outcomes transparently; and
– Strengthen corporate governance requirements for listed companies.

Justice delayed in securities markets is often justice denied. Swift and predictable enforcement is essential.

2. Transform the Market from Speculation to Investment:
Bangladesh stock market remains excessively dependent on retail investors. A healthy capital market requires strong participation from institutional investors such as pension funds, insurance companies, mutual funds, and sovereign investment entities.

The BSEC should:
– Encourage the growth of professional asset management companies;
– Promote long-term investment products;
– Strengthen mutual fund governance; and
– Facilitate pension and retirement fund participation.

A market dominated by informed institutional investors is naturally more stable and efficient.

3. Develop a Deep and Liquid Corporate Bond Market:
One of the greatest weaknesses of Bangladesh financial architecture is the absence of a vibrant bond market. Currently, businesses rely overwhelmingly on bank loans. This concentration increases systemic risk and restricts long-term financing.

The Commission should:
– Simplify bond issuance procedures;
– Reduce issuance costs;
– Encourage credit rating discipline;
– Introduce market makers for secondary trading; and
– Provide tax incentives for bond investors.

A strong bond market would provide an alternative source of funding for infrastructure, manufacturing, energy, and technology sectors.

4. Establish a Comprehensive Sukuk Ecosystem:
Bangladesh has successfully introduced sovereign Sukuk, but the market remains in its infancy. The next phase should focus on building a complete Islamic capital market ecosystem.

Key initiatives include:
– Facilitating corporate Sukuk issuance;
– Standardizing Shariah governance frameworks;
– Developing Sukuk trading platforms;
– Creating Sukuk-based mutual funds and ETFs; and
– Encouraging participation from Islamic banks and pension funds.

As one of the world largest Muslim-majority economies, Bangladesh possesses significant untapped potential in Islamic finance.

5. Launch a Modern Commodity Exchange:
Bangladesh lacks an organized commodity market despite being heavily dependent on agricultural and imported commodities.

A commodity exchange could:
– Improve price discovery;
– Reduce volatility;
– Enhance supply-chain transparency; and
– Allow hedging against price risks.

Initial products could include rice, wheat, sugar, edible oil, tea, jute, cotton, gold, etc. The introduction of commodity futures and derivatives should proceed gradually under strong regulatory oversight.

6. Finance National Infrastructure Through Capital Markets:
The future of infrastructure financing cannot depend solely on government borrowing and banking-sector lending. The capital market should become a strategic financing partner for national development.

Potential projects can be primarily expressway, ports, airports, power plants, railways, economic zones, water and sanitation projects, etc.

Infrastructure bonds, green bonds, municipal bonds, project bonds, and sovereign Sukuk can mobilize domestic savings for productive national investment. Citizens should have opportunities to directly participate in financing the country’s development while earning stable returns.

7. Strengthen Disclosure and Financial Reporting:
Transparency is the foundation of market efficiency. The BSEC should require quarterly reporting of international quality, timely disclosure of material information, enhanced auditor accountability, adoption of global reporting standards, and strong whistleblower protections.

Markets perform best when information is available equally and promptly to all participants.

8. Modernize Market Infrastructure:
Technology must become a strategic priority. Necessary reforms should include:
– Real-time market surveillance;
– Advanced data analytics;
– Faster settlement systems;
– Digital bond trading platforms;
– Integrated investor portals;
– Electronic voting for shareholders.

A modern market infrastructure increases efficiency and reduces operational risks.

9. Build an Ethical Capital Market Culture:
Regulation alone cannot create a healthy market. The Commission must actively promote ethics, professionalism, and fiduciary responsibility. Measures should include mandatory ethics certification for market intermediaries, continuous professional education, strong codes of conducts, public recognition of governance excellence, and investors awareness campaigns. Capital markets ultimately function on trust, and trust depends on integrity.

10. Position Bangladesh as a Regional Capital Market Hub:
The long-term vision should extend beyond domestic reforms. Bangladesh can aspire to become a regional financial center by attracting foreign portfolio investment, encouraging dual listings, facilitating cross-border bond issuance, promoting green and sustainable finance, and developing Islamic finance leadership.

With a growing economy, rising middle class, and expanding industrial base, Bangladesh possesses the ingredients necessary for a vibrant capital market ecosystem.

Finally, the success of the new BSEC Commission will not be measured merely by rising stock prices. The true success will be judged by whether it can create a transparent, efficient, diversified, and trusted capital market that mobilizes national savings, finances productive investment, supports infrastructure development, and contributes to sustainable economic growth.

The next chapter of Bangladesh financial development requires a shift from speculation to capital formation, from short-term trading to long-term investment, and from market excitement to market integrity. If the new Commission embraces this vision, Bangladesh capital market can become one of the most important drivers of national prosperity in the decades ahead.

Suggested Citation for the Article:
“The policy recommendations in this article are based on publications and regulatory frameworks of the Bangladesh Securities and Exchange Commission (BSEC), Bangladesh Bank, Ministry of Finance, Dhaka Stock Exchange, Chittagong Stock Exchange, International Monetary Fund (IMF), World Bank, Asian Development Bank (ADB), International Organization of Securities Commissions (IOSCO), and Islamic Financial Services Board (IFSB).”