The securities regulator has approved the introduction of derivatives trading on the Dhaka Stock Exchange (DSE), aiming to launch the country’s first derivatives market by January 2028.
The move marks a major step towards adding a new asset class to the country's capital market, with index futures expected to be the first financial derivatives product on the prime bourse.
The decision was taken at a commission meeting on Tuesday, chaired by Bangladesh Securities and Exchange Commission (BSEC) Chairman Masud Khan.
The approved roadmap lays out the regulatory and technological preparations that the DSE must complete before trading in derivatives begins.
Under the plan, the DSE will develop the necessary trading systems and infrastructure, while a mechanism will also have to be in place for clearing and settlement, margin, collateral management and comprehensive risk controls.
The BSEC will regularly monitor the implementation of the DSE's work plan to ensure that the required infrastructure and risk-management mechanisms are properly developed before actual trading begins, the regulator said in a press release.
The approval effectively moves the derivatives initiative from the planning and preparatory stage towards implementation, although several major tasks remain to be completed before investors can start trading the new products.
The derivatives market will operate separately from the conventional equity market, with contracts deriving their value from an underlying asset or financial benchmark.
An index futures contract allows investors to take a position on the future movement of a stock-market index.
Depending on the products eventually approved under the framework, investors may be able to take positions on an index, a share or other eligible underlying asset without directly buying or selling the underlying security.
Suppose the DSE’s main index is at 5,800 points. An investor expecting the market to rise could take a futures position based on the index at 5,800. If the index subsequently rises to 5,900, the investor would make a profit based on the 100-point increase, according to the contract’s value. Conversely, if the index falls to 5,700, the investor would incur a loss.
Unlike conventional share trading, an index futures investor does not have to buy all the constituent shares of the underlying index. The value of the futures contract moves in line with the underlying index.
Market experts see the move as an important development for Bangladesh’s capital market, as derivatives could provide investors with new instruments for portfolio management and hedging.
“The planned introduction of derivatives represents a significant structural development for the country’s capital market,” said Akramul Alam, head of research at Royal Capital.
He said derivatives could also help improve market depth by attracting institutional investors and sophisticated market participants seeking more advanced investment and risk-management strategies.
Over time, the derivatives market could potentially expand beyond index futures to include other products, depending on market development, regulatory capacity and investor demand, added Mr Alam.
The development of an effective clearing and settlement system will be particularly important for the planned derivatives market as such products require robust arrangements for managing counterparty and settlement risks.
Faster dividend remittance for foreign investors
The commission also approved a new arrangement for remitting dividends to foreign shareholders of listed companies.
As per the decision, listed companies will have to remit dividends declared or approved for foreign shareholders within 30 days from the date of obtaining a Double Taxation Avoidance (DTA) Certificate from the National Board of Revenue (NBR).
The remittance payment must also be completed within the relevant financial year.
The companies will be required to submit a preliminary dividend compliance report after completing dividend distribution among local shareholders.
They will subsequently have to submit a dividend compliance report to the BSEC and the stock exchange concerned within 30 days of remitting dividends to foreign shareholders.
The move is expected to bring greater discipline to dividend distribution and address delays faced by foreign investors in receiving their entitled dividends.
No prior regulatory approval for Z-category share transfers
In another major decision, the regulator has also waived the requirement to get approval before the transfer of some shares or equity securities held by sponsors or directors of Z-category companies.
Under the amended provisions, prior approval from the BSEC will no longer be required for specified transactions involving the confiscation or transmission of shares.
The relaxation will particularly cover confiscation of shares arising from loan defaults and transmission of shares following the death of a shareholder.
