Bangladesh’s investment banking industry has experienced significant growth over the years, with a number of domestic and international firms operating in the market. The following are the key areas of the investment banking structure in Bangladesh.
Table of Contents
Structure
The investment banking industry in Bangladesh comprises a range of players, including local and international banks, brokerage firms, asset management companies, and insurance companies. The major players in the market include:
- Local banks: Commercial banks in Bangladesh offer investment banking services, including underwriting, M&A advisory, and securities trading.
- International banks: A number of global investment banks, such as Citigroup, JP Morgan, and Standard Chartered, have a presence in Bangladesh.
- Brokerage firms: These firms offer services related to securities trading, including buying and selling of stocks, bonds, and other financial instruments.
- Asset management companies: These firms manage investment portfolios on behalf of clients, including institutional investors and high net worth individuals.
- Insurance companies: Some insurance companies in Bangladesh offer investment-linked insurance products, which enable policyholders to invest in securities.
SEC Structure:
The Securities and Exchange Commission (SEC) is the regulatory body for the capital market in Bangladesh. It is an autonomous organization that operates under the Ministry of Finance. The SEC is responsible for regulating and supervising the activities of the capital market, including issuing licenses, monitoring the activities of market participants, and enforcing regulations. The structure of the SEC is as follows:
- Chairman
- Four Commissioners
- Executive Directors
- Directors
- Deputy Directors
- Assistant Directors
Legal Framework:
The Securities and Exchange Commission (SEC) is the primary regulatory body overseeing the investment banking industry in Bangladesh. The SEC is responsible for enforcing securities laws, ensuring market integrity, and protecting investors’ interests. The following are some key legal frameworks in Bangladesh’s investment banking industry:
- Securities and Exchange Commission Act, 1993: This act provides the legal framework for the establishment of the SEC and outlines its functions and powers.
- Securities and Exchange Ordinance, 1969: This ordinance governs the issue, transfer, and registration of securities in Bangladesh.
- Companies Act, 1994: This act provides the legal framework for the incorporation and regulation of companies in Bangladesh.
Performance:
The performance of the SEC is measured by its ability to regulate and supervise the activities of the capital market. The SEC’s performance is evaluated based on the following criteria:
- The number of licenses issued to market participants
- The number of market participants that comply with SEC regulations
- The number of violations detected and actions taken against violators
- The level of investor confidence in the capital market
Role of SEC:
The SEC plays a vital role in ensuring the stability and growth of the capital market in Bangladesh. The SEC’s primary responsibilities include:
- Prevention of insider lending: The SEC ensures that insider trading is prevented by enforcing regulations that prohibit the misuse of insider information. This helps to maintain a level playing field for all investors in the market.
- Investor protection: The SEC takes measures to protect investors from fraudulent activities and other forms of financial misconduct. This includes monitoring the activities of market participants, investigating complaints, and taking action against violators.
- Regulation of market participants: The SEC regulates the activities of market participants, including stock exchanges, securities dealers, brokers, and investment bankers. This helps to ensure that market participants operate in compliance with SEC regulations and maintain transparency and accountability.
- Development of the capital market: The SEC takes measures to promote the growth and development of the capital market in Bangladesh. This includes introducing new financial products, improving the regulatory framework, and encouraging investment in the capital market.
Examples from Bangladesh:
- In 2021, the SEC introduced a new rule requiring companies to disclose their carbon emissions and other environmental, social, and governance (ESG) metrics. This helps to promote transparency and accountability in the market and encourages companies to adopt sustainable practices.
- The SEC has taken action against several market participants for violations of SEC regulations, including insider trading, market manipulation, and other forms of financial misconduct. This helps to maintain investor confidence in the market and ensures that market participants operate in compliance with SEC regulations.
- The SEC has taken measures to promote the growth and development of the capital market in Bangladesh. This includes introducing new financial products, such as green bonds and Islamic bonds, and improving the regulatory framework to attract foreign investment.
Performance
The investment banking industry in Bangladesh has been performing well in recent years, driven by factors such as:
- Strong economic growth: Bangladesh has been one of the fastest-growing economies in the world, which has led to increased demand for investment banking services.
- Government initiatives: The government has taken a number of initiatives to promote capital market development, including the launch of the Bangladesh Electronic Fund Transfer Network and the introduction of a book-building mechanism for IPOs.
- Increasing foreign investment: The country has been attracting increasing levels of foreign investment, which has led to increased demand for investment banking services.
Role of SEC (Prevention of Insider Lending and Investor Protection)
The SEC plays a crucial role in ensuring the integrity of the investment banking industry in Bangladesh. Some key functions of the SEC include:
- Enforcement of securities laws: The SEC is responsible for enforcing securities laws and regulations to ensure market integrity.
- Protection of investors: The SEC is responsible for protecting investors from fraudulent activities and ensuring that companies disclose accurate and timely information to investors.
- Prevention of insider trading: The SEC is responsible for preventing insider trading, which is the use of non-public information to gain an unfair advantage in securities trading.
ICB (Institutional Investor)
The Investment Corporation of Bangladesh (ICB) is a state-owned financial institution that plays a significant role in the investment banking industry in Bangladesh. Some key functions of the ICB include:
- Investment management: The ICB manages investment portfolios on behalf of clients, including institutional investors and high-net-worth individuals.
- Underwriting of securities: The ICB acts as an underwriter for securities issuances in Bangladesh, including IPOs and bond issuances.
- Investment in infrastructure: The ICB also invests in infrastructure projects in Bangladesh, including power plants, ports, and highways.
Restructuring
Restructuring is a key service offered by investment banks in Bangladesh. This involves the reorganization of a company’s operations or ownership structure to improve its financial performance. Some examples of restructuring services offered by investment banks in Bangladesh include:
- Debt restructuring: This involves the renegotiation of a company’s debt obligations to make them more manageable.
- Mergers and acquisitions: Investment banks in Bangladesh help companies to identify potential merger or acquisition targets and advise on the structuring of these transactions.
- Divestitures: Investment banks also advise companies on the sale of non-core assets to raise funds.
Acquisition
Acquisition is another key service offered by investment banks in Bangladesh. This involves the purchase of one company by another. Some examples of acquisition services offered by investment banks in Bangladesh include:
- Due diligence: Investment banks help acquirers to conduct due diligence on target companies to assess their financial and operational performance.
- Valuation: Investment banks help acquirers to value target companies and negotiate the price of the acquisition.
- Financing: Investment banks help acquirers to arrange financing for the acquisition, including debt and equity financing.
Corporate Advisory
Corporate advisory is a broad term that encompasses a range of services offered by investment banks to companies. Some examples of corporate advisory services offered by investment banks in Bangladesh include:
- Capital raising: Investment banks help companies to raise capital through the issuance of securities, including equity and debt securities.
- Strategic planning: Investment banks advise companies on their long-term strategic plans, including mergers and acquisitions, divestitures, and restructuring.
- Risk management: Investment banks help companies to identify and manage financial risks, including currency risk, interest rate risk, and commodity price risk.
Legal, Ethical and Governance Issues in Investment Banking
Legal, ethical, and governance issues are critical considerations in the investment banking industry in Bangladesh. Some key issues include:
- Insider trading: The SEC is responsible for preventing insider trading, which is the use of non-public information to gain an unfair advantage in securities trading.
- Conflict of interest: Investment banks must manage conflicts of interest, such as advising on a transaction where the bank has a financial interest in the outcome.
- Compliance: Investment banks must comply with applicable laws and regulations, including anti-money laundering and anti-corruption laws.
Growth of Investment Banking in Bangladesh
The investment banking industry in Bangladesh has experienced significant growth in recent years. Some key factors driving this growth include:
- Strong economic growth: Bangladesh has been one of the fastest-growing economies in the world, which has led to increased demand for investment banking services.
- Capital market development: The government has taken a number of initiatives to promote capital market development, including the launch of the Bangladesh Electronic Fund Transfer Network and the introduction of a book-building mechanism for IPOs.
- Increasing foreign investment: Bangladesh has been attracting increasing levels of foreign investment, which has led to increased demand for investment banking services.
Tier II Bonds, ZCB, Sukuk, Sustainable Bonds
Investment banks in Bangladesh offer a range of debt instruments, including tier II bonds, zero-coupon bonds (ZCBs), sukuk, and sustainable bonds. These instruments offer different benefits to issuers and investors, as summarized below:
- Tier II Bonds: These are debt instruments issued by banks to raise capital that can be used to absorb losses in the event of a financial crisis. Tier II bonds are subordinated to senior debt and are therefore riskier for investors. However, they typically offer higher yields to compensate for this increased risk.
- Zero-Coupon Bonds (ZCBs): These are bonds that do not pay periodic interest payments but are sold at a discount to their face value. Investors earn a return on ZCBs by holding them until maturity, at which point they receive the face value of the bond. ZCBs are useful for issuers that do not want to make periodic interest payments but still need to raise funds.
- Sukuk: These are Islamic bonds that comply with Shariah law. Sukuk do not pay interest but instead offer investors a share of the profits generated by the underlying assets. Sukuk are popular in Bangladesh, where the majority of the population is Muslim and Shariah-compliant investments are in high demand.
- Sustainable Bonds: These are bonds that are issued to finance projects with environmental or social benefits. Sustainable bonds are becoming increasingly popular in Bangladesh as companies seek to demonstrate their commitment to sustainability and attract socially responsible investors.
In conclusion, the investment banking industry in Bangladesh is evolving rapidly, driven by strong economic growth, capital market development, and increasing foreign investment. Investment banks in Bangladesh offer a range of services, including corporate advisory, debt and equity underwriting, and mergers and acquisitions. However, legal, ethical, and governance issues must be carefully managed to maintain investor confidence in the industry. Investment banks in Bangladesh also offer a range of debt instruments, including tier II bonds, ZCBs, sukuk, and sustainable bonds, to meet the needs of issuers and investors.