Anwar-Ul-Haleem:
As Bangladesh strives for upper-middle-income status, a robust and transparent capital market is not merely desirable—it is indispensable.
A Functional Market Is Critical to National Growth
A well-functioning stock exchange plays a crucial role for mobilizing savings, fostering innovation, supporting private businesses, and reducing the burden on public funds. However, it still faces hurdles like low liquidity, unclear practices and long-standing investor distrust—particularly stemming from the 2010 market crash—continue to hold the sector back.
A Legacy That Still Lingers
The 2010 crash exposed fundamental flaws rather than being solely a financial event. Rampant insider trading, unchecked stock manipulation, and regulatory lapses led to a meltdown that devastated countless retail investors. Even though an official investigation took place, the findings never really came to light, which meant that crucial issues remained unresolved and trust in the market was shaken.
Since then, many retail investors have hesitated to jump back in, largely due to a lack of confidence in the market and uncertainty about the regulatory environment. Participation levels haven’t bounced back, liquidity remains thin, and stock prices frequently stray from actual business fundamentals—a clear sign of a system still struggling with credibility and clarity.
Growth at the Top, Stagnation at the Core
While Bangladesh’s economy has made remarkable strides—ranking 35th globally by GDP (International Monetary Fund World Economic Outlook, October – 2024)—the same cannot be said for its capital market. The Dhaka Stock Exchange’s market cap stood at just $53 billion in 2023, barely 13% of GDP, in stark contrast to India’s BSE which topped $3.8 trillion (Bloomberg, 9 September 2023). This mismatch points to a serious disconnect. The market’s inability to direct capital into productive use isn’t just a financial flaw—it’s a brake on national progress.
Liquidity and Valuation: The Missing Links
A critical weakness in the market is its persistent lack of liquidity. Sparse trading not only increases volatility, but it also affects pricing, resulting in market inefficiencies. For example, Eastern Lubricants had a P/E ratio of 63.35 with 1.75 million shares (StockAnalysis,15 May 2025), which was significantly higher than its actual performance.
The macroeconomic toll is far from trivial. For example, the International Monetary Fund (IMF) calculated that a 10% drop in market liquidity may reduce annual GDP growth by 0.3 percentage points in advanced economies and 0.6 percentage points in emerging markets. (FasterCapital, 30 March 2025). A brittle market doesn’t just hurt portfolios—it slows down the entire economy.
Reforming the Regulator: Strengthen the BSEC
The BSEC plays a central role in restoring market integrity; however, in 2023, it only resolved 15% of the 1,200 investor grievances (Biniyog.com.bd). Weak enforcement and opacity continue to undermine its authority.
The commission must be equipped with:
Real-time monitoring tools
AI-powered detection systems
Swift enforcement processes
Internally, merit-based hiring, frequent staff rotation, and ongoing training can help maintain independence and bolster regulatory impact.
Bringing in the Big Players
Institutional investors—pension funds, mutual funds, insurers—offer stability and depth. But in Bangladesh, they account for just 16.7% of daily trades (The Business Standard, 2023).
To attract such capital, the country should:
Launch professionally run mutual funds
Set minimum equity requirements for financial institutions
Offer tax breaks for listed firms and long-term investors
These steps would boost liquidity, curb volatility, and enhance oversight of corporate governance.
Making IPOs Work for Everyone
Skepticism around IPOs persists due to favoritism and lack of transparency. Many listings have disproportionately benefited select groups, sidelining the average investor.
Needed reforms include:
Minimum IPO size to ensure substance
Transparent, automated share allocations
Listing profitable state-owned firms to lend credibility
Such changes can rebuild trust and broaden market participation.
Fixing Governance and Audit Gaps
Out of the 360 companies listed on the DSE, 82 are identified as ‘junk stocks’ (The Daily Star, 2024). That’s not just a red flag—it’s a governance crisis that threatens market integrity and investor confidence by eroding trust in listed companies and the overall market environment. Lax auditing and ineffective boards let underperformers remain listed, warping the market.
Solutions include:
Enforcing clean, timely audits
Mandating 20% independent board members
Holding auditors accountable for misreporting
The FRC, created under the Financial Reporting Act, 2015 needs the authority to conduct thorough inspections, enforce regulations, and promptly address violations for effective market oversight.
Financial Literacy: The Foundation of Inclusion
Many retail investors lack essential knowledge about risk, valuation, and diversification, increasing their vulnerability to investment risks and scams. This exposes them to speculation and scams, putting them at high risk.
Bangladesh must:
Require investor onboarding training
Run nationwide literacy campaigns
Partner with College/Universities and digital platforms
Support mobile apps that offer tailored advice and alerts
These efforts would empower a smarter, more resilient investor base.
Crack Down on Market Abuse
Insider trading and manipulation must be met with zero tolerance. Following the EU model, firms should designate officials to maintain insider lists, ensuring transparency and accountability. This, coupled with whistleblower protections and serious penalties, would foster accountability.
To revive activity in under-traded stocks, regulators should consider market-making initiatives, especially for small-cap shares, to enhance liquidity, price stability, and investor interest in these stocks.
Lessons from the Region
Asia’s leading markets offer valuable lessons. In Japan, firms are enhancing shareholder returns via record dividends and buybacks—¥15.2 trillion in payouts expected in 2024 (Euromoney, 7 May 2025). South Korea’s Corporate Value-Up program and China’s focus on mandatory dividend disclosures show how transparency and investor trust can be institutionalized.
Bangladesh can adapt these strategies to strengthen engagement and drive long-term value.
Reform That Reaches Everyone
For reforms to stick, coordination is key. The BSEC should collaborate with:
The Anti-Corruption Commission to tackle financial misconduct
The Financial Intelligence Unit to enhance monitoring of suspicious transactions
The Competition Commission to ensure collusion free market
Enforcing the Competition Act, 2012 and cracking down on collusion in stock market are vital steps to provide level playing field and promote fairness.
Moreover, reform must include input from all sides—investors, institutions, listed firms. Public-private advisory councils and digital feedback portals can ensure the process remains inclusive and grounded in reality.
The Moment to Act
Bangladesh’s capital market is at a tipping point. Strategic reforms can transform the market into a growth catalyst by expanding financial access, attracting long-lasting investments, and protecting the economy from uncertainties. Rebuilding trust is of utmost importance, irrespective of the challenges that lie ahead. Delaying essential reforms poses a significant risk of market stagnation, loss of investor confidence, and missed growth opportunities. Now is the time to act—decisively and collectively—for a stronger, more equitable financial future.
Key Priorities for Reform
Adopt modern technology, accelerate enforcement, and restructure internal systems.
Encourage mutual funds, introduce equity mandates, offer tax incentives, and enhance institutional investment.
Address systemic issues, ensure transparency, and prioritize state-owned enterprise (SOE) listings to improve the initial public offering (IPO) process.
Enforce thorough audits, reform boards, and strengthen auditor oversight to improve governance practices.
Launch training programs, run awareness campaigns, integrate content into education, and provide smart investment tools.
Track insider activities, enforce whistleblower protections, and impose significant penalties to prevent unethical behavior in the market.
Establish feedback platforms, create public-private councils, and enhance inter-agency coordination to actively involve stakeholders.
(The writer is a Deputy Secretary of Bangladesh government)
