1.

Securities Market
2. Mutual Funds, Hedge
Funds & Other Inv Options

Md Mominul Haque, CFA

Head of Investment Banking Services
LankaBangla Investments Limited
Securities Market
OUTLINE

- Type of Fund Required for Business

- Type of Securities Companies Can Issue
- Security Issuance Mechanism
- Stakeholders
- Relevant Rules & Regulations
- Other Relevant Facts of Security Issuance
- Relevant Documents for Security Issuance
- Major Securities Market
Source of Fund
Fund for
Business

Equity Quasi Equity Debt

Loan (WC, ST, LT,

Paid Up Pref Share
CP, BG, LC)

Retained Loan from

Earning Directors

Alternatives
Share Money
(Bond, Sukuk,
Deposit
ABS)
Relevant Regulations

The Companies Act 1994

Security & Exchange Ordinance 1969

Securities Act 1920

Security & Exchange Ordinance 1969
Source of Fund

Preference Government
Share
Share Security

Shariah
Corporate Asset Backed
Compliant
Bond Security (ABS)
Bond (Sukuk)
Equity Return Quantification
Equity Return Quantification (Cont.)
Debt Instrument Return Quantification
▪ If the same amount of BDT 32.55 Million was invested in a Government Fixed Income
Instrument (highest credit rating) with:
a. Interest Rate of 12%
b. Quarterly compounding and invested without any reinvestment risk
c. Continued for last 30 years

Current Amount would be BDT 1,129 Million

Security Issuance Mechanism
Decision at company end to issue securities
Price Sensitive Information Dissemination
Issue Manager & Arranger Appointment
Submission of application to BSEC, Exchanges & Primary Regulator
Receiving consent from Exchanges & Primary Regulator
Receiving Approval from BSEC
Road Show
Public Subscription
Lottery / Auction
Sending securities to respective BO Account
Trade of Securities
Security Issuance

▪ Sales Channel:
- Privately Placed
- Public Offering
▪ Type of Investors:
- Institutional
- Retail
Security Issuance

▪ Place of offering:
- Local
- International
▪ Physical Nature:
- Mat (Material Share)
- Demat/ Electronic
Relevant Rules for Security Issuance (Instrument Specific)
 Securities and Exchange Ordinance, 1969
 Securities and Exchange Rules,2020
 Companies Act, 1994
 Issue of Capital Rules, 2001
 Public Issue Rules, 2015
 Right Issue Rules, 2006
 BB DMD Circular No- 3 (06.06.23) & G-Sec Related Directives issued by BSEC
 Debt Securities Rules, 2021
 Investment Sukuk Rules, 2019
 Asset Backed Securities Rules, 2004
 Revaluation Guideline, 2013
 DSE Listing Regulation, 2015
 CSE Listing Regulation, 2015
 BSEC Corporate Governance Code, 2018
 BSEC Financial Reporting and Disclosure Guideline, 2018
 DSE Alternative Trading Regulations, 2022
 Qualified Investor Offer by Small Capital Companies Rules, 2022
Stakeholders
▪ Issuer
▪ Investor
▪ Trustee/ Paying Agent
▪ Credit Rating Agency
▪ Bangladesh Security Exchange Commission (BSEC)
▪ Exchanges
▪ Issue Manager
▪ Arranger
▪ Underwriter
▪ Depository
▪ Custodian
Common Documents
▪ Prospectus/ Information Memorandum
▪ Subscription Agreement
[Notable terms: Anti Dilution, Anti Competition, Drag Along, Tag
Along]
▪ Put Agreement
▪ Call Agreement
▪ Service Agreement with-
- Issue Manager & Arranger
- Trustee
- Issuing & Paying Agent (IPA)
- Shariah Supervisory Board
- Credit Rating Agency
- CDBL
- Banker to the Issuer
 Exchanges

DHAKA STOCK EXCHANGE (DSE) CHITTAGONG STOCK EXCHANGE (CSE)

▪ Incorporated in 1954 ▪ Incorporated in 1995

▪ Converted to limited company under The ▪ Through Exchanges Demutualization Act, 2013, DSE
Companies Act 1994 was converted into a “For Profit” company in 2013
▪ Through Exchanges Demutualization Act, 2013, ▪ Offer diversified services in security exchange (in
DSE was converted into a “For Profit” company in equity, debt) and Information
2013
▪ Still volume and level of service is lower than DSE
▪ Offer diversified services in security exchange (in
equity, debt, G-Sec) and Information ▪ Expected that it will be converted to full fledged
commodity exchange
Security Markets @ DSE

DSE MAIN BOARD G-SEC DSE SME BOARD DSE ATB

(ALTERNATIVE
TRADING BOARD)
 Major Security Markets of BD

DSE Main Board G-Sec DSE SME Board DSE ATB

Top trading platform of Started operation back in Started operation in 2023

Newly introduced board for
our country that allows 2022 to facilitate small to facilitate the liquidity
G-Sec trading in parallel to
trading of Equity, Debt companies or start up to for shareholders and debt
MI module of BB
and Close- End MF raise fund from market instruments
Tenor wise distribution (T
Post-IPO paid up capital Units of MF, Alt Fund,
Category- A, B, N & Z Bill- 91, 182, 364 days)
more than 50 M but not Bonds, Equity of Non-
T Bond- 2, 5, 10, 15, 20
more than 500 M Listed Companies
years)

Listing through public Listing after auction Sell offer to Qualified Listing based on the DSE
offering & direct listing conducted by BB Investors Approval
Mutual Fund
Mutual Fund Structure
MF Investment
Structure
 Professional
Management

Risk
Benefits of MF Diversification

Steady Dividend
Income

Tax Rebate
 • MF with a defined timeline for the
distribution of AUM
Closed End • Listed in Exchanges
• Traditionally most popular among
Mutual Fund investor group
• Facing major set back since 2020

Type of MF

• MF with no defined timeline for the

Open End distribution of AUM
• Investors invest in the fund on a
Mutual Fund rolling basis
• Getting more attention among
investors due to better performance
Development of MF in BD
▪ ICB is the pioneer in this sector. Launched 1st close end MF
named “First ICB Fund” back in 1980
▪ In 1981, ICB launched the 1st open ended MF
▪ During 1980-1996, ICB was the only AMC
▪ In 1999, AIMS of Bangladesh launched country’s 1st private
sector close end MF
▪ In 2010, Prime Finance & Inv Ltd launched the country’s 1st
private sector open ended MF
▪ 2011, Race AMC launched 1st MF dedicated for Fixed Income
▪ 2016, LankaBangla first launched the MF with balanced
approach covering both equity and fixed income
▪ Now sector focused and SIP also in place
Current Status of MF in BD

No of AMC- No of Funds-
58 124

No of Open- No of Close
End Funds- 88 End Funds- 36

Open End Close End

AUM – 56 B AUM- 61 B
AMC Wise Market Share- Closed End MF
AMC Wise Market Share- Open End MF
AMC Wise Market Share- Open End MF (Cont.)
Performance of MF
Performance of MF (Cont.)
Contribution of Mutual Fund to BD Economy
Contribution of Mutual Fund to BD Economy
Contribution of Mutual Fund to BD Economy
Contribution of Mutual Fund to BD Economy (Cont.)
Contribution of Mutual Fund to BD Economy (Cont.)
Contribution of Mutual Fund to BD Economy (Cont.)
Contribution of Mutual Fund to BD Economy (Cont.)
Investment Policy of MF

As per BSEC Mutual Funds Rules, 2001 (as amended), fund managers shall NOT invest:
▪ Less than 80% of the total assets in capital market instruments out of which at least 50% shall be invested in
listed securities
▪ more than 25% of the total assets in shares, debentures or other securities in any one industry
▪ more than 20% of the total assets in shares, debentures or other securities of a single company
▪ more than 15% of the total asset in Pre-IPOs at one time.
▪ more than 15% of any company’s total paid up capital.

▪ more than 10% of the total asset in any one particular company.
IPO Bidding Quota for MF

UNDER FIXED PRICE METHOD UNDER BOOK BUILDING METHOD

Challenges

Lack of
Nonexistent Unfavorable
Financial
Publicity Tax Policy
Literacy

Regulatory Financial
Constraints Scams
Lack of Financial Literacy

▪ According to the last S&P Global Finlit survey, financial literacy rate
among adults in Bangladesh was around 19% ranked 131 out of 142
countries which was 35% in Sri Lanka and 25% in Pakistan.
Non-Existent Publicity

https://www.mutualfundssahihai.com/en
Unfavorable Tax Policy
▪ Different tax policy for open-ended funds and close ended funds. As per the Bangladesh Income tax
act 2023, a tax rebate eligible investment limit of BDT 500,000 has been imposed on Open-end funds
while there is no such limit for closed ended funds and stocks.
Regulatory Constrains
▪ Inconsistent regulatory environment
▪ Limited investment options
▪ Reduce flexibility for fund managers
▪ Market timing challenges
Financial Scams

▪ UFS Asset management swindled funds worth BDT 1,580 mn from its four mutual funds: UFS-
IBBL Shariah Unit Fund, UFS-Popular Life Unit Fund, UFS-Bank Asia Unit Fund, and UFS-Padma
Life Islamic Unit Fund
Exchange Traded Fund
What is an EXCHANGE TRADED FUND (ETF)?
ETF is a type of security that tracks an index, sector, commodity, or other asset, but
which can be purchased or sold on a stock exchange the same way a regular stock
can.
Particulars Mutual Funds ETFs Stocks
Diversified √ √
Traded on exchange √ √
Intraday pricing √ √
Intraday trading √ √
Management fees √ √
Commission fees √ √
Index-tracking √
ETF Features

Minimum Fund Size BDT 50 Crore

Sponsor’s Investment Minimum 10%
Asset Manager’s Investment Minimum 2%
Lock-in period (Sponsor & AMC) 2 Years
Capital Commitment 50% of the target fund size
Required Number of AP Two (2)
Maximum Cash Holding 3%
Maximum Tracking Error 4%
Related Parties & Fees
Parties Responsibilities Fees
Asset Manager • Manage the Fund • Passive Management
• Make necessary agreement with AP 0.75%
• Prepare investment & Fund Management • Active Management 1.0%
Guideline
Trustee • Investment Committee Approval. 0.25% of the year end fund size
• Authorize asset manager to open BO
account, Bank account and trading account.
• Will select index provider
Custodian • Make tripartite agreement with the trustee Maximum 0.15% of the year
and asset managers detailing their role, end fund size
responsibilities & obligation
Authorized • Creation & Redemption of ETF Units
Participant (AP)
Process Flow
Working Mechanism of ETFs
Primary Market Secondary Market

Authorized Participants Buyers/AP

ETF Units
Redemption

Cash
ETF Units
ETF Units
Creation

Shares
Shares

Stock Exchange

ETF Units
Cash
Asset Manager
Sellers/AP
Global ETF Market Growth
Indian ETF Market Growth
1st ETF of
Bangladesh
Private Equity & Venture Capital
Salient Information on PE & VC
▪ Governed by “BSEC Alternative Investment Rules 2015”
▪ 26 Fund Manager has taken Fund Manager License from BSEC
▪ 12 funds already being launched
▪ As of 2023, 2500+ active start up
▪ During 2013-2023, USD 909 Million raised out of which USD 841 Million is from Global Sources
▪ During 2013-2023, 377 deals being made
▪ Estimated job created 1.5 Million
▪ Government Aims:
- 5 Unicorn by 2025
- USD 2.5 Billion per year by 2030
Market Players
Hedge Fund
Hedge Fund
Structure
 ▪ Capital Appreciation
▪ Alternative Investment Strategies
▪ Risk Management
Major Functions ▪ Diversification
of Hedge Fund ▪ Active Management
▪ Sophisticated Investment Techniques
▪ Liquidity
 1. Long/Short Equity Funds
2. Event-Driven Funds
3. Global Macro Funds
4. Arbitrage Funds
5. Distressed Debt Funds
Type of Hedge 6. Quantitative/Algorithmic Funds
Fund 7. Managed Futures Funds
8. Market Neutral Funds
9. Multi-Strategy Funds
10.Long-Only Funds
11.Sector-Specific Funds
12.Fund of Funds
A Silver Lining
Any
Question?
Thank You