The process of establishing a central counterparty clearing house (CCP) has been accelerated, as the authorities concerned are going to appoint its CEO and deploy necessary technologies.
CCP is a separate institution, initiated by bourses and financial institutions for clearing of securities. Its operation makes the settlement of equities and derivatives easier.
In most cases, CCP is jointly operated by stock exchanges and major banks to ensure efficiency and stability of the financial markets in which they operate.
CCP also guarantees the settlement of trades and provides netting facility, which ease foreign investors' concerns.
After the operations of the planned CCP, the present exchange-based settlement will no longer exist.
The Central Counterparty Bangladesh Limited (CCPBL) -- was formed to this end after the Bangladesh Securities and Exchange Commission promulgated rules pertaining to it in 2017.
Officials at the Dhaka Stock Exchange (DSE) told the FE they are progressing fast to set up the CCP by June 2020.
K A M Majedur Rahman, Managing Director (MD) of the DSE, told the FE: "We've formed the company much earlier as per the Companies Act 1994, and now we expect to launch its operations in time."
He said the prime bourse, having controlling stakes in the CCP, will shortly appoint its CEO.
"A committee is also searching the technological solutions to the CCP." he noted.
The headquarters of the CCP will be located in Nikunja area in the city.
The DSE MD also said the launch of the CCP is important for the country's capital market development, as the introduction of multiple-netting and derivatives is not possible without such a clearing house.
The neighbouring India launched this in 2007, and subsequently it caused exponential growth in the equity market and derivatives products.
"The equity market in India almost doubled between 2007 and 2018 as a result of launching the CCP," an official at the DSE told the FE.
M Shaifur Rahman Mazumdar, Managing Director at the Chittagong Stock Exchange (CSE), said establishing the CCP will facilitate further growth and product expansion of the capital market by strengthening post-trade infrastructure.
He said it will reduce risk, enhance financial stability, and attract foreign investment.
The use of CCP will give trading firms the much-needed assurance that they are protected regardless of which counterparty the electronic trading system matched them with. Then the stock exchange will provide IT and regulatory platforms only.
The global index provider -- MSCI -- may upgrade Bangladesh's status from frontier to emerging market following the launch of the CCP, the CSE MD added.
The Tk 3.0-billion worth CCP's main stakeholders are the DSE and the CSE, having 45 per cent and 20 per cent stakes respectively.
Besides, some 12 banks jointly have 15 per cent stakes in it, each having 1.25 per cent shares, and the Central Depository Bangladesh Limited (CDBL) has 10 per cent stakes.
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