FAQ on Government Securities Market
- What is a Government Security?
- A Government Security is a tradable instrument issued by sovereign Government. It acknowledges the Government's debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
- What are the major Government Securities (G-Sec) in Bangladesh?
- Major G-Secs in Bangladesh are: a. Treasury Bills (T-Bills) b. Bangladesh Government Treasury Bonds (BGTB)
- What are the main features of Treasury Bills?
- Three tenors are available namely 91 day, 182 day and 364 day.
- Interest rate/Price is determined by the market
- They are issued at a discount and redeemed at the face value at maturity.
- Tradable in the secondary market.
- Issued in scripless form.
- The central Bank releases monthly calendar through BB website.
- What are the main features of Treasury Bonds?
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- Risk free fixed coupon bearing debt instrument
- Maturities are available for 2, 5, 10, 15 & 20 years.
- It carries half yearly coupon payment and the principal is repaid on maturity.
- Yield is determined by the market.
- Tradable instrument in the secondary market.
- Issued in scripless form.
- How T-Bills and BGTBs issued?
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- Weekly (usually on Sunday) auctions of Treasury Bills are held following a pre-announced auction calendar with a specified amount. Bidders quote their prices. The Auction Committee determines the cut-off price from the offered prices.
- Weekly (usually on Tuesday) auction of BGTB of a particular tenor is held following a pre-announced auction calendar with the specific amount. In case of new issue bidders quote their expected yields and in re-issue auction they have to quote price.
- What Benefits Can you derive by Investing Treasury Bonds?
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- It is an absolutely risk free investment, since it is issued by the sovereign government.
- One can get the attractive rate of interest since the yield is determined in the market.
- Since these bonds are tradable in the secondary market, one can obtain instant liquidity by selling them in the market.
- All receipts of interest and maturity are fully repatriable in case of foreign investment.
- One can get the best services from Central Bank of Bangladesh which maintain fully automated scripless depository system named Financial Market Infrastructure (FMI) Module.
- What is Sukuk?
- Sukuk is shariah based financial investment. It 7indicates exclusive ownership on the existing assets of a particular project or particular investment or service under a Shariah-compliant investment agreement or/and on such assets to be included under that agreement through production or manufacture or/and on any Shariah-compliant goods that will be purchased or has already been purchased for the purpose of buy and sale.
- What are the eligibility criteria of investing in Sukuk?
- Any individual or institution, resident or non-resident, agreeing to take profit or loss (if any) is eligible to purchase Sukuk.
- How can non-resident individuals or institutions invest in Sukuk?
- A non-resident individual or institutional investor can invest in Sukuk through a Non-Resident Foreign Currency Deposit Account or a Non-Resident Investor’s Taka Account maintained in his name with any bank operating in Bangladesh.
- Can non-resident individuals or organizations repatriate profits and capitals abroad?
- Yes. A non-resident individual or institution may repatriate the profits and the proceeds from the sale or the actual foreign currency received at maturity (after deduction of all applicable fees and/or taxes) abroad.
- How will the investors receive profits?
- Investors will be entitled to profit on a semi-annual basis at the rate and terms specified in the prospectus. Institutional investors who have current/al-wadia accounts with Bangladesh Bank will receive the profit in the said account. In case the individual investors or institutions do not have a current/al-wadia account with Bangladesh Bank, the profit will be deposited to the bank where the investors have an account. It is to be noted that if the actual payment date of the Sukuk profit is a holiday, it will be paid on the next working day.
- Is Sukuk transferable?
- Yes. The prospectus of the issued Sukuk contains the terms and conditions regarding the transferability and tradability of the Sukuk. However, since one-third of the issued Sukuk projects have been completed, all of the three (03) issued Sukuks are tradable at a price agreed upon.
- Is money invested in Sukuk tax-exempted?
- Yes. Money invested in Sukuk is allowed to get tax rebate. However, tax will be applicable on Sukuk profits as per existing income tax laws and regulations.
- What is the minimum amount of Sukuk that can be purchased?
- The minimum amount of Sukuk can be purchased is BDT. 10,000/- and any amount multiples of BDT.10,000/-.
- Is it possible to get any liquidity facility against sukuk?
- Sariah based banks can use sukuk as collateral to get Islami Bank Liquidity Facility (IBLF).
- Who can place bid in the auction?
- Primary Dealers (PDs) can place bids in auction. Other commercial banks and Non-Bank Financial institutions, Insurance companies, corporate, individuals, provident fund etc. can also participate in auction through PDs.
- What is the minimum bid amount in an auction?
- Minimum bid amount is Taka one lac and its multiples.
- Who can invest in G-sec.?
- Individuals and Institutions residents in Bangladesh such as:
- Banks, non-bank financial institutions
- Insurance companies
- Corporate bodies
- Authorities responsible for the management of provident funds, pension funds etc.
- Can any individual investor buy G-Secs?
- Yes, any individual can buy Government security through Primary Dealers/Scheduled Banks in auction. Individuals can also buy G-Sec from any PDs/Banks/NBFIs in the secondary market.
- How can any individual buy G-Secs?
- Scheduled Banks and financial institutions maintaining accounts with Motijheel Office of Bangladesh Bank will take initiative to open Business Partner Identification (BP ID) in favour of their individual/institutional customers in Market Infrastructure (MI) Module of Bangladesh Bank to participate in the auctions. Individuals may also buy or sell government securities in secondary market over the counter (OTC)/Trader Work Station (TWS) of MI module.
- Can foreigners/Non-resident buy G-Secs?
- Yes, Foreigners/Non-resident individual/institutions can buy Bangladesh Government Treasury Bond (BGTB) from Primary and Secondary market through Primary Dealers and other Banks. The purchase value of bonds shall be paid from the investors fund in Non-resident Foreign currency Account and in Non-resident Investors Taka Account (NITA) maintained with a bank in Bangladesh. Coupon payments and resale/redemption proceeds are freely transferrable abroad in foreign currency after deduction of applicable taxes. Bonds purchased by a non-resident may freely be resold anytime (no lock in period) to any resident or non-resident.
- What type of Bonds Foreign investor can purchase?
- Eligible foreign investors are permitted to purchase, sell or transfer Treasury Bonds with any maturity period.
- What is the minimum bid amount in an auction?
- Minimum bid amount is Taka one lac/0.1 million and its multiples.
- Is premature encashment available for G-Secs ? No, premature encashment is not available. However holder can sell G-Secs in the OTC and secondary market.
- What is the measure of settlement Risk ?
- The settlement system for trading in Government securities, which is based on Delivery versus Payment (DvP), is a very simple, safe and efficient system of settlement. The DvP mechanism ensures transfer of securities by the seller of securities simultaneously with transfer of funds from the buyer of the securities, thereby mitigating the settlement risk.
- Is it possible to borrow against Govt securities? Banks and financial institutions can use government securities as collateral only to borrow funds in the repo market.
- Who are Primary Dealers (PD)?
- Primary Dealers are financial institutions that act as underwriters of government securities in primary auction. Auction Committee can devolve securities on Primary Dealers (PDs) in case they find the offered bids unacceptable. PDs receive periodic underwriting commission on successful bids and devolved amount.
- How many PDs are in Bangladesh?
- There are 24 PDs in Bangladesh.
- Can investors at stock exchange invest in Govt. securities?
- Yes, investors at DSE & CSE can invest in Government Treasury Bonds using their BO Accounts.
- How can investor transfer his/her holding of Govt. securities to stock exchange?
- An existing holder of Treasury Bond may transfer his/her holding to stock exchange in order to conduct trading there. For this purpose, the holder has to submit G-Sec Transfer Request Form to the concerned bank and make request to transfer the intended securities. The bank will create a block request to BB and BB will forward the block request to stock exchange.
- Is it mandatory to have a BPID in order to purchase Treasury Bonds from stock exchanges? Having a BPID is not mandatory to purchase Treasury Bonds from stock exchanges. However, a BPID is opened against the buyer (if not available beforehand) after the trade for the purpose of securities settlement.
- Can the securities be brought back to the BB’s Electronic System if not sold in stock exchange?
- Yes, an investor can bring back an intended Treasury Bond to the BB’s Electronic System if remains unsold in the stock exchange platform.
- Is the securities purchased from stock exchange platform tradable?
- Yes, the investor who purchased Treasury Bond from DSE or CSE may sell the securities later on.
- How coupon/maturity payment is made against the securities traded in stock exchange?
- Coupon and maturity value is paid to the securities holder at the time of coupon and maturity payment. BB makes coupon/maturity payment to the concerned investor’s bank and the respective bank pays the appropriate amount to the concerned investor’s bank account.