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'Marking to market system' launched to boost secondary bond market
Siddique Islam

The Bangladesh Bank (BB) has introduced 'marking to market system' to bring dynamism in the country's secondary bond market.
The central bank issued a circular in this connection Monday and directed the chief executives of all scheduled banks to use the new mechanism for valuation of the government approved securities.
The BB has made the marking to market system mandatory for all banks for valuation of government bonds and treasury bills from February 01, 2006, official sources said.
The BB, however, asked the banks to follow the new system before the deadline for implementation of the government approved securities valuation properly.
Marking to market or mark to market system is a process of calculation to determine the market value of an asset.
The system refers to changes in the value of futures contracts on a weekly basis. It also calls for reporting the value of assets on a market rather than a book value basis.
Under the new system, the securities that are held by the banks to meet their statutory liquidity requirement (SLR) with the central bank will be treated as held to maturity.
Besides, the securities that are be held by the banks in addition to meet their SLR will be identified as held for trading.
The value of all government approved securities will be calculated on the basis of one year tenure of the held to maturity investment while the valuation will be calculated on a weekly basis for the held for trading investment.
"We are working to develop the secondary bond market through introduction of new policy guidelines to attract more investors in the market," a BB senior official told the FE Monday.
He also said the value of two government bonds and five treasury bills will be calculated in line with the marking to market system.
A joint move has been made by the authorities concerned as the government bonds have failed to attract general investors due to lack of proper policy support.
The trading of bonds has started in the secondary market since January 1, 2005 aiming to meet the growing demand of general investors.
Sources, however, said the general investors are not participating in the trading of saving instruments due mainly to higher unit value of the bonds and complex taxation system.
Earlier, the government introduced two bonds of five and ten-year terms to boost the secondary bond market and promote savings through attracting the fixed income groups to invest in these instruments.
Under the existing rule, the bond holders can receive interest coupons on the government-approved securities on a half-yearly basis after deduction of taxes.
The tax will be charged at sources at a rate of 10 per cent for both individual and institutional investors.
Interested financial institutions and individual investors can take part in the transactions relating to these bonds through the country's stock exchanges at annual interest rates of 7.5 per cent on five-year bonds and 8.50 per cent on ten-year bonds with each costing at least Tk 100,000.