BSEC moves to reduce settlement cycle, scrap wet signatures

Infographic: TBS

The Bangladesh Securities and Exchange Commission (BSEC) has launched an ambitious reform drive to modernise the country's capital market by reducing operational barriers, introducing technology-based solutions and strengthening investor protection.

The reform roadmap includes faster share settlement, digital order placement, artificial intelligence-based market surveillance, revised margin lending rules and greater flexibility for stock exchanges in setting market protection measures.

At the centre of the reform agenda is the plan to reduce the securities settlement cycle from the current T+2 to T+1, with a long-term target of introducing same-day settlement, or T+0.

The BSEC and stock exchanges are working with Bangladesh Bank to implement the transition. Dhaka Stock Exchange (DSE) Managing Director Nuzhat Anwar told The Business Standard that a Bangladesh Bank team recently visited the bourse to review its clearing and settlement infrastructure.

She said the DSE has requested the central bank to extend the Real-Time Gross Settlement (RTGS) window by two hours from 4pm to facilitate faster transactions. Once necessary regulatory changes are approved, the move could significantly increase trading efficiency.

To improve market liquidity, the regulator is also preparing to introduce intraday trading, commonly known as script netting. Initially, the facility will be available for fundamentally strong companies, including those listed under the DSE 30 index.

The system will allow investors to buy and sell the same security within a single trading session, giving active investors more flexibility and potentially increasing market turnover.

The BSEC is also reviewing margin lending regulations. BSEC Chairman Masud Khan said the current rules are overly restrictive, particularly the provision that stops margin facilities when a stock's price-earnings (P/E) ratio crosses 30.

Under the proposed framework, the regulator will set broad guidelines while allowing brokerage firms to develop their own risk management systems and determine lending decisions based on their internal assessments.

A major reform initiative is the introduction of digital share order placement to reduce risks associated with the existing paper-based system. The BSEC chairman said physical signatures on buy and sell orders have created opportunities for fraud and misuse.

Under the proposed digital system, investors will be able to place orders directly through mobile applications and secure online platforms. Each transaction will be followed by instant SMS and email confirmations, while the Central Depository Bangladesh Limited (CDBL) will provide daily automated transaction summaries.

The regulator has also directed the DSE to upgrade its surveillance system within six months and transition to a fully artificial intelligence-based monitoring system within one year.

Unlike the existing system, where investigations into suspicious transactions can take months, the AI-powered system will be designed to identify market irregularities instantly and allow quicker regulatory action against manipulation.

The BSEC has also restored the authority of stock exchanges to independently determine trading control measures, including circuit breakers and market protection limits.

Meanwhile, the DSE Brokers Association (DBA) has proposed further reforms, including calculating broker margin requirements on a net basis instead of the current gross basis. Brokers argue that the existing system forces them to maintain excessive margins and borrow additional funds from banks.

The BSEC has indicated that it is considering stakeholder demands as part of its broader effort to remove unnecessary regulatory hurdles and improve market efficiency.

"The stock market is a science, and we are restoring the science of valuation to protect the hard-earned capital of every investor," BSEC Chairman Masud Khan said.