To lower the risks of government’s financial securities, the central bank plans to establish a central clearing counter-party (CCP) as an independent authority to minimize risks.
The proposed CCP will extend its services to money, foreign exchange and derivative markets from securities only phase by phase.
The CCP, also referred to as a central counterparty, is a financial institution that takes on counterparty credit risk between parties to a transaction and provides clearing and settlement services for trades in foreign exchange, securities, options, and derivative contracts.
It formed an eight-member high-powered committee, headed by Debt Management Department general manager Rup Ratan Pine, to conduct a feasibility study on the CCP in Bangladesh, an official of BB recently.
“The committee is now studying the rules and regulations of different countries, including India and the European Union, for the CCP, also referred to as a central counterparty,” he added.
“The committee has been asked to submit its study report to the higher authorities of the Bangladesh Bank (BB) by next month,” he informed.
The main aim for the move to establish the CCP, is to promote safety, efficiency, systemic and financial stability and other related public interests through technology and robust risk management processes and practices setting global standards, according to the central bank.
“Meanwhile, the central bank has sought formal opinion from primary dealer (PD) banks for establishing the CCP,” said another BB official in reply to a query.
Earlier, the central bank selected 21 PD banks to handle the government-approved securities and issued a guideline for them.
The PDs will subscribe and underwrite primary issues and make secondary trading deals with two-way price quotations.
A PD will not short-sell any particular issue and hold a short position in secondary dealings.
The PDs will not act as inter-bank or inter-dealer brokers as specified in the guideline.
India established a CCP named 'Clearing Corporation of India Ltd (CCIL)' in April 2001 to provide guaranteed clearing and settlement functions for transactions in money, government securities, foreign exchange and derivative markets.
