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Dr. H. M. Mosarof Hossain
School of Business,
North South University, Dhaka.

Subject: Submission of the project paper
Dear Sir,
We are pleased to submit the team project paper: “A Scenario of Invest Banking Operation of
Bangladesh” that we were supposed to prepare for the partial fulfillment of the course FIN-642
(Financial Markets and Institutions). This report has enabled us to better understand the
condition of overall investment banking system of Bangladesh.
We hope this project paper will be accepted by you.

We greatly value the opportunity you gave us.
Md. Mahmudul Hasan ID # 1310698660
Minhaj Mahmud ID # 1231239060
Khurshid Anwar ID # 1321822060
Sifat Ahmed ID # 1231235060
Md. Jafran Chowdhury ID # 1231045060
Group # 05 FIN 642
Spring‟ 2014, MBA Program


This project would not have been possible without the kind, equal support and help of the team
members. We would like to extend our sincere thanks to all of them.
We are highly grateful to our faculty of FIN - 642 Financial Markets and Institutions of MBA
program Dr. H. M. Mosarof Hossain, North South University, for concerned guidance and
supervision. We would like to express gratitude towards our fellow students who helped by the
cooperation and encouraged us for the completion of this project.


Investment banking is a particular form of banking which finances capital requirements of
enterprises. Investment banking assists as it performs IPO‟s, private placement and bond
offerings, acts as broker and carries through mergers and acquisitions. Importance of banking
system in a country is increasing day by day. It is quite impossible for any country to develop in
industrial and commercial sector without sound banking system in modern economic era.
Investment banking performance is one of the significant functions of the bank. It plays a vital
role in overall economy of the country. Bank collects information from numerous sources
relating to cost and revenue from Investment Banking operation. Globalization of national
economies has given a boost to international trade. The seller and the buyer in an international
trading transaction must agree for price enters into a sales contract. The impact on trade
transactions currency policies of the investment banking countries and risks associated with
Investment banks act as intermediaries between issuers and investors. The issuer sells securities
to investment bankers who in turn sell the securities to investors. The investment banks own the
securities until they are resold. For firms seeking to raise long-term funds, investment banks in
Bangladesh provide assistance through a number of functions that involves. Corporate finance is
the core activity in investment banking. Through this function, investment banks assist clients in
developing projects, dealing with regulatory authorities, performing mergers and acquisitions,
and capital structuring. The main function of investment banks in sales and brokerage is to
provide full-service brokerage to retail and institutional investors, both foreign and local, in the
secondary market. The asset management function of investment banks is a process of managing
money. In the process, they analyze the objectives, risk tolerance, and legal restrictions of each
client, and design a customized portfolio. The process continues with an ongoing measurement
and evaluation of performance relative to benchmarks. Some investment banks in Bangladesh
have research department to provide independent and objective investment advice in relation to
primary and secondary securities to retail and institutional investors. In this project paper we
have tried to provide the information about the condition of investment banking system,
regulations and operations of Bangladesh.


Investment Bank a financial institution that assists individuals, corporations and governments in
raising capital by underwriting and/or acting as the client‟s agent in the issuance of securities. An
investment bank may also assist companies involved in mergers and acquisitions, and provide
supplementary services such as market making, trading of derivatives, fixed income instruments,
foreign exchange, commodities, and securities. It also provides advisory services on corporate
matters to the firms they lend to.

Banks earlier confined most of their operations to deposit mobilization and credit dispensation.
But now in Bangladesh, they have diversified their activities in line with their counterparts in
developed countries, and gone into merchant banking also. This innovative banking has helped
many young entrepreneurs who lacked sufficient experience and had a little capital to invest to
enter into the field of industrial enterprise.

Investment banks assist as it performs IPO‟s, private placement and bond offerings, acts as
broker and carries through mergers and acquisitions. In addition to acting as agents or
underwriters for companies in the process of issuing securities, investment banks also advise
companies on matters related to the issue and placement of stock. Investment bankers are
primarily merchants of securities; they perform three basic economic functions: (1) provide
capital for corporations and local governments by underwriting and distributing new issues of
securities; (2) maintain markets in securities by trading and executing orders in secondary market
transactions; and (3) provide advice on the issuance, purchase, and sale of securities, and on
other financial matters. In contrast to commercial banks, whose chief functions are to accept
deposits and grant short-term loans to businesses and consumers, investment bankers engage
primarily in long-term financing.

According to Investors world, Investment banking services are performed by Investment banks.
An Investment bank can be defined as an individual or institution which acts as an underwriter or
agent for corporations and municipalities issuing securities. Most also maintain broker/dealer
operations, maintain markets for previously issued securities, and offer advisory services to

investors. Investment banks also have a large role in facilitating mergers and acquisitions, private
equity placements and corporate restructuring. Unlike traditional banks, investment banks do not
accept deposits from and provide loans to individuals also called investment banker. Financial
intermediaries who perform a variety of services, including aiding in the sale of securities,
facilitating mergers and other corporate reorganizations, acting as brokers to both individual and
institutional clients, and trading for their own accounts. Investment banks are often treated as
synonyms of merchant banks. But there is a difference in the services they perform. Merchant
banks and investment banks in their purest forms are different kinds of financial institutions that
perform different services. In practice, the fine lines that separate the functions of merchant
banks and investment banks tend to blur. Traditional merchant banks often expand into the field
of securities underwriting, while many investment banks participate in trade financing activities
Pure investment banks raise funds for businesses and some governments by registering and
issuing debt or equity and selling it on a market. The current offerings of investment banks &
merchant banks vary by the institution offering the services, but there are a few characteristics
that most companies that offer both investment & merchant banking share.

Brief History of Capital Market:
 Concepts started in USA at Wall Street in 1653
 It came to South Asia in 1890
 The origin of Stock Market in Bangladesh goes back to 28th April 1954 named East
Pakistan Stock Exchange association at Narayangonj. Later it was s renamed East
Pakistan Stock Exchange Ltd and Trading was started in 1956.
History of Bangladesh Capital Market:
 East Pakistan Stock Exchange transferred in Dhaka in 1958
 In 1964 it was renamed as Dhaka Stock Exchange Ltd.
 In 1976 Dhaka Stock Exchange Ltd started its operation with a bit different version
 Securities & Exchange Commission (SEC) was established in 1994 to enhance the
efficiency of country‟s capital market

 A big wing of Bangladesh capital market, Chittagong Stock Exchange (CSE)
incorporated in 1995.

Capital Market Players in Bangladesh:
 Investors
 Private Limited Company
 Stock Exchange (DSE & CSE)
 Brokers & Dealers
 Merchant Banks
 Securities and Exchange Commission (SEC)
 Central Depository Bangladesh Limited (CDBL)

 To study the level of operations of Investment Banking in Bangladesh
 To study the Liquidity position of Investment Bankers
 To study the Profitability position of Investment Bankers

Certain methods and techniques were utilized to collect data for this report. Both primary and
secondary sources were chosen as effective means of collecting data relevant for this report.

 Personal observation
 Online Records:
 Bangladesh Bank guideline
 Website of Merchant banking
 Library Sources:
 Annual Report of Merchant Banks

 Journal, magazines on Foreign Exchange Business
 Printing materials of banks.

The concept of investment banking is in a development phase in our country. Regulatory bodies
and Government is always trying to develop the capital market focusing the welfare of the 4
investor through building a stable and secured market. The first ever stock exchange came into
existence in Bangladesh (then East Pakistan) in the name of “East Pakistan Stock Exchange
Association Ltd”. It took two years more to launch its formal operation. 1964, the name of East
Pakistan Stock Exchange Limited was changed to "Dacca Stock Exchange Ltd." Investment
Corporation of Bangladesh (ICB) was the pioneer in the country that has performing with strong
reputation in the country‟s capital market spreading its activities in all the segments of capital
market. In 1987, the Bangladesh Government prepares and presents the Securities & Exchange
Rules. In 1993, DSE took step ahead to update its all-share price index on the basis of the design
suggested International Finance Corporation (IFC). In 1994, Securities & Exchange Commission
(SEC) published rules regarding the activities of dealers and brokers. The title of the rules is set
(Stock-dealers, Stock-brokers and Sub brokers). In 1996, SEC introduces SEC Regulations,
along with SEC (Mutual Funds) Regulations, 1996. Now there were no legal obligations of the
issuer companies to engage an issue manager at the time security issue. In 1997, some bank and
non-banking organization give proposal to get the permission of operate investment banking
operation. In 1998, DSE introduced automated trading; it is a great breakthrough both for the
country and stock exchange. IDLC of Bangladesh got license full-fledged investment banker. It
is the first licensed full-fledged investment banker in the country. Another 10 full-fledged
investment banker introduces in this. In 1999, another 5 non-banking organization started as full-
fledge investment banker. Prime Finance and Investment Limited started their full-fledge
investment banking operation from this year. In 2000, only one non-banking organization
introduced as a full-fledge investment banker. In 2001, Prime Bank and Arab Bangladesh Bank
started their operation as an investment banker, another 2 non-banking organization started their
investment banking operation. From 2002 to 2009, another 10 investment banker are introduced

and most of them are private commercial banking organization. The number of full-fledged
investment banker is now 29. Another two companies is also registered as investment banker but
currently deals with issue management and portfolio management only.

Investment banking companies in Bangladesh are of two types:
1) Open-ended and
2) Closed-ended.
The open-ended ones, generally referred to as mutual funds, repurchase shares in any quantity as
and when holders offer them for sales. Thus, the amount of shares of the open-ended investment
companies in market changes continually in response to public demand. Closed-ended
investment companies sell only a specific number of ownership shares. An investor wanting to
acquire shares of a closed-ended investment company must find another investor who wishes to
sell. Investment companies do not take part in the transaction. In addition to selling equity
shares, closed-ended companies issue a variety of debt and equity securities including preferred
stock, regular and convertible bonds, and stock warrants for raising funds.

To register as an investment banker, SEC asks some requirements as below:
1. Issue Manager: At least 1 (one) proposal for public issue be submitted to the Commission in
each calendar year
2. Portfolio Manager: In addition to own portfolio, at least 5(five) new portfolio accounts be
opened in each calendar year
3. Investment Banker: 1 (one) issue management, 2 (two) underwriting, 5(five) new portfolio
accounts be opened in each calendar year

Besides these, investment bankers need a pre-condition of capital of TK 100 million for the
registration of full-fledged investment banker. Tk 10 million of capital is needed of a company is
registered for issue management and underwriting or portfolio management only. For issue
management, it is needed 2.5 million only.

 The SEC granted authority to 17 non-bank financial institutions in 1997 to conduct
investment banking business in Bangladesh under the Securities and Exchange Regulations

 The Securities and Exchange Commission (SEC), invited letters of intent from14 institutions
for the registration of investment banks based on SRO No. 59 of 24 April1996, and a
decision taken by it on 17 August1997. Prior to this decision, seven (7) institutions submitted
such letters of intent and SEC gave registration to a total of 19.

 Under the SEC investment banker licensing rules, a investment bank working only as issue
manager has to submit at least a documented proposal for an initial public offer of a
company, while an investment bank licensed to act only as portfolio manager has to form at
least five new portfolios of its clients besides its own, and a investment bank working as a
full-fledged investment bank has to manage one IPO, to be under writer of two issues and
form five new portfolios of its clients besides its own in a calendar year. A full-fledged
investment bank has to perform at least two operations among the three including managing
portfolio in a calendar year.
Investment banks were allowed to operate with the hope of playing a meaningful role in
salvaging the country's limping stock market, by generating fresh funds, following the 1996
stock market crash. So far, a total of 31 companies received investment banking licenses from

the Securities and Exchange Commission. The registered investment banks are: Janata Bank
Limited, BRAC Bank Limited, City Bank Limited, Premier Bank Limited, Mutual Trust Bank
Limited, Industrial Development Leasing Company of Bangladesh Ltd, Uttara Finance and
Investment Limited, Banco Trans World (Bangladesh) Limited, Fidelity Assets and Securities
Company Ltd., N DB Capital Ltd., Bay Leasing and Investment Limited, Alliance Financial
Services Ltd., Business and Management Co. Ltd., Swadesh Investment Management Limited,
Lanka Bangla Finance Limited, Grameen Capital Management Limited, South Asia Capital Ltd.,
Prime Finance &Investment Ltd., EC Securities Ltd., Mercantile Securities Limited, GSP
Finance Company (Bangladesh) Ltd., Bangladesh Mutual Securities Ltd., BRAC EPL
Investment Ltd, Prime Bank Limited, Arab Bangladesh Bank Ltd., ICB Capital Management
Ltd., Export Import Bank of Bangladesh Ltd.(EXIM Bank), Union Capital Limited , AAA
Consultants and Financial Advisers, Citigroup Global Markets Bangladesh Private Limited,
Trust Bank Ltd, Southeast Bank Ltd, Standard Bank Ltd, Sonali Bank Limited and Agrani Bank
Of them, a total of 33 companies received investment banking licenses from the commission
between January 1998 and April 2002. The Citigroup Global Markets Bangladesh Private
obtained the licence in the year of 2007 and the Trust Bank in the year of 2008. Six more FIs are
going to be approved by the SEC.
The SEC on September 7, 2008 cancelled the investment banking license of the Equity Valuation
Research and Distribution Ltd. The Securities and Exchange Commission on October, 2008
cancelled investment banking licenses of the First Securities Services Ltd and the Raspit
Securities and Management Limited with immediate effect since they remained inactive for years
together. The First Securities Services was given license to act as issue manager while the Raspit
Securities and Management as full-fledged investment bank, which was allowed to perform as
issue and portfolio manager as well as underwriter for clients.
In the year of 2009, of the then 28 investment banks, 23 had full-fledged investment banking
license, while four had only issue management license and one had only portfolio management

The central bank of Bangladesh asked the commercial banks to run their investment banking
business through separately formed subsidiary companies, officials and bankers. Under those
new regulations, the banks had to convert their existing investment banking wing or department
into a separate subsidiary company by January31, 2010.It helped to ensure transparency of the
investment banking business.
Recently, securities regulators gave its go-ahead to six more financial institutions (FIs) to operate
investment banking. Because, analysts questioned their expertise and financial base. The
Securities and Exchange Commission (SEC) also approved rights offer of Bay Leasing and
Investment Ltd.
The six financial institutions are Jamuna Bank, Mutual Trust Bank Ltd, The City Bank, Summit
Group's Cosmopolitan Traders Private Ltd, Green Delta Insurance and Alpha Capital
Management Ltd, a unit of Progressive Life Insurance.
According to the SEC officials, the approval will bring the total number of investment banking at
37. By giving nod to the six FIs to operate as investment banks, the SEC has increased maximum
limit of the investment banking operation in the stock market to 50 from 35. But, although 31
investment banks are operating, only a few (only some) are active while the performance of the
rest is "far from being satisfactory."
Although in the U.S., investment banks offer a wide range of activities, including portfolio
management, credit syndication, acceptance credit, counsel on mergers and acquisitions,
insurance, etc., in case of our country, these services may differ. In Bangladesh, an investment
bank can perform multiple operations including underwriting, issue management, portfolio
management, merger & acquisition etc. The investment banking activities were largely fostered
by two distinct developments: Merger &acquisition activities and increased demand for venture

Underwriting operation is one of the important functions of a investment banker by which it can
increases the supply of stock/shares and debentures in the market. It is an arrangement whereby

the underwriter undertakes to subscribe the unsubscribed portion of shares/debentures offered by
any public limited company. This encourages the prospective issuers to offer shares/debentures
to the public for subscription and they can raise funds from the public.
One or more investment banking firms may underwrite public offerings. The underwriters have
the responsibility of pricing new shares and selling them to investors. The company pays the
underwriters a fee. Underwriter also provides advice to a company issuing securities or to an
issue manager. Before granting authority to 17 non-bank financial institutions in 1997 to conduct
investment banking business in Bangladesh under the Securities and Exchange (Investment
Bankers and Portfolio Manager) Regulations 1995, specialized financial institutions, and the
nationalized commercial banks and insurance companies were the key underwriters in the
country's securities market.
Issue Management:
One major activity of investment banks is Issue Management. Issue Management means
providing required services to bring new IPOs (Initial Public Offering) to the market.
Organizations performing these types of activities are known as „Issue manager‟. Investment
bank plays a very important role for bringing up new IPOs to the capital market as a subsidiary
organization. Firstly, they test the techno-economic feasibility. It includes testing the genuinely
of the project, verifying the activities of the authenticity of the management and study of the
audit report; on the other hand, submitting the required information in the Security and Exchange
Commission (SEC) and supplying other necessary documents to them. Another important
activity of investment bank is to organize the lottery if there is any case of over subscription of
IPOs and then issuing certificates accordingly. Other necessary responsibilities to bring any new
project to the market like, collecting underwriters, fixing the appropriate time of issuing IPO, the
size of the issue, the amount of market lot, are also performed by the investment banks. Other
than that the issue manager has to perform some other additional duties. Issue manager provides
the all-important „Due Diligence‟ certificate after completing the primary scrutiny and
assessment. This indicates that the information on the prospectus about the new issue is correct.
Thus the issue manager is responsible for in case of any false information or other mistakes and
shortcomings. According to this certificate, the issue manager is responsible for either providing
any wrong information intentionally or unintentionally. Security and Exchange Commission can

take necessary steps as either suspending or canceling the license of the investment bank if there
is any case of forgery or supply of wrong information.

Portfolio Investment Management Services:
Portfolio means a collection of investments owned by an investor, an institution or a mutual fund
and portfolio manager means the entity responsible for investing a mutual fund's assets, mapping
out its investment strategy and managing day-to-day securities trading. Portfolio management is
the process of building, managing and accessing an inventory of company products and projects.
One of the most important functions of investment banking is to provide Portfolio Management
service to the customer. Portfolio Management Services program has four different wings to
provide portfolio investment management services.
Basically portfolio management in securities market is to provide necessary information to the
probable investors about the securities, which are going to be proven harmful or bad investment,
on the other hand investing in those securities that may be profitable for them. Investment bank
provides the services to their client about portfolio management are as below –

 They let the investors know about the probable risk underlying the investment.
 They inspire in investing in the specific companies through fundamental analysis.
 Through strategic analysis they explain the risks of losing the capital as well as earning
more profit.
 They provide the information and advisory knowledge of incurring less loses and
Profitable investments, through diversified portfolio.
 They provide information about the nature and ways of capital market through the
sensitivity analysis.

The SEC allowed banks to launch investment banking operation through opening of separate
wing mainly to deal in portfolio investment on behalf of clients' account in order to channel pool
of investors' fund into the stock market in an organized manner.
Merger and Acquisition:

The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate
strategy, corporate finance and management dealing with the buying, selling and combining of
different companies that can aid, finance, or help a growing company in a given industry grow
rapidly without having to create another businessentity.´7 Investment banking helps to negotiate
companies in this case.

On the way of this study, we have faced the following problems that may be terms as the
limitations / shortcoming of the study:
Budgeted times for the study:
The first obstruct is time itself. Due to the time limitation, the scope and dimension of the project
has been curtailed. As the time limit was assigned for submitting the project was very short, it
was not possible to spend sufficient time for the study.

Data Insufficiency:
It was very difficult to collect data, which is very essential for interpretation, because Bank is
very much restricted for provide sufficient data for the study.

Competitions and Product diversifications:
Investment banks in Bangladesh are operating in a highly competitive environment. The
competition for them is even more challenging as they have to compete with banks. Given the
changes in the business environment, the need for product diversification is very important. The

remaining part concentrates mainly on term financing and housing finance. Investment banks
should venture into diversified use of their funds such as investment banking, venture capital
financing, factoring, etc. for a healthy growth of the capital market.

Enhancing capital market activities:
Investment banks around the world carry out a significant role in the development of the capital
market. Strong institutional support is necessary for a vibrant capital market which is the core of
economic development in any market based economic system. Active participation of investment
banks is essential to accelerate the capital market activities which can expedite the economic
growth of the country. The success of investment banking operations is largely linked to the
development of the security market.

Offering better services:
In addition to portfolio management, which is the core services offered by the investment banks
in our country, there are other valuable services that they can offer to attract a larger customer
and to reduce the risk of losing out customers to the competitors. If we consider the level of
grasp of the knowledge of our population, then it will become quite apparent that why instigating
programs to educate our clients can give our investment banks competitive edge over others, if
not prove out to be a major differentiating factor. Not only can that, educating the clients also
open up new dimensions to do business with the clients by creating demands in them. Though
merger and acquisition yet not proved to be so affordable and also profitable move in our
country‟s perspective, but ignoring this sector will not be wise enough if our investment banks
are aiming at long term customer hold. So, the quicker investment banks address this issue, the
better it may prove out for them.


The investment banker plays a vital role in channelizing the financial surplus of the society into
productive investment avenues. Hence before selecting a investment banker, one must decide,
the services for which he is being approached. Selecting the right intermediary who has the
necessary skills to meet the requirements of the client will ensure success. It can be said that this
project helped me to understand every details about Investment Banking and in future how it‟s
going to get emerged in the Bangladesh economy. Hence, Investment Banking can be considered
as essential financial body in Bangladeshi financial system. Market development is predicted on
a sound, fair and transparent regulatory framework. To sustain the growth of the market and
crystallize the growing awareness and interest into a committed, discerning and growing
awareness and interest into an essential to remove the trading malpractice and structural
inadequacies prevailing in the market, and provide the investors an organized, well regulated
market in Bangladesh.


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