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OTC Market

The Over-the-Counter (OTC) markets of the Dhaka Stock Exchange (DSE) and Chittagong
Stock Exchange (CSE) are unique components of Bangladesh’s financial ecosystem. These
markets operate with specific rules and structures tailored to facilitate trading in securities
that are not listed on the primary exchanges. Below is an updated overview of how these
markets operate, including key mechanisms and regulations.

The OTC markets in Bangladesh are evolving to provide greater opportunities for
companies and investors. With growing regulatory focus and potential technological
upgrades, these markets aim to: Enable smaller companies to access capital more effectively.
By addressing existing challenges and leveraging digital platforms, the DSE and CSE OTC
markets can become more robust contributors to Bangladesh’s financial landscape. Enhance transparency and reporting standards. Increase liquidity through improved investor participation.

Futures:

Futures are financial contracts obligating the buyer to purchase, or the seller to sell, an asset at a predetermined price on a specific future date. These contracts are standardized and traded on exchanges, covering various assets such as stocks, indices, commodities, and currencies.

Futures serve two main purposes:

  1. Hedging: Protecting against price fluctuations.
  2. Speculation: Profiting from price movements without owning the underlying asset.

With features like leverage, liquidity, and transparent pricing, futures are a versatile tool for both risk management and investment strategies.

Options:

Options are financial derivatives that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific time frame. These contracts come in two types:

  1. Call Option: The right to buy the asset.
  2. Put Option: The right to sell the asset.

Options are widely used for:

  • Hedging: Protecting against adverse price movements.
  • Speculation: Leveraging price movements for potential profit with limited risk.

Options provide flexibility, enabling investors to manage risk or capitalize on market opportunities effectively.

Swaps:

Swaps are financial agreements between two parties to exchange cash flows or liabilities from different financial instruments. The most common types of swaps are:

  1. Interest Rate Swaps: Exchanging fixed interest payments for floating rates or vice versa.
  2. Currency Swaps: Exchanging cash flows in different currencies to manage foreign exchange risk.

Swaps are primarily used for:

  • Hedging: Managing risks like interest rate or currency fluctuations.
  • Speculation: Gaining exposure to specific markets or financial conditions.

Swaps are custom contracts traded over-the-counter (OTC), tailored to meet the specific needs of the parties involved.

Forwards:

Forwards are customized financial contracts between two parties to buy or sell an asset at a predetermined price on a specific future date. Unlike futures, forwards are traded over-the-counter (OTC) and are tailored to meet the needs of the parties involved.

Forwards are commonly used for:

  • Hedging: Protecting against price volatility in assets like commodities, currencies, or stocks.
  • Speculation: Gaining profit opportunities from future price movements.

While forwards offer flexibility, they also carry counterparty risk since they are not standardized or traded on an exchange..