Bangladesh’s capital market is grappling with persistent issues concerning trust, with ongoing incidents of IPO fraud and manipulation despite prior reforms. This situation is eroding investor confidence and hindering economic progress, posing risks to long-term stability and national development.
The repercussions of past market crashes in 1996 and 2010–2011, which wiped out an estimated $27 billion in market value (equivalent to roughly 22 percent of GDP at the time), continue to shape public perception of the stock market. These events inflicted significant losses on millions of investors, underscoring the need for structural improvements that have yet to be fully realized.
Recent enforcement actions by the Bangladesh Securities and Exchange Commission (BSEC) have revealed the severity of the situation. Over the past 18 months, individuals have been fined nearly Tk 1,488 crore for manipulation and misconduct. However, the actual recovery of these fines has been minimal due to prolonged legal battles, creating a disconnect between punitive measures on paper and actual accountability in practice.
Systemic weaknesses such as coordinated trading through omnibus accounts, misuse of placement shares, misappropriation of IPO proceeds, and inadequate real-time surveillance continue to plague the market. Bangladesh’s market capitalization remains low, standing at around 6 percent of GDP as of mid-2025, significantly lower than more developed markets where market capitalization exceeds 100 percent of GDP. This underdevelopment hampers crucial financing for infrastructure projects, small and medium enterprises (SMEs), and industrial expansion, all of which are pivotal to realizing Vision 2041 and the “Smart Bangladesh” agenda.
While fraud remains a global challenge, advanced technologies like artificial intelligence (AI) and blockchain are increasingly being employed to combat such issues. Major financial scandals in the past have prompted regulators worldwide to adopt AI for real-time monitoring and explore blockchain-based settlement systems for their speed, cost-efficiency, and transparency benefits. Countries like India and Brazil have embraced digital reforms to enhance disclosure, monitoring, and enforcement practices.
In contrast, Bangladesh still heavily relies on manual oversight and fragmented data management, which is inadequate in the face of cyber-enabled financial crimes. Given the country’s relatively small and vulnerable market, each crisis disproportionately affects investor confidence. Embracing modern technologies presents a transformative opportunity for Bangladesh’s financial sector.
The integration of blockchain technology can revolutionize IPOs and securities transactions by ensuring every transaction is securely recorded, time-stamped, and visible to authorized participants on a permissioned blockchain network. Smart contracts can automate IPO regulations, guaranteeing that funds are only released upon meeting specified conditions, transparent allocation processes are followed, and lock-up periods cannot be circumvented, thereby minimizing opportunities for manipulation.
AI can complement blockchain technology by serving as a real-time surveillance tool. It can analyze trading patterns, detect irregular activities, and identify coordinated networks more efficiently than traditional monitoring methods. Leading exchanges that have adopted AI-driven systems report fewer false alarms and swifter enforcement actions.
By combining blockchain and AI technologies, a robust regulatory framework can be established. Blockchain ensures data integrity, while AI provides real-time intelligence and early warnings. Such systems have the potential to identify suspicious IPO activities, trigger halts during abnormal market behaviors, and provide regulators with immediate, evidence-based alerts, safeguarding data privacy in the process.
To implement these advanced technologies, a phased approach could be adopted, starting with pilot IPOs integrated with the central securities depository for testing and eventual scaling. International experiences have shown that such reforms can mitigate fraud risks, shorten settlement cycles, boost liquidity, and restore investor confidence.
Establishing a regulatory sandbox led by the BSEC in collaboration with the Bangladesh Bank could facilitate the testing of blockchain-based e-IPO systems and AI surveillance mechanisms. It is crucial to prioritize capacity building by training regulators, auditors, and intermediaries to effectively oversee data-driven systems. Collaboration among exchanges, depositories, banks, and technology providers will be key to the successful implementation of these technologies.
Initial implementation efforts could focus on targeted pilot projects, such as introducing blockchain-enabled IPOs and AI surveillance in the secondary market, before gradually expanding these initiatives. This incremental approach minimizes disruptions while signaling a commitment to substantial regulatory reform.
Bangladesh is well-positioned to leapfrog ahead in adopting these technologies, given its high mobile penetration rates, tech-savvy youth population, and strong policy support outlined in the Smart Bangladesh Master Plan. While advanced economies have refined their systems over time, late adopters like Bangladesh can swiftly deploy mature technologies to enhance their financial infrastructure.
The consequences of inaction are evident: persistent financial scandals could constrain economic growth, deter foreign investments, and drive savings into informal channels. Conversely, proactive measures offer the potential for a transparent market that channels savings into productive investments, reduces risk premiums, and supports sustainable economic transformation.
Fraud is not an inevitability but rather a governance challenge that can be effectively addressed. By adopting blockchain and AI as core regulatory tools now, Bangladesh can safeguard investors, fortify institutional frameworks,