Derivatives regulation in Bangladesh rests on one idea: a derivative is permitted to manage a real risk, not to bet on prices. Bangladesh Bank controls over-the-counter forwards, swaps and the new forward rate agreements through banks, while BSEC is preparing the ground for exchange-traded futures.
- Over-the-counter currency and interest rate derivatives are offered only through authorised dealer banks and are governed by the Guidelines for Foreign Exchange Transactions 2018 (GFET) and later Bangladesh Bank circulars.
- Every customer hedge must be backed by a genuine underlying exposure; speculative and leveraged positions are not allowed.
- FE Circular No. 9 of 26 January 2025 caps the forward premium a bank may charge at the policy rate of the relevant currency.
- Since July 2026, banks may offer forward rate agreements to importers with floating-rate usance credit, subject to strict limits, back-to-back cover and reporting.
- Exchange-traded derivatives fall under BSEC; the Dhaka Stock Exchange is targeting a first index futures product by January 2028.
Non-bank financial institutions are now governed by the Finance Company Act 2023, which replaced the Financial Institutions Act 1993; such institutions are now called finance companies. References below to the 1993 Act should be read accordingly.
What derivatives regulation in Bangladesh covers
A derivative is a contract whose value depends on something else: an exchange rate, an interest rate, a commodity price or a share index. Forwards, swaps, options and futures are the familiar forms. For a Bangladeshi importer paying in dollars, or a company carrying a floating-rate foreign loan, these contracts are the main tools for fixing costs in advance.
Bangladesh does not have a single derivatives statute. Instead, the rules come from foreign exchange law, banking law, securities law and general contract law, applied by two regulators. Bangladesh Bank supervises over-the-counter (OTC) contracts that banks enter into with customers and with each other. The Bangladesh Securities and Exchange Commission (BSEC) supervises derivatives traded on a stock or commodity exchange.
In practice, almost all activity today is OTC and bank-intermediated. That is why the parts of derivatives regulation in Bangladesh that a treasurer meets most often are Bangladesh Bank circulars addressed to authorised dealers, not BSEC rules.
Hedging versus speculation
The single most important principle is purpose. A company may use a derivative to reduce a risk it actually carries. It may not use one to take a view on markets. Banks are required to check underlying documents, such as an import letter of credit, a loan agreement or an export contract, before booking a customer hedge. A hedge larger or longer than the exposure is treated as speculation.
The legal framework behind derivatives regulation in Bangladesh
Several instruments combine to form the current derivatives regulation in Bangladesh. Knowing which one applies to a product tells you who can offer it, on what terms, and what happens if the rules are broken.
Statutes
- Foreign Exchange Regulation Act 1947. The base law for any transaction involving foreign currency or payments abroad. Bangladesh Bank issues its foreign exchange guidelines and circulars under this Act, and breaches can attract penalties under it.
- Bangladesh Bank Order 1972 and Bank Company Act 1991. These give the central bank its supervisory powers over banks, including the power to issue binding directions and to penalise banks and their officers.
- Financial Institutions Act 2023. Governs non-bank financial institutions, which are supervised by Bangladesh Bank but are not authorised dealers in foreign exchange.
- Securities and Exchange Ordinance 1969 and the BSEC Act 1993. The source of BSEC's rule-making power over exchange-traded products.
- Contract Act 1872. Governs the derivative contract itself, including section 30, which makes agreements by way of wager void.
Guidelines and circulars
The detailed rules sit in the Guidelines for Foreign Exchange Transactions 2018, issued by Bangladesh Bank's Foreign Exchange Policy Department, together with the FE circulars that amend them. Chapter 4 of GFET deals with forward dealings, swaps and commodity price hedging. On the exchange side, BSEC has made the Exchange Traded Derivatives Rules (2019) and the Commodity Exchange Rules 2023.
The circulars that make up derivatives regulation in Bangladesh are frequent and sometimes repeal earlier ones without much notice. Before signing any hedge, ask the bank to confirm in writing which circulars it relies on. That one email often settles later arguments about whether a product was permitted.
Bangladesh Bank rules on foreign exchange forwards and swaps
Currency forwards are the most widely used derivative in the country, and the area where derivatives regulation in Bangladesh is most developed. An importer agrees today the taka rate at which it will buy dollars on a future date, so a depreciation between now and payment does not erode its margin. Exporters use forward sales in the same way.
Bona fide need and firm contracts
Under GFET chapter 4, an authorised dealer may sell foreign currency forward only against a bona fide need of a customer or a counterparty bank, while it may buy forward from banks, exporters and exchange houses. Forward contracts are firm: they must be closed out on expiry. If a customer wants to extend, the renewal is treated as a new contract at the rate prevailing on the renewal date, not at the old rate. Banks must keep all documents relating to forward and swap contracts for Bangladesh Bank inspection.
The forward premium cap
FE Circular No. 9, dated 26 January 2025, limits the premium a bank may charge on a forward. The premium may not exceed the policy rate of the relevant currency on the banking day before the deal period begins: for example, the Federal Funds Rate for US dollars, the ECB main refinancing rate for euros and the Bank of England Bank Rate for sterling.
The premium is added to the declared spot rate, and on early settlement it must be adjusted to the actual tenor. The circular repealed the September 2023 instructions on the same subject.
Swaps used by banks
GFET allows banks to use FX swaps within counterparty limits to cover forward risk and manage cash-flow mismatches, but not to run speculative swap positions. Cross-currency swaps and forwards that are not backed by customer transactions are allowed only where a bank has implemented the foreign exchange risk management guidelines to Bangladesh Bank's satisfaction.
Separately, since February 2024 Bangladesh Bank itself has run taka-dollar swaps with banks as a liquidity and reserve management tool, with tenors of 7 to 90 days. These are central bank operations, not products a company can buy, but they explain why swap pricing appears in market reports.
Forward rate agreements: the July 2026 framework
On 2 July 2026 Bangladesh Bank allowed authorised dealer banks to offer forward rate agreements (FRAs) to importers. This is the most significant recent change in derivatives regulation in Bangladesh, because it is the first dedicated framework for hedging foreign interest rate risk rather than currency risk.
An FRA lets a borrower fix today the interest rate for a future period. No principal changes hands. On the settlement date, the parties pay only the difference between the agreed rate and the benchmark, which for dollar credit is SOFR. If SOFR has risen, the bank pays the importer; if it has fallen, the importer pays the bank. The importer's loan itself is repaid separately.
Conditions reported for the FRA circular
| Condition | What the framework requires |
|---|---|
| Eligible customers | Importers with permissible usance imports financed by floating-rate supplier's or buyer's credit |
| Purpose | Hedging genuine import credit only; speculative, leveraged and uncovered deals prohibited |
| Notional and tenor | No larger than the outstanding credit; tenor matched to the remaining interest period |
| Bank cover | Back-to-back hedge executed on the same day as each customer FRA |
| Pricing | Bank spread capped at 10 basis points |
| Exposure cap | Outstanding FRAs within 25% of the bank's average FX inflows over the previous 12 months |
| Documents | Modified ISDA or equivalent agreement consistent with Bangladeshi law, plus a detailed term sheet |
| Early termination | At prevailing market rates, with documented valuation and the importer's written consent |
Banks must also send weekly transaction reports and monthly reports with daily mark-to-market valuations, keep board-approved risk policies, and audit the activity periodically. The circular warns that misrepresentation or poor disclosure causing customer losses may lead to action against the bank and its officials. These details come from the circular as reported in July 2026; read the circular itself on the Bangladesh Bank website before relying on any single condition.
Commodity hedging and other OTC products
Importers of fuel, edible oil, cotton, metals and grain face price risk as well as currency risk. GFET permits banks to hedge customers' commodity price risk using exchange-traded futures and options abroad or OTC derivatives, but only with prior Bangladesh Bank approval.
The conditions are among the strictest in derivatives regulation in Bangladesh. The customer must have a genuine underlying commodity exposure, which the bank checks against documents. Speculation is not allowed. The bank must fully offset its own risk by booking back-to-back trades with internationally reputed banks. Applications need suitability assessments, and the bank must disclose all costs and worst-case outcomes to the client before the trade. Monthly and maturity reporting follow.
Options and interest rate swaps
Beyond forwards, swaps, FRAs and approved commodity hedges, the published framework of derivatives regulation in Bangladesh is thin. Products such as currency options or plain interest rate swaps for corporate customers have generally depended on specific Bangladesh Bank approval for the bank concerned. We could not confirm a current general permission for these products, so treat any offer of them as something to verify with the bank's treasury and, if needed, with Bangladesh Bank before signing.
Hedging offshore
Foreign lenders sometimes ask a Bangladeshi borrower to hedge with an offshore bank. Any payment abroad under such a contract must fit within a general permission under the foreign exchange rules or receive specific approval. Without that, the borrower may be unable to remit settlement amounts, which is a serious problem for both sides. Plan the hedge alongside the foreign loan approval, not afterwards. Our guide to banking and finance in Bangladesh covers the loan side.
Exchange-traded derivatives and BSEC
On the capital market side, derivatives regulation in Bangladesh is still largely a framework waiting for a market. BSEC's Exchange Traded Derivatives Rules, made under the Securities and Exchange Ordinance 1969, cover futures, options and other contracts listed on a BSEC-regulated exchange, excluding commodity derivatives.
What the exchange rules require
- Exchanges need BSEC permission before listing any derivative, with standard contract terms such as underlying, contract size, tenor, margins and settlement.
- Only market participants authorised by the exchange, against BSEC-approved criteria on capital and risk management, may trade.
- The exchange or a central counterparty must run margining, daily mark-to-market, position limits and segregated margin accounts.
- Contracts must be held in dematerialised form, and the exchange must keep a public register of tradable products.
The DSE 2028 roadmap
In September 2026 the Dhaka Stock Exchange announced a BSEC-approved roadmap to launch financial derivatives by January 2028, starting with stock index futures, followed by single stock deliverable futures and, later, options. BSEC officials said the existing rules will be updated and that Central Counterparty Bangladesh Limited must be strengthened first. Commodity derivatives are separately governed by the BSEC (Commodity Exchange) Rules 2023, under which the Chittagong Stock Exchange has been preparing a commodity exchange that had not launched as of early 2026.
For listed companies and fund managers, the point is timing: there is no live exchange-traded derivatives market in Bangladesh today, so hedging of listed equity or index exposure still has to happen offshore, subject to the foreign exchange rules, or not at all.
Documenting derivatives: ISDA and bank master agreements
Good documents are where compliance with derivatives regulation in Bangladesh becomes real protection. Bangladeshi banks typically use either an ISDA Master Agreement with a Bangladesh-specific schedule or their own master terms for forwards. The FRA circular expressly refers to modified ISDA or equivalent agreements consistent with Bangladeshi law.
What to negotiate
- Governing law and forum. Onshore hedges with local banks are normally under Bangladeshi law. Check whether disputes go to the courts or to arbitration under the Arbitration Act 2001.
- Representations on purpose. Expect to represent that each trade hedges a genuine exposure. Make sure that is true and documented, because a false representation can unwind your protection.
- Events of default and termination. Understand what triggers early termination and how the close-out amount is valued.
- Set-off and collateral. Many banks require cash margin or a lien over deposits. Read how and when they can call it.
- Confirmations. Each trade needs a confirmation that matches the term sheet. Mismatches are a common source of disputes.
Bangladesh has no statute that specifically protects close-out netting on insolvency. A netting clause works well between solvent parties, but how a liquidator would treat it is not settled. Counterparties with large exposures should take advice on collateral and set-off rather than rely on netting alone.
Enforceability risks under derivatives regulation in Bangladesh
A derivative that breaches the rules is not only a regulatory problem for the bank. It can also become hard to enforce. These are the risks we look at when reviewing a hedge against derivatives regulation in Bangladesh.
The wagering point
Section 30 of the Contract Act 1872 makes agreements by way of wager void. A cash-settled contract with no underlying exposure can look very like a wager. A documented hedge of a real risk is the strongest answer to that argument, which is another reason the underlying documents matter.
Regulatory breach
If a bank books a product that Bangladesh Bank has not permitted, or a hedge larger than the exposure, the customer may argue the contract is unenforceable for illegality. Courts look at the purpose and effect of the rule breached, so the outcome is uncertain. The better course is to avoid the question by staying within derivatives regulation in Bangladesh from the start.
Mis-selling
Bangladesh Bank now expects banks to disclose costs and worst-case scenarios and to assess suitability, at least for commodity hedges and FRAs. A customer who was not told of the downside, or was sold a product it plainly did not need, may complain to Bangladesh Bank's customer services department and may have a claim in contract or misrepresentation.
A compliant hedging programme, step by step
Most of the problems we see come from hedging done deal by deal, without a policy. A short programme built around the conditions of derivatives regulation in Bangladesh avoids that.
- Map the exposure. List foreign currency payables, receivables, floating-rate loans and commodity purchases, with amounts and dates.
- Adopt a policy. The board approves what may be hedged, which products, hedge ratios, counterparty limits and who may sign.
- Confirm the product is permitted. Ask the bank which circular allows the product for your type of exposure, and get it in writing.
- Negotiate the documents. Review the master agreement, schedule, collateral terms and term sheet before the first trade.
- Link every trade to its underlying. File the letter of credit, loan agreement or contract with each confirmation.
- Value and reconcile. Obtain regular valuations, reconcile them with bank statements, and report to the board.
- Review regularly. Revisit the policy when Bangladesh Bank issues new circulars or your exposures change.
Governance duties for banks
For banks, derivatives regulation in Bangladesh adds governance duties on top of conduct rules. The FRA framework, for example, requires board-approved risk policies, daily mark-to-market valuation under international accounting standards, periodic internal audit covering KYC, AML and CFT controls, and weekly and monthly returns to Bangladesh Bank.
Banks also operate within prudential open position limits set by Bangladesh Bank and must report positions daily. Treasury, risk and compliance teams should be separated, and front-office staff selling hedges should be trained on suitability. Breaches can lead to fines under the Bank Company Act 1991 and the foreign exchange law, and to action against individual officers.
Non-bank financial institutions licensed under the Financial Institutions Act 2023 are not authorised dealers and do not offer FX derivatives to customers, though they can hedge their own exposures through banks within Bangladesh Bank's rules.
Islamic hedging structures
Derivatives regulation in Bangladesh applies to Islamic banks too, but they cannot use conventional interest-based derivatives. Shariah-compliant alternatives, such as promise-based (wa'd) currency arrangements, are used instead, and Bangladesh Bank's own swap operations with Islamic banks are structured without swap points. If your bank is an Islamic bank, ask how the hedge is structured and whether its Shariah board has approved it. Our Islamic finance practice advises on these structures.
Frequently asked questions about derivatives regulation in Bangladesh
Can a Bangladeshi company enter into derivatives for profit?
No. OTC derivatives with banks are permitted only to hedge a genuine underlying exposure. Speculative, leveraged and uncovered positions are prohibited under Bangladesh Bank's rules, and a purely speculative cash-settled contract also risks being treated as a void wager.
Who regulates OTC derivatives in Bangladesh?
Bangladesh Bank, mainly through its Foreign Exchange Policy Department, using GFET 2018 and FE circulars issued under the Foreign Exchange Regulation Act 1947. Banks offering the products are the regulated entities, so most derivatives regulation in Bangladesh reaches customers through their bank.
Can I hedge a floating-rate foreign loan?
Importers with floating-rate supplier's or buyer's credit for usance imports can now use forward rate agreements under the July 2026 framework. For other foreign loans, ask your bank which product is permitted and whether specific approval is needed.
Is there a futures market in Bangladesh?
Not yet. BSEC has exchange derivatives rules, and the Dhaka Stock Exchange plans to launch index futures by January 2028, but there is no live exchange-traded derivatives market at present, so derivatives regulation in Bangladesh is, for now, mainly about bank OTC products.
Can I extend a forward contract at the old rate?
No. Under GFET, a renewal is treated as a new contract at the rate prevailing on the renewal date. The original contract must be closed out on expiry.
Do I need an ISDA agreement?
For FRAs, the circular requires a modified ISDA or equivalent agreement consistent with Bangladeshi law. For forwards, banks often use their own master terms. Either way, have the document reviewed before your first trade.
How we can help
We advise companies, banks and investors on hedging programmes, ISDA and bank master agreements, Bangladesh Bank approvals and disputes over terminated or mis-sold derivatives. If you are planning a hedge, negotiating a foreign loan that requires one, or unwinding a contract that went wrong, we can help you stay within derivatives regulation in Bangladesh. Learn more about our derivatives and structured products practice.
Need a hedge reviewed before you sign?
We check the product against current Bangladesh Bank circulars, negotiate the master agreement and term sheet, and advise on disputes.
Book a consultationDerivatives practicePrimary sources: GFET 2018 and FE circulars from Bangladesh Bank; the Foreign Exchange Regulation Act 1947 and Contract Act 1872 on the Laws of Bangladesh portal; exchange derivatives and commodity exchange rules from BSEC; market information from the Dhaka Stock Exchange.
This article is general information about Bangladeshi law as of 2026 and is not legal advice. Circulars, limits and procedures change; confirm current requirements with Bangladesh Bank, BSEC or a qualified lawyer before acting.
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