Derivatives and ISDA in Bangladesh 2026: Regulation, Repos, Notices and Negative Interest

Derivatives ISDA Bangladesh: the 2026 framework

Derivatives ISDA Bangladesh practice has moved from the margins of bank treasuries to the centre of corporate finance. In 2026 Bangladesh Bank opened forward rate agreements to importers on ISDA-based documentation, widened commodity price hedging, and kept FX forwards and swaps available through authorised dealer banks. The Dhaka Stock Exchange has a regulator-approved roadmap to launch exchange-traded futures by 2028. Every one of these products rests on two foundations: a regulatory permission in Bangladesh and a master agreement that actually works when something goes wrong.

This guide covers both. It sets out how over-the-counter derivatives, exchange-traded derivatives and repos are regulated in Bangladesh, what the 2026 circulars require, and how the ISDA Master Agreement should be adapted for a Bangladeshi counterparty. It then deals with two technical issues that decide real disputes: how notices are given and amended under Section 12, and how negative interest is treated in swaps and under the 1995 Credit Support Annex. Each section is written for treasurers, general counsel and foreign banks dealing with Bangladeshi counterparties.

Summary: Derivatives ISDA Bangladesh work starts from one fact: Bangladesh has no single derivatives statute. Over-the-counter hedging is permitted through authorised dealer banks under Bangladesh Bank's foreign exchange guidelines and product circulars, always on a genuine-exposure, no-speculation basis; exchange-traded derivatives fall under the Bangladesh Securities and Exchange Commission and are not yet trading. The ISDA Master Agreement is the standard contract, but it must be adapted for Bangladeshi regulatory limits, enforcement risk, notice mechanics and collateral interest.

Key point: Bangladesh Bank's July 2026 circular on forward rate agreements requires each contract to follow modified ISDA agreements or equivalent documentation that complies with Bangladesh's legal framework, with a term sheet, risk disclosures and same-day back-to-back hedging by the bank. For derivatives ISDA Bangladesh counterparties, the regulator now expects documentation to be tailored, not signed off the shelf.

At a glance

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Table of Contents

Who regulates derivatives in Bangladesh

Bangladesh does not regulate derivatives through one statute. Over-the-counter (OTC) products involving foreign currency are regulated by Bangladesh Bank through its Guidelines for Foreign Exchange Transactions 2018 (GFET) and product-specific circulars addressed to authorised dealer (AD) banks.[2] Exchange-traded derivatives fall within the remit of the Bangladesh Securities and Exchange Commission (BSEC), which has adopted exchange derivatives rules and, in 2026, approved a roadmap for the Dhaka Stock Exchange to launch them.[6]

The result is a permission-based system. A Bangladeshi company cannot simply sign an ISDA Master Agreement with a foreign bank and trade whatever it likes. It hedges through an AD bank, within the products Bangladesh Bank has authorised, for an exposure it can document. Foreign banks usually face the AD bank rather than the corporate, and the AD bank lays the risk off back-to-back. Understanding that chain is the starting point for any derivatives ISDA Bangladesh mandate.

The hedging-only principle

The common thread in every Bangladesh Bank instrument is that derivatives are for hedging. AD banks may sell forward only against the bona fide need of customers or counterparty banks, and must ensure the cover is intended to neutralise risk.[2] Swaps must not be used for speculative positions, commodity derivatives require a genuine underlying exposure, and the 2026 FRA framework expressly prohibits speculative, leveraged and uncovered transactions.[1] [2] A trade that cannot be matched to a documented exposure is outside the permission and exposes both the bank and the customer to regulatory action.

Why the wagering rule still matters

Section 30 of the Contract Act 1872 declares agreements by way of wager void.[8] A properly documented hedge of a real exposure is not a wager, because the parties are managing a commercial risk rather than betting on an outcome. A cash-settled contract with no underlying exposure is more vulnerable, particularly if it also breaches a Bangladesh Bank condition. A Bangladeshi counterparty facing a large out-of-the-money position may argue illegality or wagering to avoid payment. The defence against that argument is built at inception: an exposure file, a hedging representation and evidence that the trade fits a permitted product.

OTC derivatives through authorised dealer banks

Chapter 4 of the GFET sets the core rules for foreign exchange derivatives. They apply to every AD bank and, through the bank, to its customers.[2]

FX forwards

AD banks may buy forward from banks and from non-bank customers such as exporters, foreign currency account holders and exchange houses abroad, and must cover their own risk within the shortest possible time.[2] Forward contracts are firm and must be closed out on expiry. On close-out the bank charges the difference between the booked rate and the relevant spot rate, but charges nothing if the rate has moved in the customer's favour. No forward may be renewed at the old rate; a renewal is a new contract at the current rate.[2] These rules sit above any contrary term in an ISDA confirmation, so a confirmation drafted for an offshore market must be checked against them.

FX swaps and cross-currency transactions

AD banks may undertake swap transactions within their counterparty limits, in line with Bangladesh Bank's core risk management guidelines, to cover risks from forward transactions and to manage cash-flow mismatches.[2] Cross-currency swaps and forwards that are not backed by underlying customer transactions may be undertaken only if the bank has implemented the foreign exchange risk management guidelines to Bangladesh Bank's satisfaction.[2] All contracts and supporting documents must be preserved for inspection, and interbank transactions are reported daily.[2]

The foreign currency-taka swap for exporters

In November 2025 Bangladesh Bank directed banks to offer exporters a foreign currency-taka swap, allowing them to exchange balances in their retention quota accounts for taka temporarily without converting them permanently.[4] The central bank described it as a temporary exchange agreement, not a loan. The taka may be used only for export-related purposes, the maximum term is 30 days, the swap point reflects the interest differential, and the exporter must acknowledge the terms and risks in writing.[4] The product is short and simple, but the documentation and acknowledgement requirements show how the regulator now approaches every derivative sold to a corporate.

Commodity price hedging

The GFET allows AD banks to hedge customers' commodity price risk through exchange-traded futures and options and OTC commodity derivatives, subject to Bangladesh Bank's approval, a genuine exposure, back-to-back cover with banks of international standing and full disclosure of costs and worst-case scenarios.[2] On 13 September 2026 FEPD-1 Circular No. 34 widened the regime for importers, permitting commodity futures, index-linked forwards, commodity swaps and options including zero-cost collars, while requiring an AD bank to obtain Bangladesh Bank's prior concurrence before offering the service.[3] Our guide to trade finance in Bangladesh explains the importer eligibility and documentation conditions in detail.

Forward rate agreements and ISDA documentation under the 2026 circular

On 2 July 2026 Bangladesh Bank allowed AD banks to offer forward rate agreements (FRAs) to importers.[1] An FRA fixes the interest rate for a future period on a notional amount; only the difference between the agreed rate and SOFR changes hands at settlement, and no principal is exchanged. Settlement is in taka for domestic obligations or in the relevant foreign currency for international ones.[1]

Who qualifies and on what terms

Only importers using permissible usance imports financed by floating-rate suppliers' or buyers' credit qualify.[1] The notional may not exceed the outstanding import credit, and the tenor must match the remaining interest period of the underlying borrowing. The AD bank must execute a back-to-back hedge with a counterparty on the same day, its pricing spread is capped at 10 basis points, and its outstanding FRA exposure may not exceed 25 per cent of its average foreign exchange inflows over the previous twelve months.[1]

What the documentation must contain

Contracts must follow modified ISDA agreements or equivalent documentation that complies with Bangladesh's legal framework, and each must have a term sheet covering the underlying exposure, agreed rate, tenor, notional, settlement mechanism and risk disclosures.[1] Early termination must be settled at prevailing market rates, using documented valuation methods and with the importer's written consent. Banks must report weekly and monthly, value positions daily and operate board-approved risk policies, and misrepresentation that causes customer losses may lead to action against the bank and its officials.[1]

For practitioners, the phrase "modified ISDA agreements" is the important one. It confirms that the ISDA Master Agreement is the expected platform for derivatives ISDA Bangladesh banks sell to corporates, but only with a Schedule that reflects the circular. The early termination wording deserves particular care: the standard Close-out Amount mechanism must be reconciled with the requirement for documented valuation and the importer's written consent.

Exchange-traded derivatives and the capital market

No exchange-traded financial derivatives currently trade in Bangladesh. In September 2026 the Dhaka Stock Exchange announced a plan, approved by the BSEC, to launch financial derivatives by January 2028.[6] The sequence is index futures first, then single stock deliverable futures, and options in the longer term. A BSEC commissioner said launching derivatives would be difficult without an effective central counterparty, and the preparations include amending existing regulations and strengthening Central Counterparty Bangladesh Limited (CCBL).[6]

A BSEC executive director said the existing exchange derivatives rules will be updated, and the planned infrastructure includes a trading platform, real-time margining, position monitoring and mark-to-market.[6] For brokers, merchant banks and asset managers, the work now is licensing readiness, risk systems and client documentation. Our overview of BSEC compliance in Bangladesh covers the licensing and conduct obligations that will carry over to a derivatives segment.

How exchange-traded and OTC regimes differ

Exchange-traded contracts will be standardised, cleared through a central counterparty and margined daily, so counterparty risk sits with the CCP rather than with the other trader. OTC contracts under an ISDA Master Agreement are bilateral: credit risk is managed through netting and a Credit Support Annex, and enforcement depends on the contract and the counterparty's home courts. Until the exchange segment launches, every derivatives ISDA Bangladesh transaction remains bilateral, and the legal quality of the documentation is the main protection either party has.

Repos in Bangladesh

Repos sit alongside derivatives ISDA Bangladesh banks document, and raise similar legal questions. A repo is a sale of securities with an agreement to repurchase them at a fixed price on a later date. Economically it is a secured loan; legally, under a properly drafted master agreement, it is an outright transfer, which is what gives the cash lender clean title to the collateral if the borrower defaults.

Central bank and interbank repo

Two repo markets operate. Bangladesh Bank lends to banks through central bank repo, and banks lend to each other through interbank repo collateralised by government securities. In December 2025 central bank repo turnover was BDT 1,07,811.65 crore, mostly at 14 days, while interbank repo turnover was BDT 78,949.95 crore, with overnight repo accounting for 58.52 per cent and a weighted average rate of 10.14 per cent.[7] Bangladesh Bank also runs special facilities such as assured repo and capital market repo alongside its standing lending and deposit facilities.[7]

Documentation and cross-border repo

Domestic repo follows Bangladesh Bank's market infrastructure and operating instructions. Cross-border repo, such as a Bangladeshi bank raising dollars against foreign securities, is typically documented on the Global Master Repurchase Agreement. The legal risks mirror those under the ISDA: whether the title transfer will be respected, whether close-out netting will survive insolvency, and whether a Bangladeshi party may give collateral offshore without approval. Any repo by a Bangladeshi resident involving foreign currency also needs to be tested against foreign exchange rules, which our guide to foreign exchange regulations in Bangladesh explains.

Adapting the ISDA Master Agreement for a Bangladeshi counterparty

The ISDA Master Agreement is a framework. The printed form stays unchanged; the parties' commercial and legal choices go into the Schedule, and each trade is recorded in a confirmation. Credit support is added through a Credit Support Annex. For derivatives ISDA Bangladesh counterparties sign, the Schedule is where the Bangladesh-specific protection lives.

Governing law and dispute resolution

Most cross-border ISDAs with Bangladeshi banks are governed by English or New York law. That is sensible, because the market's case law is developed there, but a foreign judgment must still be enforced against assets in Bangladesh. Arbitration is often the better route for enforcement, because a foreign arbitral award can be enforced in Bangladesh without a fresh trial on the merits, as our guide to foreign arbitral award enforcement explains. Our analyses of banking arbitration in Bangladesh and enforcing foreign law in Bangladesh deal with the choice in detail.

Derivatives ISDA Bangladesh Schedule provisions

• Regulatory representations. The Bangladeshi party should represent that each transaction hedges a documented exposure, falls within a permitted product and complies with Bangladesh Bank conditions.
• Additional Termination Events. A change in Bangladesh Bank rules that makes a transaction unlawful, or the withdrawal of a required approval, should be addressed expressly rather than left to the Illegality clause.
• Tax. Withholding on payments to a foreign counterparty must be tested and the gross-up and tax representations completed accordingly.
• Process agent and notice details. A Bangladeshi party should appoint a process agent in the governing-law jurisdiction and provide complete notice details, for the reasons explained below.
• Credit support. Eligible collateral, valuation percentages, interest rates and any negative interest treatment must be stated, not assumed.

Close-out netting and insolvency risk

The economic value of derivatives ISDA Bangladesh documentation lies in close-out netting: on a default, all transactions are terminated and reduced to one net sum. Several jurisdictions have legislated to protect netting in insolvency. We are not aware of any Bangladeshi statute that does so expressly, so the analysis turns on general insolvency and set-off rules, and on the terms of the contract itself. Foreign banks without a clean netting opinion often have to treat a Bangladeshi exposure on a gross basis for capital purposes, which makes the trade more expensive.

Bank counterparties raise an extra issue. Parliament passed the Bank Resolution Bill 2026 on 10 April 2026, carrying forward in amended form the Bank Resolution Ordinance 2025 issued on 9 May 2025 and giving Bangladesh Bank powers to suspend business, appoint administrators, transfer or merge troubled banks and use a bridge bank.[5] A transfer of a bank's business could affect a counterparty's ability to terminate. Anyone facing a Bangladeshi bank should check the resolution regime before relying on its termination rights, and our guides to bankruptcy law and winding up a company in Bangladesh explain the corporate insolvency position.

Notices under the ISDA Master Agreement and how to amend them

Close-outs are won and lost on notices, and derivatives ISDA Bangladesh disputes are no exception. An Event of Default typically becomes actionable only after a notice, and an Early Termination Date is designated by notice. If the notice is invalid, the termination may be invalid too, and a party that stops paying in reliance on it may itself be in default.

How Section 12 works under the 1992 and 2002 forms

Section 12(a) lists the permitted methods of delivery, and the English courts apply it strictly. In Greenclose Ltd v National Westminster Bank plc [2014] EWHC 1156 (Comm), a party under a 1992 ISDA tried to give notice extending an interest rate collar shortly before an 11 am deadline on 30 December. The recipient's fax was off for the holidays, so the sender relied on voicemails and emails.[9] The court held that Section 12(a) is mandatory, that notice must go to an address or number in the Schedule, and that email was not an "electronic messaging system" under the 1992 form.[9]

The 2002 form permits email for most notices but, unless amended, still bars email for notices under Section 5 and Section 6, which are the default and termination notices that matter most.[10] Both forms therefore push critical notices towards hand delivery or courier, sent to the address in the Schedule. Where a Schedule omits a fax number or contains an out-of-date address, a method that looks available may not be valid at all.[9]

Amending notice provisions bilaterally

Following the pandemic and the sanctions disruption of recent years, ISDA produced standard amendments to the notices provision. They allow parties to use email for default and termination notices if email details are included in the Schedule. Under revised Section 12(a)(vi), an email is effective when relayed to the recipient's email infrastructure, and evidence of relay may include data from the sender's own system.[10] The amendments also replace the undefined "close of business" with a Notice Delivery Cut-off, defaulting to 5 p.m. in the recipient's location unless the parties agree otherwise.[10]

The same amendments align the English law Credit Support Annex with the New York law version: no Waiting Period applies once CSA obligations are due, and the CSA is excluded from third-party quotations for the Close-out Amount.[10] For a Bangladeshi counterparty, adopting the email amendments is usually worthwhile. Couriers and hand delivery are slow during extended public holidays, and a counterparty should not have to wait for an office to reopen before a notice takes effect.

The ISDA Notices Hub and the 2025 Protocol

ISDA published the ISDA 2025 Notices Hub Protocol on 12 June 2025, and the Notices Hub went live in July 2025.[11] The Hub is an online platform for delivering certain critical notices and keeping notice details up to date. Adhering to the Protocol does not amend anything by itself: amendments take effect through a module and through matching with each counterparty on the platform.[11]

Module 1 covers the 1992 and 2002 ISDA Master Agreements. It permits delivery of covered notices through the Hub where both parties elect Full Functionality, lets notice details be changed by updating them on the Hub, and provides that a Hub notice is effective once it is made available to the recipient, whether or not it has been opened.[11] Parties choose either Address Only or Full Functionality, and the lower level applies to a matched pair; levels can be upgraded but not downgraded.[11] A Bangladeshi bank that adopts Full Functionality must monitor its Hub account every business day, because a notice it has not read can still start a cure period.

Keeping notice details current

Changing an address is itself a notice. A party that moves office, replaces a fax line or loses the officer named in the Schedule must notify every counterparty in the manner the agreement requires, or through the Hub if both have matched. The Greenclose lessons apply directly: complete the Schedule fully at signing, keep it current, and never leave a critical notice to the deadline.[9] The steps below are the routine we recommend for any derivatives ISDA Bangladesh relationship.

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Negative interest under the ISDA documents

Negative interest may seem remote from a taka market where interbank repo traded at around 10 per cent in December 2025.[7] It is not. Bangladeshi banks post and receive collateral in foreign currencies, invest reserves abroad and face foreign counterparties whose documents were drafted when euro, Swiss franc and yen rates were below zero. The question can arise in two places: in the floating rate payments under a swap, and in the interest on cash collateral under a Credit Support Annex.

Negative floating rates in swaps

The 2000 and 2006 ISDA Definitions provide two approaches. Under the Negative Interest Rate Method, if a floating amount is negative, the floating rate payer is not paid nothing; instead the other party pays it the absolute value. Under the Zero Interest Rate Method, a negative floating amount is treated as zero.[14] The Negative Interest Rate Method applies unless the parties specify otherwise, and electing the Zero Interest Rate Method will usually raise the price of the swap.[14]

The choice matters most where a swap hedges a loan. If the loan has a zero floor but the swap does not, a borrower that pays fixed under the swap may find itself paying both legs while gaining nothing on the loan. For the derivatives ISDA Bangladesh borrowers sign to hedge foreign currency loans, align the loan floor with the election in the swap confirmation.

Negative interest under the 1995 Credit Support Annex

Under the 1995 English law Credit Support Annex, the transferee of cash collateral pays interest to the transferor. When the agreed rate turns negative, the question is whether the transferor must pay the transferee instead. In The State of the Netherlands v Deutsche Bank AG [2019] EWCA Civ 771, the parties had signed a 1992 ISDA and a 1995 CSA in 2001, with interest at EONIA minus 0.04 per cent, which became negative from June 2014.[12]

The State argued that a negative Interest Amount should form part of the Credit Support Balance. The Court of Appeal disagreed: read as a whole, the CSA provides for positive interest only. Paragraph 5(c)(ii), the obvious place to address negative interest, covers only positive amounts; the State's reading produced inexplicable asymmetries; and paragraph 11(f)(iv) reduces interest to zero, not below zero, on a transfer to the wrong account.[12] Where parties have not addressed negative interest expressly, there is no obligation to pay or account for it.[12]

The 2014 Negative Interest Protocol

ISDA's 2014 Collateral Agreement Negative Interest Protocol, open since 12 May 2014, lets adhering parties amend their collateral agreements so that, when the interest amount on cash collateral is negative, the party that posted the cash pays the absolute value to the other party.[13] It covers six forms, including the 1994 New York law CSA, the 1995 English law CSA and the 1995 Credit Support Deed. Agreements already containing provisions on negative interest are excluded unless the parties opt in, and the Protocol remains open on payment of a one-time fee of USD 500.[13]

Negative interest in derivatives ISDA Bangladesh documentation

Review each CSA to find out whether the parties adhered to the Protocol, amended the CSA bilaterally, or left it silent. A silent 1995 CSA means the transferor does not pay negative interest, which favours the party posting cash. For new CSAs, state expressly whether negative interest is payable, whether it is netted against positive interest or added to the collateral balance, and whether a zero floor applies.[12] Rates can turn negative again, and the time to agree the answer is before they do.

Governance, accounting and the regulators

Derivatives ISDA Bangladesh compliance is as much about governance as documentation. Bangladesh Bank expects banks offering derivatives to have the expertise, systems and board approval in place before the first trade. For commodity hedges, the GFET requires IFRS 9 accounting for the hedging instrument and the hedged item, monthly reporting and adequate disclosure in audited accounts.[2] For FRAs, banks must value positions daily under international accounting standards, run internal audits covering KYC, AML and CFT, and inform clients about the new framework.[1] Corporates should mirror these controls: a board-approved treasury policy, named authorised signatories, a hedge file for each trade and regular reporting to the audit committee.

The institutions involved in Bangladesh's derivatives and repo markets are set out below.

Derivatives ISDA Bangladesh mistakes to avoid

• Signing an unmodified ISDA. A Schedule copied from an offshore deal will not reflect Bangladesh Bank's conditions, and the 2026 FRA circular expressly expects modified documentation.[1]
• Over-hedging. A notional or tenor larger than the underlying exposure is speculation by the regulator's definition and weakens enforceability.
• Serving default notices by email. Unless the agreement has been amended, an email notice under Section 5 or Section 6 is invalid under the 2002 form.[10]
• Stale notice details. An out-of-date Schedule address can make every permitted method ineffective.[9]
• Assuming negative interest is payable. Under an unamended 1995 CSA it is not.[12]
• Ignoring the counterparty's resolution regime. Bank resolution powers can affect close-out against a Bangladeshi bank.[5]
• No exposure file. Without contemporaneous evidence of the hedged exposure, a counterparty in loss has room to argue illegality or wagering.[8]

TRW's banking and finance practice advises AD banks, foreign banks and corporates on ISDA Schedules, Credit Support Annexes, GMRA documentation, regulatory compliance and close-out disputes. For exchange-traded products and market infrastructure, our capital markets team works alongside it.

Frequently asked questions

Are derivatives legal in Bangladesh?

Yes. Derivatives ISDA Bangladesh transactions are lawful within the products Bangladesh Bank and the BSEC permit. OTC FX forwards, swaps, FRAs and commodity hedges are available through authorised dealer banks for genuine exposures; speculative positions are prohibited.[1] [2]

Can a Bangladeshi company sign an ISDA directly with a foreign bank?

In practice, corporates hedge through an authorised dealer bank in Bangladesh, which faces the foreign bank back-to-back. Direct offshore hedging by a resident raises foreign exchange approval issues and should be checked before any document is signed.

What did Bangladesh Bank change for interest rate hedging in 2026?

From 2 July 2026, AD banks may offer forward rate agreements to importers with floating-rate suppliers' or buyers' credit, settled against SOFR, on modified ISDA documentation and with strict limits on notional, tenor, pricing and bank exposure.[1]

When will exchange-traded derivatives start in Bangladesh?

The Dhaka Stock Exchange plans to launch financial derivatives by January 2028, beginning with index futures, under a BSEC-approved roadmap that depends on an effective central counterparty.[6]

Can I send an ISDA default notice by email?

Not under an unamended 2002 ISDA, which excludes email for Section 5 and Section 6 notices. The parties can adopt ISDA's standard amendments, or use the Notices Hub, to make electronic delivery effective.[10] [11]

How do we update our notice details under an ISDA?

Give notice of the change to each counterparty using a method the agreement permits, or update the details on the ISDA Notices Hub if both parties have matched under Module 1.[11]

What is the ISDA Notices Hub?

An ISDA platform, live since July 2025, for delivering critical notices and maintaining notice details. Parties amend their agreements through the 2025 Notices Hub Protocol or bilaterally, and then match with each counterparty.[11]

Is negative interest payable under the 1995 Credit Support Annex?

Not unless the CSA has been amended. The Court of Appeal held in Netherlands v Deutsche Bank that an unamended 1995 CSA provides for positive interest only.[12]

What does the 2014 Negative Interest Protocol do?

It amends covered collateral agreements so that, when interest on cash collateral is negative, the party that posted the cash pays the absolute value to the other party. It remains open to new adherents.[13]

Is close-out netting enforceable against a Bangladeshi counterparty?

There is no Bangladeshi statute we are aware of that expressly protects close-out netting, so enforceability depends on general insolvency and set-off principles and, for banks, on the bank resolution regime.[5] A transaction-specific legal opinion is advisable for significant exposures.