Member shareholders of the Dhaka Stock Exchange (DSE) sent a legal notice to the DSE board members on Sunday for agreeing to the proposed rules on awarding new brokerage licences.
A few weeks earlier, the DSE board had agreed to a controversial draft of the Bangladesh Securities and Exchange Commission Trading Right Entitlement Certificate (Trec) Rules, 2020, despite protests from shareholders.
The forum of the exchange members DSE Brokers Association (DBA) said in its legal notice that the board's action was detrimental to the interest of the exchange and its shareholders.
The proposed rule will allow fresh brokerage licences from the two bourses if an applicant company meets as little as Tk3 crore in paid-up capital, Tk2 crore in security deposit and Tk6 lakh in registration fee.
Three of the four member directors of the exchange stood against the draft, according to DBA sources.
They had recommended to fix the capital requirement at Tk15 crore, in line with the capital adequacy rules by BSEC.
However, one of the member directors and all the seven independent directors have agreed to lower it drastically.
The regulator on March 25 published the draft rule that frames the eligibility criteria and fees for new brokerage licenses. The securities regulator requested stakeholders' opinion within April 15.
The legal notice served by law firm Law Valley requested the DSE board and its company secretary to send a note of protest on the draft rules to the BSEC within seven days of receiving the notice.
Otherwise, the member shareholders, in alignment with the strategic partner, will call an extraordinary general meeting to remove the board members as they feel the board's act of according consent to the draft is against the exchange itself and also its members.
DSE shareholders will also legally challenge the propriety of the draft rules if eventually implemented by BSEC.
Members of the exchange have strongly criticised the way BSEC and the DSE board members are trying to formulate the way for new entrants to be in brokerage business with abnormally low entry barriers.
They also challenged the regulator's jurisdiction to fix the criteria and fees for brokerage licenses of stock exchanges and said that according to the demutualisation act, demutualisation scheme, and exchanges' own regulations about TREC the jurisdiction goes to the exchanges.
Exchange members expressed their concern that the proposed weak criteria is to pave the way for some vested quarters. Even newly formed shell companies can avail stock brokerage licences.
DBA also said that the service is similar to banking in terms of trustworthiness and reliability.
Some new entrants with their less invested capital may tend to wilfully default in settlements of transacted securities and that will be devastating to investors and the capital market, fear the exchange members.