After about a year and a half, the Bangladesh Securities and Exchange Commission (BSEC) has decided to start routine inspections of brokerage houses. For this, the organisation will form three 3-member committees composed of officials from the stock exchanges and the BSEC.
The decision was taken on Sunday at an emergency meeting of the commission that was held to discuss about paying back the shares and money of Crest Securities Ltd to its clients.
There are two types of inspection procedures in these institutions for compliance supervision. The first is to inspect a brokerage house or stock dealer or merchant bank based on specific allegations, known as special inspection. The other is the inspection of any merchant bank, brokerage house and stock dealer by the commission without any complaint.
BSEC's executive director and spokesperson Md Saifur Rahman told The Business Standard, "BSEC had stopped regular inspections of brokerage houses due to unfavourable market conditions prevailing for a long time. The commission will form three separate committees for this in a short time."
According to the securities act, there is a provision for regular inspection of these institutions for verification of work transparency and compliance. If the houses are not inspected regularly, there may be limitations in enforcing laws, share manipulation, irregularities in the provision of margin loans and major deviations in facilities to directors, said people concerned.
Moreover, there is a share deficit of Central Depository Bangladesh Limited (CDBL) with the back office.
Professor Abu Ahmed, a capital market analyst, told The Business Standard, "Such inspections are not so effective. Why will the money from the sale of investor's shares go to the consolidated customer account when it is supposed to go to his account? The law should be modified so that brokerage house owners cannot sell investors' shares."
He added that irregularities were more prevalent in privately-owned brokerage firms who illegally provide various benefits to the directors. These houses should be identified and punished.
According to BSEC sources, regular visits of brokerage houses by BSEC representatives have had an impact on the market. However, a visit to the market when it is bearish, hurts market transactions. Therefore, special inspections and supervision are increased based on complaints instead of regular inspections.
According to the BSEC's annual report, 15 regular inspections of listed merchant banks and brokerage houses have been completed in the 2015-16 financial year, 37 institutions in 2016-17 financial year, and 19 institutions in 2017-18 financial year. Of these, only five institutions were regularly inspected in 2016.
The commission has the power to verify the accounts or information of these institutions or authorised representatives under the Securities and Exchange Commission (Stock Dealers, Stock Brokers and Authorised Representatives) Rules, 2000 and the Depository (Practical) Regulations of Regulation 36. Institutions are also fined for any irregularities or deviations found during the BSEC inspection.