7 brokerage firms face urgent inspection

The capital market regulator has instructed stock exchanges and Central Depository Bangladesh Limited (CDBL) to jointly conduct an inspection at seven brokerage firms on an urgent basis.

Last week the Bangladesh Securities and Exchange Commission (BSEC) also asked the bourses to submit their reports within 20 working days.

The firms are Sinha Securities Ltd, Midway Securities Ltd, Royal Capital Ltd, ANF Management Company Ltd, and Globe Securities Ltd. All five are members of the Dhaka Stock Exchange.

Vanguard Shares & Securities Ltd and Kabir Securities Ltd are the two other brokerage houses to face the inspection and both of them are members of the Chittagong Stock Exchange.

The stock exchanges and CDBL have also instructed the respective inspection team to make an assessment with serious attention on all activities of the brokerage firms.

A top official of the stock market regulator said the commission has recently received several complaints against the brokerage firms.

For this reason, to protect investors' interest, BSEC has made this decision urgently on the basis of complaints.

A brokerage firm is a member of a stock exchange that provides brokerage services to its clients in the stock market in exchange for fees.

Sometimes, brokerage houses illegally use money from consolidated customers' accounts (CCAs) of the respective firms.

A CCA is an account in a scheduled bank where the money of customers of a stockbroker is deposited.

According to the rules, 1987, every stockbroker maintains a consolidated customers' account in its name with a scheduled bank for depositing money received from its customers and paying money to them.

Besides, all money received from customers shall be deposited in that account on the day of receipt.

Brokerage firms have to maintain consolidated customer accounts. Any shortfall there indicates that clients' money has been diverted somewhere else, which is a financial crime.

After getting reports, the regulator and the stock exchanges come to know when firms make a deficit of the accounts.

It is alleged that some brokerage firms use investors' money for initial public offering (IPO) applications as an institutional investor. Many of them, provides margin facilities for their own directors illegally.

Market insiders said deceiving investors by brokerage firms is not anything new in the capital market.

Trendset Securities, Sylhet Metro City Securities, Dawn Securities, Crest Securities, and Banco Securities embezzled investors' money in the last decade. Investors did not get back money properly due to the irregularities.

Said market insiders if the houses are not inspected regularly, there may be weaknesses in the enforcement of laws, share manipulation, irregularities in the provision of margin loans, and major deviations in facilities to directors.

Moreover, there is a share deficit of the Central Depository Bangladesh Limited with the back office.

The regulator and stock exchanges should increase and strict monitoring systems and routine inspection, added insiders.

To prevent anomalies, BSEC is now bringing the consolidated customers' accounts under a digitalised platform. 

The commission also wants to make a centralised consolidated account for better integrity of the investors' funds.

BSEC will take the initiative very soon, according to commission officials.