At the extreme of the recent market downturn, it appears a large number of investors--regardless of their types-- did not continue their stock investment accounts in July.
According to the Central Depository of Bangladesh Limited (CDBL), the total number of operable beneficiary owners (BO) accounts dropped 10.7% to 18.34 lakh in July.
Stockbrokers informed that the nearly 2.2 lakh BO accounts closed mostly due to non-payment of annual maintenance fees, and the trend continues since 2015 when total operable BO accounts peaked at near 32 lakh.
A decline in confidence on market due to losses in secondary market investments is a reason behind the reluctance of a large number of investors to pay a small sum of Tk500 a year, stockbrokers said, adding that the major declines were due to the discontinuation of shady BO accounts which were being used to hunt zero-risk primary shares in the initial public offerings (IPO).
Last year, the Bangladesh Securities and Exchange Commission (BSEC) made IPO hunting tougher by setting Tk20,000 as the minimum amount for an individual investor to subscribe to an IPO.
Also, the introduction of pro-rata share allocation instead of a lottery system in cases of oversubscription discouraged IPO hunting.
Previously, some IPO hunters used to open hundreds of shady BO accounts to use for IPO subscription betting to avail lots of IPO shares.
In June, BSEC increased the Tk20,000 secondary market investment threshold to Tk50,000.
Predictably, IPO hunters did not find it a good business to maintain too many accounts through investing Tk50,000 in the secondary market and paying the annual maintenance fees against each BO account, said stockbrokers.
Know Your Customer (KYC) is also much more stringent nowadays which makes opening and maintaining shady accounts tougher for the average person.
BSEC officials said the benefits of IPOs should go to only the genuine stock investors, and BO accounts having no share or never having been used at all are in a decline since 2020.
In July 2022, one-fourth of the zero-balance BO accounts closed after the deadline for the annual fee payment ended in June, while one-third of the never-used accounts were also closed.
Attributing to the shaky confidence in the secondary market, some genuine stock investors seem to have shied away in July this year, when the number of BO accounts holding shares was on a steady rise in recent years.
Nearly 63,000 or 4.26% of the secondary market investors emptied their BO accounts in July.
CDBL data suggest that alongside the individual investors who own 99% of the total BO accounts in Bangladesh, the number of BO accounts owned by companies also dropped in July to 15,814 from 16,185.
The number of non-resident investors, whom the securities regulator is trying to draw into investing more in the local capital market, also declined to 64,000 from 75,000 last month.