Brokers with a deficit in client accounts to face the music

Brokerage firms with a deficit in their accounts dedicated to managing client money will face punitive action, including the cancellation of the initial public offering quota facility as the market regulator takes measures to ensure the safety of investors’ funds.

The Bangladesh Securities and Exchange Commission (BSEC) is also likely to limit the facilities that brokerage firms receive from stock exchanges. Dividends that companies receive as members of stock exchanges will also remain withheld pending regulatory compliance.

According to officials familiar with the matter, the BSEC is expected to issue an order in this regard soon.

In line with upcoming restrictions, brokerages will also be prohibited from opening digital kiosks and branches.

Similar restrictions will be imposed on any brokerage firm that fails to pay Beneficial Owners (BO) account maintenance fees to Central Depository Bangladesh Limited (CDBL).

Sources said the commission observed that some brokerage firms remained non-compliant by running a deficit in their clients’ consolidated accounts.

They said such non-compliance sometimes paves the way for investors’ money to be misappropriated. Now the regulator remains more aware of this and tries to reduce the incidences of this non-compliance.

Usually, Dhaka Stock Exchange and Chittagong Stock Exchange regularly monitor their member organizations.

Yet, some brokerage firms remain non-compliant and have embezzled their clients’ money.

Tamha Securities allegedly misappropriated around 140 crore of Tk by secretly introducing a parallel software database to report fake cash and securities balances, and fake buy-sell order execution updates to clients and the regulator.

The company was withdrawing from investor funds from 2013 until it closed its operation three months ago.

Banco Securities and Crest Securities are two other brokerage firms accused of embezzling investors’ money using the same tactic.

A dozen brokerage firms, including Shah Mohammad Sagir Securities, Dawn Securities, Sylhet Metro City Securities, Trendset Securities and Moharram Securities Limited, also allegedly embezzled investors’ money in the same way. But exchanges have yet to settle investor claims, market experts said.

They said that exchanges should have real-time access to brokerage firms’ IT systems for effective oversight, and that they should also be designated as signatories to brokers’ clients’ consolidated bank accounts so that no client money not be unduly withdrawn.

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