Bourses asked to monitor brokerage firms every month

The stock exchanges will have to monitor brokerage firms every month from now on to prevent fund irregularities.  

The Bangladesh Securities and Exchange Commission (BSEC) gave the bourses necessary directives in this regard on Monday.

Presently, brokerage firms submit quarterly reports to the regulator.

As part of monitoring, the Dhaka stock exchange (DSE) and the Chittagong stock exchange (CSE) will cross-check bank statements of consolidated customers' accounts (CCAs).

Besides, they will cross-check cheques in transit, clients' payables, cash in hand, and payables to and receivables from bourses in brokers' accounts.    

Despite positive balance in CCAs, if any stipulated item is found suspicious, the stock exchanges will conduct an inspection immediately and will submit the report to the commission within 10 days after completing the process. 

This will minimise irregularities in CCAs and it will be possible to prevent big incidents like the Crest Securities and Banco Securities scams. 

Moreover, the regulator will be able to take steps in the early stage in case of an anomaly.

In a circular, the regulator also directed brokerage firms to distribute the net interest income earned from CCAs among customers. 

In this regard, this income will be calculated by deducting the annual account maintenance expenses, bank charges, and other charges from the annual income of CCAs.

This income has to be distributed among customers within 30 days after the end of each financial year.

If a minimum credit balance of Tk1 lakh remains in an account continuously for at least a month during a financial year, customers will be eligible for the income.

Besides, if the interest income of at least Tk500 is accrued in an account in a financial year, customers will be eligible for receiving the income as well. 

Every brokerage house usually has a consolidated account in a scheduled bank to deposit its clients' receivables and payables.

They maintain such accounts with nominal supervision, which allows irregularities, such as misuse of funds, to happen.   

To prevent these anomalies, the BSEC plans to bring CCAs under a digitalised platform. 

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

As per the rules, every stock-broker must maintain a consolidated account in its name in a scheduled bank for depositing money received from its customers and also paying them.

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

But sometimes many brokerage firms do irregularities in consolidated accounts. 

Many firms illegally provide cash or loans for their directors from consolidated accounts. Some others use the fund to apply for primary shares.

Investors thus lose everything when brokerage firms take money from consolidated accounts illegally.

Banco Securities and Crest Securities, both members of the DSE, are burning examples of this. 

Market insiders say sometimes brokerage firms take advantage illegally when the regulator and stock exchanges do not visit them as part of the routine inspection.

Professor Abu Ahmed, a capital market analyst, said, "It is similar to defrauding investors because they own the funds in consolidated accounts, not stockbrokers."

However, investors have no way to find out about such frauds, he added. 

He said the regulator should maintain software to centrally observe transactions of consolidated accounts so that it is possible to find out instantly whenever a firm has a deficit.

Consolidated accounts are not necessary for investors if it is possible to keep funds in their own accounts during transactions, he added.

"We have taken different steps to secure investors' money in CCAs, which will improve brokerage firms' digital activities," Professor Dr Sheikh Shamsuddin Ahmed, BSEC commissioner, said. 

He said, "We are unable to inspect brokerage firms due to a lack of manpower."