Brokerage customer account deficit dwindles to Tk48cr, from over Tk500cr

Infographic: TBS

Regulators' zero tolerance against stockbrokers' diversion or misuse of clients' idle cash helped reduce the deficit in the brokerage industry's consolidated customer accounts (CCA) to below Tk48 crore from over Tk500 crore found later last year.

According to the regulatory report, only nine of the Dhaka Stock Exchange (DSE) brokers had deficits in their CCAs, down from 87 nearly nine months ago.

Thanks to the strict supervision by the premier bourse after several brokerage firms' client money embezzlement cases unfolded over the recent years.

DSE Acting Managing Director M Shaifur Rahman Mazumdar told TBS "Having faced few fraudulent cases by some brokers, the DSE strengthened its monitoring and supervision and that paid off."

The DSE team was closely working with the remaining brokers to reduce their deficits to zero, he added.

What Consolidated Customer Account is

Stockbrokers have to maintain a separate bank account, technically called CCA, to park the unused cash in their brokerage clients' beneficiary owner's (BO) accounts and it is prohibited to use the money for other purposes than paying the price of the securities the very client buys, or collecting the commission or fees payable by the client.  

For example, an investor poured Tk1 crore in a BO account, bought securities worth Tk80 lakh. The remaining Tk20 lakh must be parked in the CCA.

If any sum from the CCA is used in anything other than the payments against the price of the actual investors' bought securities, or as their fees and charges, it would create a deficit in the CCA, said Mazumdar.

Money flowing into and out of CCA is an everyday affair of brokerage firms and the deficit there is often observed, while most of the problems are immediately solved upon the regulatory instructions, he said.

Also, the penalties being strictly imposed on brokerage firms against deficit in their CCAs helped significantly reduce the extent of the deficit problem, according to the DSE Acting MD.  

For example Sinha Securities and Latif Securities, because of their Tk1 crore and Tk32 lakh CCA deficits respectively, were yet to obtain renewal of their relevant licences to continue with trading activities.  

According to the latest regulatory report seen by TBS, PFI Securities had the highest Tk38 crore deficits in the CCA, followed by Modern Securities showing a deficit of over Tk5 crore, SCL Securities running with Tk1.1 crore.

Modern Securities Managing Director Khugesta Nur-E-Naharin claimed while talking to TBS that during the last spot inspection by the DSE team in late April, there had been some software issues that showed a deficit which was not real.

"We submitted all the hard copy documents to the DSE team and hope their report will show no deficit soon," she added.

PFI Securities Assistant Vice President Md Nuruzzaman said his firm was continuing trading and he was not aware of the deficit issue.

The other firms running with less than Tk1 crore deficits were Fareast Stocks and Bonds, Asia Securities, Sharp Securities, Synthia Securities and they have been deprived of several facilities available for compliant stockbrokers.

Embezzlement vs operational deficit

The deficit in CCA was not necessarily embezzlement by a stockbroker, said Md Sajedul Islam, senior vice president of the DSE Brokers' Association (DBA).

Most of the CCA deficit cases arise when a client buys shares with a promise of depositing money on the same day and later the bank cheque is not cleared or dishonoured. The amount ends up as a deficit.

However, "It is not a big problem in the industry. Because, the stock bought without cash in the client's BO account, can be sold off in two days," he said, adding that this is why the total deficit came down so fast and almost all the firms managed it upon regulatory instruction.

Money received by a broker against the settlement of sold securities comes back to CCA.

The problem is serious if a broker misuse or syphon out clients' cash as it leaves no collateral like shares to liquidate and fill the gap immediately.

Rezaul Karim, spokesperson and executive director at the Bangladesh Securities and Exchange Commission (BSEC) said, "Embezzlement or accidental operational deficit, nothing will be allowed."

"A broker's payable amount to the bourse and its clients must be in the CCA every day and there is no reason for deficit until a broker misuses it," he added. 

He was hopeful that all the brokers would be operating without any deficit in CCAs soon.

The penalties nowadays

If they continue with deficit in CCA, stockbrokers are deprived of their free trading limit in the bourse that means they can execute buy orders up to the limit of their free cash for the day, while the opportunity to settle things at the end of the day facilitates their business.

With CCA deficit, a broker cannot enjoy its quota in initial public offerings (IPO), the relevant stock exchange company halts its dividend payments to the firm even if it is a shareholder of the exchange company.

Also, the renewal of brokerage licence, new branch or digital booth opening remain unapproved until correcting CCA deficit.

It all came in the recent years after several cases of client money embezzlement by brokers unfolded.

The scams

80% of the DSE trading has been executed by top 20-35 firms and over the last decade the monitoring and supervision was almost concentrated within the giant firms.

The slack let a number of small and medium firms keep embezzling client money through selling off their shares without consent, taking away CCA funds, hiding facts and even faking transaction and account balance reports over years.

For instance, Crest Securities, Tamha, Banco Securities and Shah Mohammad Sagir still owe around Tk200 crore to their defrauded clients and even the regulators' maximum efforts failed to recover it all.

Blue-Chip Securities, Sylhet Metro City, Dawn Securities, Trendset Securities, Moharam Securities clients also have long been claiming for their money embezzled by the respective brokers.