Crest Securities’ clients claim Tk16 crore-plus in cash

Three dozen clients of Crest Securities have claimed to the Dhaka Stock Exchange (DSE) that the defaulting brokerage firm owes them over Tk16 crore. 

Responding to the DSE invitation for claims, 52 investors claimed ownership of shares while at least a dozen claimed both shares and cash in their investment accounts in the firm until last week. 

However, the numbers and figures are merely claims and the updates were presented to the DSE board on July 2. 

There might be more claims as all the clients are yet to respond. 

The exchange will check the claims this week while inspecting and investigating the back office system of the brokerage firm, said the DSE officials. 

One of them told The Business Standard that the DSE will deal with the claims of the brokerage clients only. The loan providers will have to take care of their claims themselves. 

Crest Securities – eighth member house of the DSE – failed in settlements in the last week of June. Then the exchange immediately froze its accounts and assets so that clients' claims can be settled with the belongings. 

In an online press conference last week, the DSE Managing Director Kazi Sanaul Hoq said the brokerage firm's clients have securities worth Tk82 crore in the electronic depository system of the Central Depository Bangladesh Limited. 

The firm has over 20,000 clients. 

The owners of the frozen securities will get the opportunity to transfer them to a new beneficiary account through the linking facility approved by the exchange and the regulator. 

Cash balance of clients is likely to be paid from frozen assets – like the DSE membership and brokerage licence of the firm – as the brokerage firm has a very little cash in its bank accounts. 

But the broker's main asset within the exchange company – shares of the DSE Limited – had already been mortgaged in the Social Islami Bank Ltd against the loans taken by the brokerage house owners.

However, the DSE managing director told the media last week that no bank would be able to get the DSE shares and those would be under DSE management's control so that it can sell those, if needed, to settle clients' claims. 

Directors of Crest Securities went into hiding since the news of their inability to settle claims had broken out. 

The exchange, based on orders from the securities regulator, immediately wrote to the law enforcement agencies to find them and not to allow them to leave the country. 

Brokerage firms are now in a tight corner due to the depressed condition of the capital market and some of them are allegedly mishandling client assets. 

The DSE has asked each of its brokerage firms to submit their own consolidated accounts. 

This might help the exchange to learn about the broader health of the firms only as the exchange is unable to check every single transaction of the brokers' clients. 

The exchanges do not get to know anything until the clients complain about the misconduct of their broker. 

For effective regulatory monitoring, there needs to be real-time access to the brokers' back office and bank details, a Bangladesh Securities and Exchange Commission (BSEC) official suggested. 

After the Crest Securities case, both the securities regulator and the exchange stepped up their efforts to inspect brokerage houses. 

The Business Standard has learned at least eight brokerage firms were identified to mishandle client assets to some extent. 

Previously Don Securities and Shah Mohammad Sagir & Co at the DSE, and Sylhet Metro City – a member house of the Chittagong Stock Exchange – embezzled the clients' assets in investment accounts. 

In each of the cases, the exchanges – guided by the BSEC – tried to confiscate brokers' assets and encash those to settle clients' claims. 

When the claims surpass a broker's assets, the regulatory system has a provision to pay the clients from the investors' protection fund at the exchanges. 

Alongside strong regulatory supervision and monitoring, the exchange needs to effectively strengthen the fund, the BSEC officials suggested.