5 brokerage firms misuse Tk123cr of investors' funds

Infographic: TBS

Despite the securities regulator's efforts to shield investors, instances of fund misuse persist as certain brokerage firms engage in fraudulent activities, eroding investor trust in the capital market. 

Sector insiders report a growing reluctance among investors to entrust their funds with less reputable brokerage firms.

According to the Dhaka Stock Exchange (DSE), five brokerage firms have collectively accrued a deficit of Tk123 crore in their consolidated customer accounts (CCAs).

As of 14 August 2024, Sinha Securities Ltd has a deficit of Tk8.49 crore. Fareast Stocks and Bonds Ltd has a deficit of Tk10.08 crore as of 18 February 2024. 

Dhanmondi Securities has a deficit of Tk7.74 crore as of 20 August 2024, while Moshihor Securities has a deficit of Tk68.58 crore as of 19 August 2024. Lastly, PFI Securities has a deficit of Tk28.18 crore as of 21 August 2024.

A Consolidated Customer Account (CCA) is a separate bank account maintained by stockbrokers to hold unused cash from their clients' beneficiary owner (BO) accounts.

It is strictly prohibited to use this money for any purpose other than paying for securities purchased by the client or collecting commissions or fees owed by the client. Any unauthorised use of funds from the CCA would result in a deficit.

According to a directive issued by the Bangladesh Securities and Exchange Commission (BSEC) on 22 March 2022, brokerage firms with deficits in their CCAs will not be eligible for any facilities.

DSE Brokers Association (DBA) President Saiful Islam told TBS that the securities regulator did not take effective action when instances of CCA fund misuse were discovered. 

He added that if the responsibility were given to the stock exchanges, it would be more effective.

Market insiders have said that the BSEC and the stock exchanges should be more accountable and take stronger action against these issues.

Md Saiful Islam, chief executive officer of Fareast Stocks and Bonds, clarified to The Business Standard that the company does not misuse investors' funds.

He explained that the reported deficit of Tk10.08 crore is an internal matter among the company's owners, which has already been submitted to the relevant regulatory authorities for review. 

Moshihor Securities

Moshihor Securities Ltd has been misappropriating client funds invested in the capital market for years, evading regulatory oversight by employing multiple servers and databases, according to a letter sent by the DSE to the securities regulator. 

As of 19 August 2024, the DSE identified a Tk68.58 crore shortfall in Moshihor Securities' CCA, down from Tk75 crore as of 2 May 2024.

On 29 August 2024, the BSEC formed a five-member probe committee to look into the matter after receiving a report that the brokerage firm had misused a total of Tk161 crore, including Tk68.58 crore of investors' money and Tk92.35 crore of investors' shares. 

As a result, the commission has suspended all facilities for the firm due to the deficit.

Sinha Securities

The BSEC suspended the operations of Sinha Securities in May 2023 due to a deficit in its CCA. The regulator also did not renew the firm's Depository Participant (DP) certificate. Sinha Securities operates around 5,000 beneficiary owner (BO) accounts.

In December 2023, the commission directed the firm to settle all deficits by 19 March 2024. However, the firm failed to meet this deadline, with the deficit amounting to Tk8.51 crore as of 7 March 2024 and standing at Tk8.49 crore as of 14 August 2024.

PFI Securities

In January 2024, the securities regulator granted PFI Securities Limited a six-month extension to adjust the Tk25 crore deficit in its CCA. 

However, the company did not fully comply with the regulatory instructions. As of 21 August 2024, the company has a deficit of Tk28.18 crore. 

Despite the deficit, PFI Securities has assets worth more than Tk1,000 crore, including land and buildings.