Investors allowed to buy shares instantly with bank cheques

The new restrictions:

• Client cheques must be deposited by the next day
• Dishonoured amount to be filled by brokers or merchant banks
• Non-compliant brokers and merchant banks to lose IPO quota facility for a year
• Defaulted clients cannot be allowed the same facility for a year
• Dishonoured cheque list along with client detail to be submitted to BSEC every month

The Bangladesh Securities and Exchange Commission (BSEC), finally on Tuesday, allowed investors to buy shares and other listed securities instantly against bank cheques, pay orders or demand drafts.

On 11 October, the regulator had prohibited the practice to stop its misuse by some investors in connivance with their unscrupulous brokers.

Then the market nosedived as the purchasing power of some investors, which used to be instantly created against bank cheques, eroded.

Against the backdrop, the brokerage industry had been requesting the regulator to allow the practice among good players in the market and make abusers accountable. 

The regulator seems to have responded accordingly.

The cheques or bank instruments must be deposited to the relevant bank accounts on the same day or the very next working day, said the BSEC.

In recent months, the Dhaka Stock Exchange (DSE) inspection team observed that some brokers were knowingly allowing some of their clients in connivance to give a cheque and buy shares, despite the fact they all know the cheque would not be honoured.

Now, if any broker or merchant bank does not deposit the client cheque on time, it would be deprived of its lucrative quota facilities to avail primary shares in initial public offerings (IPOs) for the next one year.

If a client cheque is dishonoured or not credited, the deficit must be filled by the broker or merchant bank itself. Brokers must transfer the same amount to the consolidated customer account from their own bank account so that the customers' collective fund faces no risk.

Merchant banks must transfer the deficit amount to the separate bank account maintained for the customers' fund from its own bank account, said BSEC, adding that failing to do so would result in the cancellation of the IPO quota facility for the next 12 months.

A customer whose cheque is dishonoured shall not be allowed to repeat the same story again in the next one year. Brokers and merchant banks must not create any purchasing power against the same customer's cheques, pay orders or demand drafts.

Every stock broker and merchant bank must maintain the list of dishonoured cheques, pay orders and demand drafts and submit those to the BSEC along with the details of the clients by 10 days after every month's end.

Stockbrokers and merchant banks are directed to encourage their customers to deposit money through electronic fund transfer services like real-time gross settlement, electronic fund transfer network, or other modes of banking channel transactions approved by the Bangladesh Bank.

Meanwhile, the rumour of the directive might have been backed by insider information that helped stocks stop the fall on Tuesday.

DSEX, the broad-based index of the Dhaka Stock Exchange, moved 0.72% higher to close at 6,352 points.