Net worth shortage pushes five new brokers out of business

A net capital shortage has pushed five new-generation brokerage firms out of operation, according to sources at the Dhaka Stock Exchange (DSE), the primary regulator of brokerage houses.

Among the firms, the DSE cancelled the Trading Right Entitlement Certificate (TREC) of Tristar Securities Limited due to its failure to maintain the required net worth, according to a filing yesterday (5 May).

Information obtained from the DSE revealed that Al Haramain Securities, Sonali Securities, TradeX Securities, and Monarch Holdings remain out of operation.

According to sources at the DSE,  a total of five new brokerage houses including Tristar Securities are currently out of operation due to their failure to maintain the required capital.

A top official at the DSE said that the Trading Right Entitlement Certificate (TREC) rules introduced in 2020 mandate brokers to maintain at least 75% of their paid-up capital at all times. 

However, some new brokerage firms violated this rule, which led the DSE to initially suspend their operations. If they restore the required capital, their operations will be allowed to resume, he added.

In 2021, the Bangladesh Securities and Exchange Commission (BSEC) allowed brokerage licenses to a new 52 brokerage firms in line with the Demutualisation Scheme, 2013.

At that time, in a gala programme held at the DSE as the premier bourse awarded the Trading Right Entitlement Certificate (TREC) to the new owners with the hope of increasing market participation.

The new TREC holders are entitled only to buy and sell shares and they will not hold shares of the DSE.

Presently, 250 brokerage houses own shares of the DSE, and get annual dividends from the DSE.

With the issuing of licenses, the brokerage firms were mandated to start business operations within six months. 

As per sources, some of the brokerage firms started business on time, but some of them failed to do that. The failed brokerage firms had taken time extension from the stock market regulator BSEC. 

Till date, of the total 59 new brokerage houses, 52 remain active as they are continuing business—buying and selling shares. Presently, the five firms remain out of operation, and one TREC cancelled. 

A shareholder of Monarch Holdings told the Business Standard, "The DSE has suspended trading of our brokerage house due to a slight shortfall in net worth capital."

Tristar Securities

Through a disclosure yesterday, the Dhaka Stock Exchange (DSE) notified all concerned that it has decided to cancel the license of Tristar Securities.

The DSE made the decision due to a violation of Rule 3(2)(ga), which mandates maintaining at least 75% of net worth of its total paid-up capital at all times.

In this context, the DSE has requested all investors and clients of Tristar Securities to review their respective accounts with the company and complete any pending settlements.

If any investor or client has complaints regarding settlements, they are advised to submit a written complaint along with all relevant supporting documents to the Chief Regulatory Officer of the DSE.

According to DSE data, the net worth of Tristar Securities significantly dropped in the 2023–24 fiscal year compared to the previous year. In FY23, its net worth stood at 53.76%, which declined to just 11.90% in FY24.

Sources said the DSE cancelled the TREC due to the sharp decline in net capital and the unwillingness of the firm's owners to address the issue.

Sattique Ahmed Shah, Acting Managing Director of the DSE, said, "The cancellation followed regulatory rules, as the firm failed to maintain the required net capital."

When asked about the failure, Md Zillur Rahman Mridha, Managing Director of Tristar Securities, declined to comment over the phone, saying, 'I will not make any comment."