The vanishing of the owners of a stock brokerage firm, allegedly, embezzling their clients' investments would only heighten the woes of an otherwise beleaguered prime bourse of the country. The incident being an unprecedented one in the history of the bourse has aroused enough concerns among all investors. Though the amount embezzled remains unknown, according to primary indications, it could be sizeable. A good number of clients have alleged that the cheques issued by the brokerage house in question have bounced. Even, in some cases, the firm sold clients' stocks sans their permission.
The incident has brought to the fore a few issues that need to be addressed urgently. The first and the foremost one relates to protecting the investors from fraudulent practices indulged in by the unscrupulous section of brokerage houses. The brokers are now free to sell the clients' stocks available with the latter's BO (beneficiary owner) accounts. The share trading mechanism does not have any tool to show/submit consent from the clients concerned.
However, the moment any share is transacted, the client concerned is supposed to receive a message from the Central Depository Bangladesh Ltd (CDBL) to this effect. Unfortunately, many investors do not avail themselves of such 'alert' services. In such a situation, the securities regulator and the management of the bourses should devise some means under the present automated trading to get prior clearance from the investors. Clients' ID and password may be introduced for the purpose.
The Exchanges Demutualisation Act and the Trading Rights Entitlement Certificates (TREC) Regulations do empower the DSE to monitor the activities of the TREC holders, who are also its members, and, if and when necessary, take punitive measures against rogue ones. The latest incident has made it imperative for the securities regulator and the DSE as well to see whether they have been vigilant enough in spotting the signs of aberration in the behaviour of the brokerage firms.
It is quite obvious that the DSE would now come under pressure from the clients of the fraudulent brokerage firm to arrange compensation. To allay worries of the clients concerned, the managing director of the DSE and the president of the DSE Brokers' Association, talking to this paper separately, have said the stake of the brokerage firm in the bourse would be disposed of, if needed, to pay them (clients). However, that could be a long-drawn process and the amount to be fetched might be far too short to meet the clients' demand. The securities regulator has requested the central bank to freeze the accounts of the brokerage house and its directors, but the possibility of finding anything big in those appears to be remote.
There is no denying the incident would further hurt the investors' confidence which has dipped to the lowest level in recent times. The decamping of the broker is bound to arouse fear among investors about taking services of other operators in the market. So, for the sake of their own good, all the TREC holders at the DSE in consultation with the management of the bourse and the securities regulator must take initiatives to overcome the crisis in hand.
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