BSEC flags two brokerages for net worth shortfall, asks DSE to take action

The stock market regulator in a recent investigation found two new-generation brokerage firms -- Monarch Holdings and Columbia Shares and Securities -- are suffering from huge net worth shortfall.

Following the investigation, the Bangladesh Securities and Exchange Commission (BSEC) has directed the Dhaka Stock Exchange (DSE) to take action against these two brokerage firms as per the securities laws.

Currently, trading at Monarch Holdings is suspended while Columbia Securities has been running with capital shortfall.

Earlier this month, the BSEC forwarded an investigation report to the prime bourse, identifying eight brokerage firms for review. Of them, these two were found to have serious equity-related problems, BSEC officials confirmed this to The Financial Express .

"So far as I know, BSEC identified problems with Columbia Shares and Securities Ltd. and Monarch Holdings Ltd., and we have instructed the DSE to take action," said BSEC spokesperson Md Abul Kalam. "This is part of our routine monitoring to detect financial weaknesses in brokerage firms."

As per the regulatory obligations, every stock dealer or broker must have a net worth equivalent to at least 75 per cent of their paid-up capital. Net worth means assets minus liabilities, failure to do so can lead to suspension or cancellation of their operating license.

This shortage indicates the firm doesn't have enough capital to meet its financial obligations and could be a sign of financial instability.

As per the BSEC rules, new brokerage firms required a minimum paid-up capital of Tk 50 million, while joint ventures firms of Tk 80 million and Tk 100 million for foreign firms to operate as a brokerage house in Bangladesh.

Monarch Holdings was founded by Abul Khayer Hiru, while former national cricket star Shakib Al Hasan was also involved as a shareholder. At present, Kazi Sadia Hasan, the wife of Mr Hiru, serves as the company's managing director.

Mr Hiru and his associates have been named in multiple share manipulation cases, and the BSEC has already imposed fines amounting to billions of taka against Hiru and associates.

Despite repeated calls, no officials of Monarch Holdings or Columbia Securities were available for comments.

The DSE, through its surveillance system, had earlier flagged irregularities at several brokerage firms and repeatedly alerted the securities regulator.

Following the DSE's request, the securities regulator launched a formal enquiry into eight TREC (Trading Right Entitlement Certificate) holders, including Monarch Holdings, Columbia Shares and Securities, Fariha Securities, Assurant Securities & Management, WingsFin, Matrix Securities, Mir Securities and Tasia Securities.

The operation of Tasia Securities had been suspended since December last year as it had fallen short of minimum required net worth commensurate with its paid-up capital.

Stock brokers are those who buy-sell securities on behalf of others, whereas dealers buy-sell securities from their own accounts.

In the past few years, investigations carried out by the securities regulator found evidence of fund misappropriation against brokerage firms. That resulted in licences of several firms revoked.

Shah Mohammad Sagir & Co, for example, revoked the TREC licence by securities regulator in May this year over the embezzlement of clients' funds worth around Tk 137 million six years ago.

Market observers note that several firms have gone bankrupt in the past, leaving small investors unable to recover their funds. Regulators, they say, are now more vigilant in enforcing net worth requirements to safeguard market stability and investor interests.

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