DSE frames guidelines for brokers' back office service vendors

Software vendors will have to ensure uniform back-office services for stockbrokers as the Dhaka Stock Exchange (DSE) formulated guidelines for the back offices maintained by the brokers.

They will also have to get enlisted with the premiere bourse to ensure security of the investors' money and shares.

The guidelines will come into effect soon after getting the approval from the Bangladesh Securities and Exchange (BSEC).

The move came following an instruction of the securities regulator against the backdrop of embezzling investors' money and shares by some rogue traders.

The main objective of introducing the guidelines is to ensure unaltered reporting on the position of investors' money and shares maintained by the stock brokers.

"Duplicate versions of the back office software will not be allowed in the back offices. Uniform features of the software will also help the exchange identify anomalies, if any, in the reporting of stock brokers," said M. Shaifur Rahman Mazumdar, chief operating officer (COO) at the DSE.

The back office of a stock broker is an inner part of its operations for preserving information on investors' money, shares, transactions, cash balance and deposit balance using software provided by a vendor.

The stock broker's position of money, shares, transactions and withdrawals are also preserved by the back office software.

The clients of stock brokers are unable to get accurate information regarding their money, shares, transactions, and withdrawals if a stock broker provides information from a back office which is not designated for submitting information to the exchange.

Some stock brokers, including Tamha Securities, have misappropriated a substantial amount of investors' money and shares using the hidden back office.

To ensure unaltered reporting on the position of the clients' money, shares and portfolios, the DSE board of directors has already approved the draft guidelines, which will be sent to the securities regulators within this week, seeking its approval.

"The guidelines will come into effect soon after getting the regulatory approval," said DSE COO Mr Rahman.

As per the draft rules, the stock exchange will have connectivity to the stock brokers' back offices at any time.

"This type of criteria, among others, will be included in our guidelines formulated for the back office services," Mr Rahman said.

Presently, there are 308 stock brokers including 58 new ones. Of the 58 new brokers, six have commenced their operations recently.

Insiders said some eight vendors provide back office services to the stock brokers of the premier bourse.

As per the draft guidelines, the vendors that have developed the stock brokers' back offices will also have to be enlisted with the DSE after fulfilling specific criteria set for providing back office services. A stock broker will have to take the exchange's approval before appointing a vendor for the back office.

"A stock broker can appoint a vendor only after getting clearance from the stock exchange," said the DSE official.

The guideline will not allow a stock broker to alter the reporting regarding the position of clients and portfolios, said the DSE official.

Duplicate versions of the back office software will not be allowed in the back offices of the stock brokers. "The exchange will also get connectivity with the stock brokers' back offices at any time. This type of criterion will be included in our guidelines," said the official.

The securities regulator has also asked the DSE to formulate guidelines for enlistment of software vendors following the system maintained for choosing CA (Chartered Accountant) firms for the listed companies.

A listed company is required to choose a CA firm from the securities regulator's list of CA firms selected on specific criteria.

Bangladesh Merchant Bankers Association (BMBA) president Md. Sayadur Rahman said the investors also have some lacking in ensuring the security of their money and shares.

"Many investors do not update their accurate mobile number in the form of BO (beneficiary owner's) accounts. A mobile number can help an investor to get updates on their investments," Mr. Rahman said.

Recently, the Central Depository Bangladesh Limited (CDBL) has introduced monthly e-statement service to be provided through email addresses of the BO account holders.

The depository authority introduced the services against the backdrop of incidents of embezzling investors' shares and money by some rogue stock brokers.

Following introduction of the e-service, the investors, who incorporate accurate e-mail address in the form of BO accounts, will receive within the first week of every month the information regarding transactions, among others, conducted in the previous month.

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