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The Dhaka Stock Exchange (DSE) has suspended the stock broker and stock dealer licences of Subvalley Securities as its liabilities have far outstripped assets, turning the aggregate indebtedness ratio negative.
The suspension will come into effect today (Thursday) and will remain effective until the broker possesses the minimum required net capital to run its operations.
Market insiders suspect that the broker has embezzled a huge amount of clients' funds, which resulted in the net capital of Tk 37.12 million in the negative as of October this year.
As per the Subvalley's report submitted to the DSE, there is a shortage of clients' funds worth more than Tk 58 million in the consolidated customers' account (CCA). The FE saw a copy of the report.
Usually, a stock broker's cash in the bank is equivalent to payables to its clients.
But Subvalley owes to its clients more than Tk 60 million while it has cash worth Tk 1.93 million (in the bank or hands).
The actual deficit in the CCA could be much higher. An audit will be able to determine whether the data provided by the broker shows the real picture.
"The bourse (DSE) took an action only. But it is yet to devise a solution," said Md. Ashequr Rahman, managing director of Midway Securities.
The bourse should have discussed the matter with officials of Subvalley Securities before suspending its operations.
A team comprising members of the DSE and the securities regulator may even consider sitting with the company representatives on Thursday (today) and check the company's books of accounts, official software and details of bank accounts to make their own judgement about the gravity of the problem.
"The company should no longer be allowed to carry out any kind of activity," added Mr Rahman.
There is a risk of data manipulation, bank transactions and other corrupt deeds even after the halt of operations relating to trading in securities.
When approached by the FE, DSE's acting managing director Sattique Ahmed Shah could not say whether any measures had been taken to protect the clients of Subvalley Securities.
The company may have some other assets in different forms, such as FDR (fixed deposit receipts). But the report that the company submitted to the DSE does not mention any assets of the kind.
The company may have refrained from disclosing its assets.
Some other data looks abnormal. When the report was shared with market experts, they pointed out expenses worth Tk 12.24 million, which, according to them, were overly inflated.
As per the regulatory directive, every stock broker and stock dealer is required to maintain a minimum net capital balance of Tk 0.1 million.
But the net capital balance of Subvalley Securities is Tk 37.12 million in the negative at the end of October.
Moreover, the company's aggregate indebtedness ratio is (9.55):20 up until October whereas the ratio to be maintained is 1:20.
The aggregate indebtedness ratio and relevant financial parameters indicate that the company has almost become bankrupt.
Its notable illiquid assets are its stake in the prime bourse as a TREC (trading right entitlement certificate) holder, which is equivalent to Tk 37.87 million.
However, there is no way to settle clients' claims by selling out the TREC holders' stakes under the existing securities laws and regulations.
DSE Chairman Mominul Islam said the authority would strive to recover the money siphoned off by the brokerage firm within the legal means.