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The operation of Tasia Securities has been suspended as it has fallen short of minimum required net worth commensurate with its paid-up capital.
The suspension comes into effect today (Monday) and will remain effective until the stockbroker meets the regulatory requirement.
Prior to the order issued by the Dhaka Stock Exchange (DSE), the Bangladesh Securities and Exchange Commission (BSEC) refused to renew the trading licence of the brokerage firm for the same reason.
"The commission is not in a position to renew the stock-broker and stock-dealer registration certificates in favour of Tasia Securities due to non-compliance with relevant securities laws," reads a letter sent by the BSEC to the DSE on Sunday.
Trading Right Entitlement Certificate (TREC) is issued by the exchanges to allow brokers to facilitate trading in listed securities in compliance with the securities laws.
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.
However, Tasia Securities' net worth has fallen below 75 per cent of its paid-up capital due to significant erosion of the value of its equity-based assets.
A substantial decline in net worth poses a threat to the company's operations and its clients as well, said Md. Ashequr Rahman, managing director of Midway Securities.
A stock brokerage's net worth below 75 per cent of its paid-up capital indicates that the company is no longer in a good position because of financial mismatches.
"It also shows the company may not be able to survive," Mr Rahman added.
The securities regulator incorporated the regulatory provision to minimize risk that clients face when it comes to realising investment after potential fund misappropriation.
Tasia Securities, one of the new TREC holders registered with the Dhaka bourse, received stock broker and stock dealer licences in December 2021.
New local TREC holders must have a minimum paid-up capital of Tk 50 million while foreign TREC holders Tk 100 million as a stock broker.
Joint-venture TREC holders having local and foreign stakes must have at least Tk 80 million in paid-up capital to operate as a brokerage firm.
Moreover, a local TREC holder has to keep Tk 30 million with the DSE as security deposit, which is Tk 40 million for joint ventures and Tk 50 million for foreign firms, as per the BSEC (Trading Right Entitlement Certificate) Rules, 2020.
The intermediaries expand paid-up capital with retained earnings and by injecting fresh funds from time to time.
Mohammad Aminul Haque, managing director of Tasia Securities, could not be reached for comments by phone despite repeated attempts.
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.
The main income source of brokerage houses is commission on trades in shares on behalf of clients. The new firms have failed to attract new investors to the market.
Hence, they are struggling to stay afloat. Their financial woes escalated as the market has remained bearish for long, with significantly low turnovers.