BSEC plans cash dividend transfer to BO accounts to spur reinvestment

The securities regulator has been thinking hard about introducing a provision that will require cash dividends to be deposited into investors' BO (beneficiary owner's) accounts, instead of bank accounts, so that cash is readily available for reinvestment in stocks.

Increasing liquidity flow into the money market is the objective as the discussion has continued on the transfer of dividends against securities, sources said.

The Bangladesh Securities and Exchange Commission (BSEC) is to make the move when the daily turnover tumbled and has stayed below Tk 10 billion for more than a month.

Most of the stocks have been stagnant at the floor prices, with selling pressure much higher than buy orders as investors wait for further price corrections.

Therefore, those who would like to sell some assets to buy new securities are unable to do so.

Asked if the BSEC is considering the provision as a short- or long-term solution, Chairman Shibli Rubayat Ul Islam said, "We are reviewing the options" but it is highly likely to stay for long.

Investors open BO accounts with merchant banks and brokerage firms, the intermediaries that conduct trading in the stock market.

As per the existing system, the listed companies send cash dividends to investors' bank accounts linked to the respective BO accounts.

On the other hand, funds handed to the brokerage firm by investors to buy stocks are gathered into a consolidated customers' account maintained by the broker.

"Sometimes investors do not withdraw cash dividends from their bank accounts," said an official of the securities regulator.

But if cash is made available in BO accounts, investors may feel encouraged to inject the money into stocks, he added. There will be no hindrance to the withdrawn of cash received.

However, the cash transfer to separate BO accounts is deemed to be a cumbersome job. That is why the securities regulator has pondered over the possibility of bringing in the Central Depository Bangladesh Limited (CDBL) to maintain the record of funds against BO accounts while all cash dividends of the clients registered with a single brokerage house will be deposited into one consolidated customers' account.

The number of operable BO accounts was more than 2.05 million at the end of June whereas the number of accounts with share balance was 1.47 million.

At present, there are 353 listed companies and 37 listed mutual funds.

All multinational companies distribute cash dividends as their overseas sponsor-directors prefer that to other forms of returns on investments.

Earlier in June 2021, the securities regulator formed Capital Market Stabilisation Fund (CMSF) with undistributed or unsettled dividends, stock and rights issues.

Apart from settling investors' claims, the objective of the fund was to support the stock market.

Though the BSEC had estimate Tk 210 billion undistributed/unsettled dividends prior to the fund formation, it received cash amounted to Tk 4.90 billion and shares worth Tk 6.20 billion at the market prices.

Of the total fund received, Tk 2.25 billion has been given to the Investment Corporation of Bangladesh (ICB) so it can inject money into the market.

The CMSF has also contributed Tk 500 million to the ICB AMCL CMSF Golden Jubilee Mutual Fund.

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