The new licence awarding process will benefit the market only if firms with specialised skill-sets join the industry, experts say

The Dhaka Stock Exchange (DSE) has decided to recommend tougher criteria for awarding new licences for brokerage houses.

The DSE board of directors came up with the decision during a meeting on Thursday.

The premier bourse has got extended time, till mid-July, to comment on the Bangladesh Securities and Exchange Commission (BSEC) proposed Trading Right Entitlement Certificate (TREC) Rules, 2020.

Md Eunusur Rahman, chairman of the DSE board, told The Business Standard, “The board discussed the issues: the new recommendations.”

“The discussion points will go through some processes before being communicated to the regulator,” Eunusur said while declining to share any details.

However, sources confirmed The Business Standard that the board decided to recommend a minimum paid-up capital requirement of Tk 10 crore for companies interested to own a brokerage licence at the DSE.

The draft TREC Rules published on March 25 suggested that paid-up capital of only Tk 3 crore would be enough to avail a TREC – only a brokerage licence, not membership or shares of the bourses.

The proposed rule drafted in line with the previous recommendations of the DSE board had ignited fury among the exchange members as they found the criteria to allow new brokerage players insufficient to ensure capital adequacy and responsibility.

The DSE Brokers’ Association (DBA) had served a legal notice to the DSE board in the second week of April, pointing out the gaps in the very generous conditions offered for new entrants.

They, as shareholders, also had threatened to dissolve the board in a general meeting of shareholders if the board failed to respond to their demands – meant for a healthy brokerage industry.

However, in yesterday’s meeting, the DSE board had come up with much tougher recommendation plans that included non-refundable Tk 2 crore registration fees instead of Tk 5 lakh of the draft rule, application form fee of Tk10 lakh instead of Tk 1 lakh proposed earlier.

Security deposit, which a brokerage firm needs to maintain with its bourse, was recommended to be Tk 3 crore.

However, the draft rule proposed the amount to be Tk 2 crore only.

In the legal notice, the association of the DSE members expressed their concern that the proposed weak criteria would pave the way for some vested quarters including shell companies to be in brokerage services.

However, brokerage services require the same level of trustworthiness and reliability as the one needed in banking.

The DBA also expressed its concern that some new entrants with their less invested capital might tend to wilfully default transaction settlements which will be devastating for investors and the capital market.

Their concern is more relevant now as Crest Securities became the eighth member firm to fail in transaction settlements.

And its directors went into hiding while its anxious clients are gathering here and there every day to make sure that they get back their securities and cash balance in investment accounts.

However, the DSE in a press conference this week expressed its commitment to protecting the interest of the brokerage clients of Crest Securities.

The DSE has frozen all assets of Crest Securities and made arrangements to pay the stock brokerage firm’s clients off from that.

If the assets appear to be insufficient, the exchange will sell off the firm’s membership and TREC licence in the DSE.

Members, as the owners of the bourse, received a TREC or brokerage licence by default during demutualisation and the exchange is going to allow new entrants in the business in coming days.

The new players will only get a business licence, no share at the exchange company.

Experts believe that the new licence awarding process will benefit the market only if firms with specialised skill-sets join the industry.

Or else, it would be another brick in the wall and will create further overcrowding in an already struggling industry.

Source: TBS