DSE backs relaxed rules for brokers, merchant bankers

The Dhaka Stock Exchange yesterday urged the regulator to allow stockbrokers and merchant bankers to make share transactions in their clients' margin accounts for another year so that they could recoup the losses from the market crash of 2011.

The discretionary power, if the proposal gets through, will allow stockbrokers and merchant bankers to make buy-sell decisions without asking the clients for additional funds, in an effort to hold back the current downward trend in the market. Although the Dhaka bourse's key index and turnover hit record highs last month, it declined more than 6 percent in the last eight trading days.DSEX, the benchmark index of the Dhaka Stock Exchange, crossed the 5,700-point mark for the first time in January, while turnover scaled a six-year high of Tk 2,100 crore. But the index closed at 5,322 points yesterday, while turnover came down to Tk 678 crore.

Although the portfolio value of the margin accounts rose a bit during the price rally, they are still burdened with negative equity and the current downward trend worsens the scenario.

So, the premier bourse requested the Bangladesh Securities and Exchange Commission to relax the related clause until December so that the stockbrokers and merchant bankers can go for share trading from the margin accounts, a DSE official said.

A margin account is an account offered by merchant banks and brokerages that allows investors to borrow money to buy securities. The loan in the account is collaterised by securities and cash.

As per securities rules, a stockbroker or a merchant bank is not allowed to make any new transaction in the margin account if the equity falls below 150 percent of the debit balance.

The BSEC in 2013 suspended the clause until March of the following year. Since then, the regulator has been extending the timeframe by issuing directives from time to time.

The last extension was until December 2016, and the regulator is yet to extend the suspension of the clause.

However, a BSEC official said the regulator may consider the Dhaka bourse's request of relaxing the clause for another year in its next commission meeting.

The DSE official said the extension will also help the stockbrokers and merchant banks to recover the losses in their clients' margin accounts, which became negative mainly due to the market crash in early 2011.

As the market continued its slide for the third session yesterday, losers beat gainers on the premier bourse with 227 declining, 80 advancing and 21 remaining unchanged.

Saif Powertec dominated the turnover chart with its transactions of 40.50 lakh shares worth Tk 26.48 crore, followed by Beximco, LankaBangla Finance, Islami Bank and ACI Formulations.

LankaBangla Finance was the day's best performer, posting an 8.54 percent gain. EBL 1st Mutual Fund was the worst loser, plunging 8.21 percent.

Chittagong stocks also went down yesterday, with the bourse's benchmark index, CSCX, sliding 96.25 points, or 0.95 percent, to close at 9,967.39.

Losers beat gainers as 180 stocks declined and 58 advanced, while nine finished unchanged on the Chittagong Stock Exchange.

The port city bourse traded 1.7 crore shares and mutual fund units, generating a turnover of Tk 41.5 crore.