More brokerage house licences on the way
The stock market regulator is set to award new licences for brokerage houses to any firms, including foreign ones, in order to attract more investors to the market.
But the move comes at a time when the existing brokerage houses are already struggling to stay afloat amid bearish markets and market concentration.
According to the Demutualisation Act 2013, the Dhaka Stock Exchange and the Chittagong Stock Exchange were not allowed to issue TREC (trading right entitlement certificate), or brokerage licence for five years.
On March 24, the draft of the Bangladesh Securities and Exchange Commission (Trading Right Entitlement Certificate) Rules, 2020 was published by the stock market regulator to get public opinion on issuing certificates.
It has sought feedback by April 15 although the country has been observing a lockdown from March 26 to April 11 to stem the spread of the coronavirus.
"If new stock brokers join the battle, they will bring new investors and this will benefit the market," said a top official of the BSEC.
Five years have passed since the demutualisation of the exchanges but the rules have not been put in place. Officials say they are committed to approving the rules very fast.
Presently, there are 250 TREC-holders in the DSE and 148 TREC-holders in the CSE. Of them, some are ineffective.
The existing TREC-holders are also the shareholders of stock exchanges. The fresh TREC holders, if allowed, will only be allowed to get licence to carry out trading operations in the capital market.
According to the draft rules, a firm with technical infrastructure and human resources, among others, should have a paid-up capital worth Tk 3 crore.
The firm will have to keep security money of at least Tk 2 crore, or any amount that will be fixed by the regulator in future.
The audited net asset value of the company must be 75 per cent of its paid-up capital. No directors of the firms can be loan defaulter.
The bourses will get Tk 6 lakh by issuing a new TREC, whereas the DSE sold the last 12 memberships for Tk 32 crore each.
But analysts and some brokers question the utility of awarding more brokerage licences and even on flexible terms and lower prices.
The average paid-up capital for the existing brokerage houses is more than Tk 30 crore, said a stock broker.
A firm can take the TREC by spending only Tk 6 lakh but this is not the real market value of the licence, he said.
The price should be fixed through auction, he said, adding that the new licence-holders will keep only Tk 2 crore in security deposit, which is too small.
"If they swindle investors, then how will they be held responsible with such a small amount of security deposit?"
The rules have been published at a time when the country has been locked down. "Then how will we express our opinion? So, the time should be extended," the broker added.
The bourse has been on the slide for the best part of the past six months now. Just when it was propping up -- be it organically or through intervention -- came the blow of coronavirus pandemic that is bringing the world down to its knees.
On March 18, DSEX, the benchmark index of the DSE, shed 168.60 points to end at 3,603, the lowest since May 12, 2013, as the fast-spreading coronavirus kept investors at bay.
Between March 11 and March 18, stocks lost 627 points, or 14.83 per cent. The index ended at 4,008 on March 25, the last trading session before the closure.