DSE brokers' assoc calls for merger of underperforming CCBL

The DSE Brokers Association (DBA) has proposed to the securities regulator to merge Central Counterparty Bangladesh Limited (CCBL) with the stock exchanges or Central Depository Bangladesh Limited (CDBL), citing that CCBL is not effectively meeting the capital market's needs.

Today, in a meeting with the Bangladesh Securities and Exchange Commission (BSEC), the association raised this proposal along with other issues.

The meeting was chaired by BSEC Chairman Khondoker Rashed Maqsood and attended by other commission officials, including commissioners Md Mohsin Chowdhury, Md Ali Akbar, and Farzana Lalarukh, as well as the DBA delegation.

CCBL primarily focuses on ensuring trading anonymity and enhancing settlement efficiency, which helps address settlement issues and reduce the complexities faced by stock exchanges.

In June 2012, the Chittagong Stock Exchange (CSE) submitted the first proposal to the regulatory body to establish a separate company for clearing and settlement. Later, the Dhaka Stock Exchange (DSE) submitted a similar proposal.

In August 2013, both stock exchanges signed a memorandum of understanding (MoU) to form a joint venture company for this purpose. The company was officially incorporated in May 2018.

According to the rules, 65% of the company's ownership has been given to the stock exchanges – 45% to the DSE and 20% to the CSE.

The remaining 35% is owned by Central Depository Bangladesh Limited (CDBL), various banks, and strategic investors.

DBA President Saiful Islam said, "We are not seeing any progress from CCBL, which was supposed to ensure trading anonymity and improve the efficiency of settlement operations."

He mentioned that the owners invested around Tk165 crore in the firm, which generated Tk65 crore in interest over the last five years. Therefore, he suggested that CCBL should be merged with the stock exchanges or CDBL.

Islam also pointed out that brokerage firms are unwilling to share the interest generated from Consolidated Customers' Accounts (CCAs) because it is difficult to distribute the interest among numerous investors. Additionally, there are tax complications, and the interest is not a significant source of income for brokerage firms.

He further emphasised the need to implement a secure, uneditable back-office software system for brokerage firms. While larger firms are set to implement the system soon, smaller brokerage firms will also need to adopt the integrated software.

Saiful Islam said they have requested a review of the Stock Exchange Demutualisation Act 2013 and its associated schemes to identify areas for improvement, as the Act requires periodic review to enhance the capital market.

He also criticised the role of the seven independent directors, stating that they are not contributing effectively to the stock exchanges' development since they only attend board meetings for an hour each month.

Islam further noted that strong companies are not entering the capital market due to the valuation methods and the complex, lengthy public issue rules. He suggested that these rules should be amended, with priority given to attracting multinational and strong fundamental companies.

In a meeting with the BSEC, the DBA also highlighted that when the interest rate was between 6% and 9%, the stock regulator verbally allowed brokerage firms to provide margin loans up to 12% for their clients.

Saiful Islam pointed out that the interest rate is now around 14%, which is high due to the regulatory cap. He mentioned that they told the BSEC this cap needs to be lifted so the rate can adjust to the current market conditions.

Earlier, the DBA proposed forming a task force with the BSEC and other stakeholders to identify key areas for reform, aiming to improve the capital market and ensure its sustainability.

Saiful Islam explained that implementing reforms effectively may be challenging if the BSEC receives various proposals from different market intermediaries and stakeholders. A task force would help identify core problems and necessary reforms by engaging all stakeholders and collaboratively developing solutions.

Khondoker Rashed Maqsood emphasised that creating a thriving stock market requires the active participation of all stakeholders and institutions involved, in addition to the BSEC. He stressed that the development and reform of the stock market can only be achieved through collective cooperation and support from everyone.

He also noted that the BSEC has already established a task force dedicated to reforming the stock market, and this task force has begun its work.