How 57 brokers, dealers divert Tk400cr outside stocks

Infographics: TBS

The Bangladesh Securities and Exchange Commission (BSEC) found that 57 broker and dealer firms used around Tk400 crore in various non-listed companies, provided loans to their sister concerns, invested in land and flats, and in FDRs instead of investing in their core business.

The firms include Akij Capital Management, Multi Securities and Services, Sheltech Brokerage, Moshihor Securities, Salta Capital, and KHB Securities. Each of these firms has invested more than Tk20 crore outside their core business.

According to securities rules formulated in 2021, investments by stock brokers and dealers outside their core business, except in the stock market, are barred.

However, these funds were diverted to other sectors rather than being invested in the capital market, according to BSEC officials.

As a result, the commission has taken the initiative to bring the funds back to their core business in the capital market as soon as possible, the officials added.

A stock dealer is entitled to buy and sell shares for themselves, while a stock broker is entitled to buy and sell shares for its clients, according to securities rules.

With the compliance report submitted by the Dhaka Stock Exchange (DSE), the market regulator found that 57 brokers and dealers had diverted Tk399.49 crore to activities other than their core businesses.

The country's premier bourse prepared the compliance reports of the firms based on audited financial statements for the period ending 30 June 2023.

In this regard, the regulator directed the "alleged" brokers and dealers to return the funds by October this year and use them in their core business, for which the commission awarded them a certificate of registration.

The BSEC also directed the DSE to supervise and monitor the return of the funds and to submit a report on the status of compliance to the commission within seven working days.

Shibli Rubayat-Ul Islam, chairman of the BSEC, told The Business Standard, "Stock brokers and dealers are supposed to invest the funds in the stock market."

"However, they have used it in other sectors, which they are not allowed to do according to the rules. An order has been issued to quickly return these funds," he added.

According to the DSE, over 300 brokers and dealers are currently registered to facilitate the buying and selling of stocks and trading for their own accounts.

When contacted, some stock brokers and dealers told TBS that they invested the funds in non-listed securities, which have the potential to be listed with the bourses and are considered profitable ventures.

Where they use funds

Analysing the list of alleged stock brokers and dealers published on the BSEC website, it was found that most of the broker and dealer firms invested in land and flat purchases, non-listed securities, and provided loans to their subsidiaries and related party firms.

Akij Capital Management invested Tk33.42 crore, the highest amount among the 57 firms, in activities outside its core business, primarily in non-listed securities and advances to Dimension Composition, Aziz Trade and Engineering, and Interfurn Bangladesh, as well as maintaining a current account with a sister concern.

An official told TBS that these investments were made before the rules barring investments outside the core business were formulated. The firm has assured the commission that it will gradually withdraw these investments.

Midway Securities invested Tk20 lakh in Babu Land, a provider of inland playgrounds for children. Its managing director, Ashequr Rahman, told TBS, "We invested in Babu Land thinking it was a profitable venture as well as a business diversification. In the long run, we plan to go public."

Rashid Investment Services invested Tk2.93 crore in shares of Rashid Trade Consortium, advances for land purchase, and a current account with a sister concern, according to the BSEC order.

AB Ispahani Securities provided an advance of Tk53 lakh to MM Ispahani Ltd. ACE Capital Management Services provided an advance of Tk4.50 crore for purchasing a flat and car parking space.

Daulatunnessa Equity kept Tk4.69 crore in FDRs. Rapid Securities paid Tk6.21 crore for purchasing land, while M-Securities spent Tk1.50 crore on land, buildings, and other purchases. Aries Securities invested Tk6.47 crore in Aries Agro (BD) and for advances against land purchases in Munshiganj.

First Capital Securities provided a loan of Tk63 lakh to its director for purchasing a motor vehicle and land. Multi Securities & Services made various capital investments and financing, including non-listed equity and an advance to Diplomat Properties, totalling Tk31.93 crore.

The BSEC order notes that these matters need further investigation in light of securities rules.

Royal Green Securities invested Tk18.48 crore in non-listed companies and provided advances against land and building purchases. Latif Securities invested Tk11.74 crore in Sarker Steel. Md Fakhrul Islam Securities invested Tk15.58 crore in Mohona TV, provided advances to Parabat Social Inf, Rupayan Golden Age, and for land in Araisprasad.

Salta Capital invested Tk20.75 crore in BMSL Investment and provided an interest-free loan to a sister concern.

Dayton Holdings provided a loan of Tk5 crore to Aman Spinning Mills. Island Securities invested Tk16.37 crore in the BLP Compliant Factory Project, receivables from BLP Warn Fashion, and other ventures. Ettihad Securities paid an advance of Tk2.70 crore for land. Surma Securities Holdings Company invested Tk7.32 crore in Hill View Convention Center and M/s J&S Packaging. Moshihor Securities made an investment of Tk21.91 crore in an associate company.

Nouvelle Securities, CMSL Securities, Nabiul Karim Securities, ANF Management, Dragon Securities, Rose Securities, RNI Securities, Kazi Equities, and Al-Haja Jahanara Securities have made investments outside their core business.

Among others, KHB Securities invested Tk20.32 crore in non-listed securities, Cosmopolitan Securities Tk2 lakh, Fortune Securities Tk10.86 crore, Shakil Rizvi Stock Tk3 crore, EMES Securities Tk4 crore, Peace Securities Tk90 lakh, Trustee Securities Tk4.17 crore, Mona Financial Consultancy Tk10 crore, Subvalley Securities Tk2.81 crore, Doreen Capital Tk13.91 crore, GMF Securities Tk10.26 crore, Globe Securities Tk8.53 crore, Anwar Khan Modern Securities Tk8.60 crore, Stock and Bond Tk58 lakh, and Total Communication Tk6.72 crore.

PriLink Securities used Tk5.20 crore outside its core business, Oshadhi Securities Tk1.78 crore, AD Holdings Tk1.50 crore, Mika Securities Tk40 lakh, Akij Capital Management Tk33.42 crore, Dhaka Securities Tk2.40 crore, Prudential Capital Tk5.30 crore, Be Rich Tk13.49 crore, Rahman Equity Tk50 lakh, Benemoy Securities Tk63 lakh, Innova Securities Tk75 lakh, and Gibson Securities Tk1.51 crore in activities other than their core business.