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SEC contemplating imposition of annual fee
Cartel owns thousands of 'benami' BO accounts
Raihan M Chowdhury

          Some shrewd operators in the stock market are out to defeat the very purpose of the introduction of beneficiary owners (BO) accounts.
These operators are managing hundreds of 'benami' BO accounts with the objective of hitting IPO (initial public offering) jackpots.
Since the primary shares for the last couple of years have been fetching a handsome return on investment, the craze among the investors for those shares is very strong.
The number of BO accounts has recorded a staggering 100 per cent rise over a period of one year, ending in July last, to 721,147.
Market insiders said the real account holders will not be more than 100,000. The rest of the BO accounts being benami ones are operated by a band of greedy and unscrupulous people.
As per rules, one investor can open two BO accounts in his/her own name (one in own name and other under joint ownership). But a section of investors have been operating a huge number of BO accounts opened in some other names.
Such BO account-holders are not aware that they have BO accounts as they are mere workers of a garment factory or a transport company or lower class employees of government or private offices.
"You will rarely find a driver or a peon of the offices in the city's Motijheel area, who does not have a BO account in his name. But starting from submitting applications for primary shares down to transactions with banks are done by somebody else," one market operator said.
There are a lot of instances where an individual investor operates as many as 500 to 600 accounts. Some bank officials use the accounts of their clients for the purpose of BO accounts.
"I know a member of parliament who alone operates as many as 5000 BO accounts," said a source of a member house of Dhaka Stock Exchange (DSE).
Investors say they operate such a large number of accounts only for getting the allotment of primary shares.
The Securities and Exchange Commission (SEC) introduced a new IPO rule under which preferences are given to small investors applying for a minimum market lot of 50 shares.
"If I apply for primary shares using only two BO accounts, there is every possibility that I would get nothing." said one investor, Md Yunus.
IPOs of many companies were oversubscribed by as many as 20 to 30 times in recent years.
Of late, the primary offer of LankaBangla Finance Ltd, a non-banking financial institution was oversubscribed by 16 times against the public offer of shares worth Tk 90 million. LankaBangla's subscription ended Saturday last.
The investors were rushing in to resort to operate BO accounts of others to get hold of at least one market lot of any new issues by public limited companies.
In 2003 and 2004, the IPOs of banks were oversubscribed by 21.9 times on an average.
A group of investors joined such ubiquitous rally in the country's stock market since late 2004 when Exim Bank became the first listed company with a mandatory CDS status. The primary shares of the company were credited into the allotted BO accounts October 12, 2004.
Sources in both the SEC and the Central Depository Bangladesh Ltd (CDBL), the operating company of the central depository system (CDS), said they have nothing to do to stop such unholy practice in the stock market.
"We are, however, planning to introduce an annual maintenance charge of Tk 250 for every BO account which will discourage many investors to operate a huge number of such accounts as an additional cost will be imposed in case of operating every account," said a source in the SEC.
Currently there is a custodial charge at the rate of Tk 0.50 against each share of a listed company traded under the CDS.
"We have already held discussion with the CDBL on the withdrawal of the custodial charge and imposition of a maintenance charge with the prior approval of the SEC," one DSE source told The FE.
The mad rush has also affected the smooth operation of CDBL, the operating company of the central depository system (CDS).
"We did not expect such a huge response from the investors on BO account," one CDBL source told this correspondent.
Apart from this unusual bubble of BO accounts, the stock market, however, has responded positively to the CDS as it has been facilitating scrip-less share trading without any major setback since its inception on January 24, 2004.
Market analysts said that regular monitoring by the SEC helped smooth operation of the CDBL.
The system has reduced risks of fake shares and freed share transactions from hassles. But still it poses some user-end risks that require urgent remedy, market analysts feel.
The CDBL started its equity market operation with only one stock, Square Pharmaceuticals Ltd, and by now, out of 256 listed companies, 101 have joined the scrip-less and electronic trading system.
So far, more than 245.40 million paper shares have been dematerialised and converted to intangible electronic form.
'These shares did not include primary shares allotted through the CDBL directly as well as rights and bonus shares, which means that the real number of demat shares is more,' said SEC executive director Farhad Ahmed.
'Again, companies with scrip-less shares account for about 90 per cent of the total market capitalisation implying that major transactions have now come under CDS,' he added.
The CDBL operates and maintains electronic book entry and records of listed securities accounts and registers transfer of securities along with changing the ownership without any physical movement.
He also said that complaints with CDS became very thin for the last few months as both the investors and brokers had become used to the system.
Market analysts, however, partially differ with the SEC official as they believe that the system is yet to be tested in troubled situation.
'We are yet to utilise the real benefit of the CDS, that is real time transactions and settlements,' said a top broker of the DSE.
He was of the view that although the broker-dealers and clients are comfortable with the CDS, there is a scope to further widen the facility.
He, however, observed that real-time settlement requires full-fledged online banking system.
Another market analyst said that risk with CDS now lies on user-end and the market regulator should review the whole process.
'As the depository participants have authorised access to clients' BO, any transaction may take place beyond the knowledge of clients,' he said.
'The SEC should also go for stocktaking of all the depository participants and a mechanism should be developed before any such incident takes place,' he added.
Following the regulator's instruction, different depository participants have cancelled some 62,674 false BO accounts, including some 26,000 opened for Premier Bank's abortive public offers in February of 2005.
Until June 30, 2006, the CDBL closed 73,575 BO accounts and the number of closed BO accounts was 10,425 in the fiscal 2005-06.
"We warned the DPs to be very cautious in opening BO accounts following the Premier Bank's scam and subsequently the DPs complied with our directive," the SEC official said.
The BO accounts were cancelled mostly for having multiple involvements as second applicants, multiple single applications with same identity, same name and particulars but different photos and other mismatch of relevant information.
In another move, the SEC recently warned six depository participants for violating securities laws. The SEC warned Brotherhood Securities Ltd, Equity Resources Ltd, Razzak Securities Ltd., Shamsul Huda & Co, Md Fakhrul Islam & Co and Amin Securities & Consultants Ltd for keeping clients' shares in the clearing accounts on record date. Of the six depository participants, Amin Securities & Consultants Ltd is a member of the Chittagong Stock Exchange, country's second bourse, and the rest are the members of the DSE.


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