SEC asks merchant banks to maintain 'prudent policy'

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Refayet Ullah Mirdha
The Securities and Exchange Commission (SEC) Sunday asked the merchant banks to maintain a 'prudent policy' while extending loans to small investors.
"We cautioned the merchant banks that no investor should be affected if the present momentum of the stock prices reverses its trend," an SEC source told the FE.
The SEC warning came in a meeting with the merchant banks held on the day.
The stock prices in the recent months witnessed a whopping rise amid a strong buying support from both the retail and institutional investors.
But the SEC in its recent review saw that the prices of some issues under different companies have been overpriced due to huge demand.
"We have cautioned the investors through the media earlier to be more careful in investment on stock market. Now, we have called the financiers of the small and institutional investors to be more careful to keep the market stable," executive director of the SEC Farhad Ahmed said.
"Our main concern is for the small investors. The SEC always warns them to be more careful about the stock market trading," he said.
He said the SEC enquired of the merchant bankers and brokers whether there is any rule in loan disbursement for relatives and employees of their respective banks or brokerage houses.
Farhad Ahmed said the merchant bankers and stockbrokers in the meeting claimed they have been maintaining strict rules in loan disbursement from their respective financial institutions.
Rather, they (the merchant bankers) urged the SEC to formulate a separate margin rule, Farhad said.
"It will be more woeful for the small investors if they incur losses in share trading with the money borrowed at high rate of interest. Currently, the stock market is largely dominated by the institutional investors as retail investors are allowed to borrow money for stock trading," said Farhad Ahmed.
A total of 31 representatives from merchant banks attended the meeting.
Institutional investors like Investment Corporation of Bangladesh (ICB), AB Bank, NCC Bank, IDLC, LankaBangla Finance, Prime Finance and Dhaka Bank now account for 80 per cent of the total investment in the country's stock market.
Five institutional members bagged the top positions among the most active 10 members in the DSE trading in the first six months of 2007.
The institutional members were LankaBangla Securities, AB Bank Foundation, ICB Securities Trading Ltd, Prime Finance and Investment Securities and Dhaka Bank.
Meanwhile, the SEC chairman Faruk Ahmed Siddiqi said they have not yet decided whether the decision of spot market trading of five companies would be withdrawn or not.
As per SEC directive, trading of the shares of AB Bank, Power Grid, Summit Power, DESCO and BRAC Bank began in the spot market Monday last and SEC also suspended the financial adjustment facilities for B, G and N category shares aiming to rein in the surge of the share prices.