Market intermediaries face scrutiny amid low impact and eroding investor confidence

The role of numerous market intermediaries in the country has come under fresh scrutiny, with concerns raised about their low turnover rates and nominal contribution to market growth.
Some intermediaries have also been blamed for eroding investor confidence, particularly through alleged embezzlement of clients' funds.
Speaking at a programme organised by merchant banks in November last, Secretary of the Financial Institutions Division (FID) Nazma Mobarek questioned the necessity of such a large number of market operators in Bangladesh, especially when compared to neighbouring countries.
She pointed out that despite India's larger market size, the number of merchant banks and stock brokers there is notably smaller than in Bangladesh.
In Bangladesh, the main market intermediaries include stock brokers, merchant banks, and asset management companies (AMCs).
A new debate on the relevance of the large number of market operators and two stock exchanges emerged on Thursday during a programme held at Dhaka Club.
At the event organised by the Dhaka Stock Exchange (DSE), its Chairman Mominul Islam highlighted key challenges in the capital market, pointing out that most market intermediaries lack accountability and transparency in their operations.
Mr Islam also revealed that they are thinking about the potential merger of two stock exchanges to improve market efficiency. And the issue will be raised with the stock exchange authorities, he added.
He also pointed out that it has become difficult for the securities regulator and stock exchange authorities to properly monitor the activities of so many market operators.
At the event, Chittagong Stock Exchange (CSE) Chairman AKM Habibur Rahman expressed concerns that the current operations of the port city's bourse may not remain viable in the coming days.
The commodity exchange, which is at the final stage, could offer a viable future for the CSE, he added.
On Thursday, the CSE registered a turnover of Tk 93.96 million, which is equivalent to just 2.22 per cent of the turnover posted by the Dhaka Stock Exchange (DSE) the same day.
Given these figures, it's really difficult for the port city bourse to maintain economically viable operations under current conditions.
Many stock brokers of the Dhaka Stock Exchange (DSE) who also hold stakes in the Chittagong Stock Exchange (CSE) are facing higher operational costs due to CSE's lower turnover values.
Also, the issuer companies are burdened by dual listing fees, which are treated as an additional financial strain, alongside listing compliance requirements.

Under such a situation, a merger of both the bourses could help streamline operations, making them more effective for both issuer companies and market intermediaries, according to top officials of the stock exchanges.
Presently, there are 402 stock brokers in the country's capital market, whereas the number of stock brokers in neighbouring India is 314.
The market capitalisation of India's National Stock Exchange (NSE) stood at USD 4.97 trillion on Thursday, compared to around USD 53 billion for the DSE.
This stark contrast in market sizes underscores the growing irrelevance of having such a large number of stock brokers in the country's capital market.
A significant number of local stock brokers, except for bank subsidiaries, have failed to meet capital requirements, and many of them still have a tendency of running the firms with a mentality of proprietorship, experts say.
Besides, a number of stock brokers, including Crest and PFI Securities, embezzled huge amounts of funds deposited by their clients. In January 2023, the securities regulator found that 68 brokers were guilty of siphoning clients' money from the Consolidated Customers' Accounts (CCAs).
In this situation, experts and prudent market operators believe that merging the country's two stock exchanges could provide a solution to more effective and accountable market operations.
The number of merchant banks in the country is also much higher, compared to India, yet their expected role in market expansion has not been realized.
One of the primary functions of merchant banks is to bring Initial Public Offerings (IPOs) to the market. But the statistics on IPO activity suggests that the large number of merchant banks may not be justified.
Despite having 68 merchant banks in the country, the capital market saw only four IPOs in 2024. The same number of IPOs was recorded in 2023, further highlighting the mismatch between the number of merchant banks and their contribution to market growth.
A large number of Asset Management Companies (AMCs) received licences from the securities regulator, yet their total assets under management (AUM) remain relatively small, compared to India.
While India has only 44 AMCs, their AUM reached Rs. 54.1 trillion as of December 2024. On the other hand, the total AUM of Bangladeshi fund managers stood at only Tk 164 billion as of January 4, 2025.
Moreover, unlawful activities by some local fund managers have eroded investor confidence in the country's mutual fund industry.
When asked for comments, Mohammad Rezaul Karim, spokesperson for the securities regulator, said there is no way to reduce the number of market intermediaries that have been granted licences.
However, the securities regulator will provide policy support if the intermediaries come forward with proposals of merger or acquisition, he added.
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