Probe body suggests discontinuation of omnibus accounts
Sunday, 10 April 2011
Mohammad Mufazzal
The probe body on recent stock market scam has suggested discontinuation of share trading through omnibus accounts of the merchant banks. The recommendation came as the committee faced problems in identifying a number of influential and powerful traders who are suspected to have used the omnibus accounts to avoid detection of any foul play. An omnibus account is a specific kind of stock holding account that involves multiple investors. Each of the individual investor does not have his or her name attached to the account, but still they are actual stock holders. Such accounts only show the aggregate volume of shares that are posted into those accounts. Therefore, it is not possible to find out the issue-wise or client-wise transactions of actual number of shares. "The trading activities, executed under the omnibus accounts, are very mysterious," a probe body member told the FE. The member concerned said the merchant bankers hardly maintain any transparency regarding their actual sell-buy deals. "It's not possible for others to detect the identity of an investor, who avails himself or herself of the omnibus account facility." "The merchant bankers also hide the actual number of their client accounts," he said. Recently, the merchant bankers informed the Securities and Exchange Commission (SEC) that a total of 46,400 accounts are being maintained under 96 omnibus accounts. However, the member said, "The numbers are well below the actual. Every omnibus account has at least three to ten thousand single accounts, depending on the business volume of the merchant banks." "We are very much sure that a significant number of powerful investors influenced the market using the questionable system of omnibus account." He said the committee could not identify many big players, who certainly had influenced the market through the system of trading through omnibus accounts. "That's why we have suggested the government to stop the system," he added. The finance minister, on April 7, after the submission of the committee's report, also told the reporters that the probe body had suggested discontinuation of the omnibus account system, being practised by the merchant banks. Recently, the SEC took several initiatives to convert the client accounts of the merchant bankers into separate BO (beneficiary owner) accounts. However, the initiatives have failed to deliver results because of the merchant banks' preference to omnibus accounts over BO accounts. The president of the merchant bankers' association was not available for comment regarding the allegation about misuse of omnibus accounts. Rule-30 of the Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Regulation, 1996, clearly stated that the merchant bankers will have to maintain separate BO account for each of their clients.
The probe body on recent stock market scam has suggested discontinuation of share trading through omnibus accounts of the merchant banks. The recommendation came as the committee faced problems in identifying a number of influential and powerful traders who are suspected to have used the omnibus accounts to avoid detection of any foul play. An omnibus account is a specific kind of stock holding account that involves multiple investors. Each of the individual investor does not have his or her name attached to the account, but still they are actual stock holders. Such accounts only show the aggregate volume of shares that are posted into those accounts. Therefore, it is not possible to find out the issue-wise or client-wise transactions of actual number of shares. "The trading activities, executed under the omnibus accounts, are very mysterious," a probe body member told the FE. The member concerned said the merchant bankers hardly maintain any transparency regarding their actual sell-buy deals. "It's not possible for others to detect the identity of an investor, who avails himself or herself of the omnibus account facility." "The merchant bankers also hide the actual number of their client accounts," he said. Recently, the merchant bankers informed the Securities and Exchange Commission (SEC) that a total of 46,400 accounts are being maintained under 96 omnibus accounts. However, the member said, "The numbers are well below the actual. Every omnibus account has at least three to ten thousand single accounts, depending on the business volume of the merchant banks." "We are very much sure that a significant number of powerful investors influenced the market using the questionable system of omnibus account." He said the committee could not identify many big players, who certainly had influenced the market through the system of trading through omnibus accounts. "That's why we have suggested the government to stop the system," he added. The finance minister, on April 7, after the submission of the committee's report, also told the reporters that the probe body had suggested discontinuation of the omnibus account system, being practised by the merchant banks. Recently, the SEC took several initiatives to convert the client accounts of the merchant bankers into separate BO (beneficiary owner) accounts. However, the initiatives have failed to deliver results because of the merchant banks' preference to omnibus accounts over BO accounts. The president of the merchant bankers' association was not available for comment regarding the allegation about misuse of omnibus accounts. Rule-30 of the Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Regulation, 1996, clearly stated that the merchant bankers will have to maintain separate BO account for each of their clients.