The securities regulator instructed 57 stock brokers & dealers of the Dhaka bourse to bring back funds worth Tk 4 billion within three months into their core business from real estate where the money had been diverted.
The core business of the intermediaries entails buying and selling securities from their own dealer accounts. Taking away money from the accounts for purposes other than trading in securities is a violation of the Securities and Exchange Rules 2020.
The Bangladesh Securities and Exchange Commission (BSEC) asked the Dhaka Stock Exchange (DSE) to ensure compliance with the directive as the fund was meant for the core business "for which the commission has awarded the [registration] certificate", according to the order issued on Thursday.
Most of the market intermediaries had purchased lands, flats, parking spaces and given loans to their directors with the misplaced funds. One director of a stock broker received money from the company's account to purchase a car while some companies gave interest-free loans to their sister concerns.
"The core business of many of the stock brokers and stock dealers was affected due to the non-compliance [with the law]," said Mohammad Rezaul Karim, an executive director & spokesperson of the securities regulator.
Md Saiful Islam, president of the DSE Brokers Association (DBA), said the usage of a broker or a dealer's own fund should be limited to its own business operations, including payout of dividends, renting of office space and bearing overhead costs.
"The fund of a company cannot be utilised even in the owner's treatment. The money should be brought back to protect the core business," he added.
One of the law violators is Island Securities Ltd. It moved Tk 164 million from the company's account to invest in BLP Complaint Factory Project and lend to BLP Warm Fashion and others.
Contacted by The FE, Mohammed Mohiuddin, chairman of Island Securities, said he had diverted the fund to get a better return.
"The securities regulator cannot dictate where I should invest my money. The securities regulator should modify the definition of core business," he said.
However, Mr Islam said fund diversion from the companies' accounts might affect their clients.
Akij Capital Management, DSE TREC (Trading Right Entitlement Certificate) holder, has been found to have diverted the highest amount -- Tk 334 million. It invested in non-listed securities and gave advances to Dimension Composition, Aziz Trade & Engineering, and Enterfurn Bangladesh.
The BSEC asked the DSE to submit a report to the Commission on the status of compliance within seven working days. It said the move was aimed at protecting the interest of the market.
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