Brokerage firms have got four more months to install uniform, un-editable back-office software from selective vendors to ensure protection of the investors' money.
The Bangladesh Securities and Exchange Commission (BSEC) has recently issued a letter, extending the timeframe from December 31 this year, following a request by the DSE Brokers Association of Bangladesh.
It also asked the bourses to submit a detailed plan by January 7 next year, informing the regulator of when and how the brokerage firms will install the software.
The exchanges have also been instructed to submit a monthly progress report by the first week of every month.
This is the second time that stockbrokers have been granted additional time to install back-office software from a list of vendors approved by the regulator.
In April this year, they were given a nine-month time extension, which will end tomorrow (Tuesday).
"There will be no extension after the new deadline," reads an order issued by the Dhaka Stock Exchange on Sunday.
"If any brokerage firm fails to install back-office software within the new deadline, their operations will be suspended automatically on May 1, 2025, and punitive actions will be taken as per the rules," says the order.
Brokerage firms will have to ensure full operation using the software upon its installation by the deadline, according to the DSE order.
The securities regulator will inspect brokerage firms from time to time to prevent any deviation from the directive.
The intermediaries will stop receiving dividends from their holdings in the stock exchanges for failure to comply with the order. Moreover, their initial public offering (IPO) quota and the scope of opening new branches and booths will be curtailed.
The brokers that have already been using software as suggested by the regulator must obtain a certificate from the stock exchanges as per the guidelines.
The back office of a stock broker is an inner part of its operations for preserving data of investors' money, shares, transactions, cash balance, and deposit balance.
At present, most brokers use in-house back office software, which is susceptible to data manipulation whereas eight vendors are providing software support to brokerage firms with permission from the regulatory bodies.
Unscrupulous brokers misappropriate money by editing information related to transactions and shares before sending the data to investors.
"The enlisted software vendors will provide uniform back-office services to stockbrokers to ensure security of the investors' money and shares," said a DSE official, requesting not to be named.
In February 2022, the prime bourse formulated guidelines for the installation of back-office software in brokerage firms on receiving a directive from the securities regulator against the backdrop of fund embezzlement by several firms.
At least four brokerage firms --- Tamha Securities, Crest Securities, Banco Securities and Shah Mohammad Sagir -- engaged in malpractices and embezzled investors' money amounting to more than Tk 2 billion between 2019 and 2021. Trading at the firms has remained suspended.
Some other brokerage firms siphoned off huge amounts of money from the consolidated customers' accounts maintained for trading.
The financial crimes took place in the absence of strict monitoring by the Dhaka Stock Exchange and the securities regulator, market analysts said.
The brokerage firms used different tricks to defraud investors of their investments.
Tamha Securities, for example, sold shares of its clients and kept them in the dark by generating fake transaction details with the help of software.
Md Harunur Rashid, owner of Tamha Securities, used two back-office accounting software -- one for the regulator and the other for its clients to provide misleading information.
The new commission of the securities regulator has been working for necessary reforms in sustainable development of the capital market and to bring those involved in irregularities to justice to ensure transparency and accountability.
It has already suspended share transactions by five brokerage firms, including PFI Securities, Dhanmondi Securities, and Moshihor Securities, for mishandling clients' funds.
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