The Bangladesh Securities and Exchange Commission (BSEC) has launched enquiries into two brokerage firms-Premier Leasing Securities and Green Delta Securities-over alleged irregularities involving negative equity accounts and margin lending practices.
The probe into Premier Leasing Securities will focus on compliance failures, including the declaration of cash dividends despite sustained negative equity and unrealised losses.
The BSEC will also examine whether client receivables were improperly classified as assets without adequate provisioning, potentially masking financial stress.
The enquiry will further assess allegations that margin accounts were manipulated, including the unlawful conversion of cash accounts into negative equity accounts and the execution of buy transactions beyond regulatory limits. Investigators will also scrutinise whether margin agreements were absent or incomplete, and whether block and bulk transactions were carried out in violation of exchange rules.
In a probe order issued on March 11, the regulator raised concerns over possible under-reporting or misclassification of negative equity accounts, the bypassing of margin exposure limits, and broader governance lapses attributable to senior management and the board.
In a parallel order, the BSEC outlined an extensive set of concerns regarding the operations of Green Delta Securities. These include the methodology used in calculating negative equity, particularly the practice of capitalising prior-year interest into principal, and the failure to maintain required provisions in line with regulatory directives and international accounting standards.
The regulator will also investigate discrepancies between reported negative equity and underlying calculations, including the possible use of rollover practices. Questions have been raised about whether interest was charged on negative equity accounts despite regulatory restrictions.
Further areas of scrutiny include the purchase or transfer of speculative securities into negative equity accounts, the extension of margin lending to cash accounts in violation of regulations, and the opening or maintenance of margin accounts without proper client authorisation.
The BSEC also flagged systemic governance weaknesses at the firm, including inaccurate reporting, weak internal controls, and the accountability of senior management and the board.
Two separate enquiry teams have been formed to conduct the investigations. The teams have been directed to submit their reports within 60 working days of the issuance of the orders.
The latest move signals a renewed regulatory push to address long-standing irregularities in brokerage operations, particularly surrounding negative equity management and margin lending practices-issues that have historically undermined investor confidence in Bangladesh's capital market.
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