The exchanges must ensure by March 2024 that brokers deploy back-office software that cannot be tampered with, said the securities regulator.
If TREC (trading right entitlement certificate) holders of the bourses do not do so within the given time, they will not have entitlement to IPO (initial public offering) quota and other facilities, according to a directive issued on Monday.
Apart from preparing transactions ledger, TREC holders use back-office software to preserve data of trading, clearing and settlement.
The latest regulatory move came as many brokers had edited data in the software to provide misinformation to investors in attempts to divert funds from the consolidated customers' accounts.
"Such activities not only blemish investors' faith but also lead to a lack of discipline in the capital market," reads the directive.
Clients of many stock brokers do not get accurate information regarding their money, shares, transactions, and withdrawals due to the use of multiple back office software. In most cases, the motive is to embezzle clients' money.
For example, Tamha Securities misappropriated around Tk 513 million of its clients' funds in 2021 using duplicate back-office software. Its operation has remained suspended since November that year.
Tamha Securities used separate back-office software, one for the regulator and the other for its clients to generate misleading information.
The securities regulator asked the stock exchanges to make a list of software vendors and formulate guidelines by the end of this year for them to follow.
The TREC holders, who have been using their own-developed software, are required to receive a certificate from the bourses on compliance with the guidelines.
Otherwise, they will have to purchase software from the enlisted vendors, said the regulator. The exchanges will randomly conduct spot inspections to ensure compliance.
For any violation of the order, a TREC holder will stop enjoying free limit, an exemption from depositing cash margin against buy orders placed via the broker.
As per the existing provision, a TREC holder is allowed to place buy orders worth up to Tk 100 million without depositing any cash margin to the exchange.
Dividends from the stock exchanges and quota in IPO (initial public offering), RPO (repeat public offer) and QIO (qualified investor offer) will also be suspended for a breach of the directive. Moreover, the non-compliant TREC holders will not be allowed to open new branches or digital booths.
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