Stock brokers have admitted their failure to hold the market watchdog to account for allowing listing of weak companies, one-sided regulatory decisions, and corruptions of its top officials in the last 15 years.
"We acknowledge we could raise our voices at the right time. But the situation was not in our favour," said Saiful Islam, president of the DSE Brokers Association (DBA) of Bangladesh at a press meet on Monday.
The event was organised by the DBA at Dhaka Club to put forth its proposals regarding urgent reforms to the Bangladesh Securities and Exchange Commission (BSEC) and the Dhaka Stock Exchange (DSE). There journalists asked DBA members about their staying silent about corrupt practices in the market for so long.
Journalists said stock brokers could refrain from participating in the bidding process meant to determine the cut-off price of a stock. Eligible and institutional investors take part in the bidding when a company goes public under the book building method.
Institutional investors, including stock brokers, facilitated the fixing of abnormal cut-off prices with the connivance of dishonest groups.
DBA representatives were asked why they had quoted irrational prices going against the interest of the market and investors.
In response, the DBA president said others would have participated in the bidding had they not done so and that they had participated in the bids considering the interest of the market.
However, a section of stock brokers had benefited from the misdeeds of the BSEC, a matter that the DBA members avoided addressing at the press briefing.
The imposition of floor price by the two consecutive commissions led by Prof. M Khairul Hossain and Prof. Shibli Rubayat Ul Islam was pointed out among the damages done to the market. The price restriction had suspended the price discovery of listed securities.
Many stock brokers and representatives of other market operators had initially supported the artificial mechanism to keep stocks from free fall.
At Monday's briefing, the DBA president said some of them had opposed the floor price while others had been in favour of it.
Accumulated negative equity is another major stumbling block to the market's stability. Whenever lenders exert selling pressure to recover losses in margin accounts, the index suffers an abnormal decline.
Many top officials of brokerage firms and merchant banks were responsible for the negative equity as they reportedly persuaded many investors into taking loans for risky equity investments.
On such a controversial role of market operators, Mr Saiful Islam said that in some cases lenders had been forced by the intelligence agencies to disburse loans.
"They were not supposed to know who demanded credit facilities. But they knew and lenders felt forced to disburse loans," he said.
Stock brokers said the regulator had compelled them to issue new TRECs (trading right entitlement certificate) at lower fees, depriving them of expected income.
In January 2021, the BSEC asked both the bourses to issue new TRECs to complete the demutualization process of the exchanges. The Dhaka Stock Exchange issued 69 TRECs to different companies including some foreign entities.
DSE officials said they had been bound to issue TRECs at Tk 10 million each while they expected Tk 150 million for each certificate the price of which should be determined through auctions in consideration of the exchange's valuation.
Journalists also said many stock brokers had made handsome profits from placement shares and by issuing new TRECs without considering the eligibility of the applicants.
Placement shares are pre-IPO shares issued to individuals and companies. Usually, such shares are issued at lower prices and remain locked for two years. After the expiry of the lock-in period, placement holders can sell shares at market prices.
Insiders said stock brokers had purchased placements shares of almost all companies willing to go public through negotiation with the issuers and issue managers. Stock brokers were blamed for abnormal price hikes during the initial period of trading in the newly listed stocks.
Journalists at Monday's event said stock brokers had profited from almost all controversial decisions made by the regulator.
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