SEC enquiries end in warning lettersAhmed Shawki
Penalties reduced upon request from brokers
Most of the Securities and Exchange Commission’s investigations of brokerage houses have this year ended without any formal enforcement action being taken, the commission’s enforcement data in the first five months of the current year shows.
From January to May, the SEC launched 17 enquiries into 15 brokerage houses for allegedly breaching several stock market related laws -- including in particular those that make it an offence to create an artificial market environment resulting in an increase or decrease in share prices.
During this period, out of the nine whose investigations were completed, five ended in issuing of warning letters with only four resulting in the imposition of a penalty.
Moreover, the total fines imposed on the four firms was reduced by 66 per cent following appeals by the brokerage houses
This compares with 2011, when the SEC conducted 55 enquiries against brokerage firms penalising 48 of them and only issuing seven warning letters.
‘This is one area where we should practise zero tolerance, but unfortunately this is not the case,’ a senior SEC official told New Age when asked about the issue.
He said the laws for tackling such market manipulations were sufficient but their enforcement was conditional because of the market environment.
He argued that while tough enforcement may have some very short-term negative effect on the market, it would quickly bear fruit.
‘If we go harsh on them [brokers and merchant banks] the market may suffer for a while, but it will establish a position which will help the market in the long run,’ he said.
‘But unfortunately no one wants to take that decision, especially when the market is going through a depression,’ he said.
He also stressed the importance of taking firm action against public listed companies regarding the quality of their accounts.
Since January 2012, the SEC started to publish on the Dhaka Stock Exchange website information about the any inquiry committees that it had established -- an initiative appreciated by the general investors and other stakeholders as it appeared to reflect a hard stand by SEC against market misdeeds.
However, the website did not provide information on the results of the investigations.
The SEC in January announced the formation of enquiry committees into alleged offences committed by Al-Arafa Islmai Bank, NCC Bank, Dhaka Bank, PFI Securities, Alliance Securities and Management and IIDFC Ltd.
All the brokerage firms were accused of non-compliance of Section 1, 2 and 7 of the second schedule of Securities and Exchange Commission (Stock Broker and Stock Dealer) Rule 2000 which deals with honesty and responsibility to the clients and creating artificial market environment.
The IIDFC was initially fined Tk 5 lakh, but later the SEC waived the penalty and issued a warning to the brokerage firm.
The Dhaka Bank Limited (Stock Broker) was fined Tk 20 lakh which was reduced to Tk 7 lakh following a request by the bank and Al Arafa Islami Bank Limited (Stock Broker) was also fined Tk 25 lakh which was reduced to Tk 10 lakh.
NCC Bank’s penalty was reduced to Tk 7 lakh from the imposed Tk 20 lakh and PFI Securities’ fine was reduced to Tk 7 lakh from Tk 25 lakh.
In February, SEC formed enquiry committees against six brokerage firms-- Sinha Securities, Rapid Securities, Royal Securities, LankaBangla Securities, Hac Securities and Fareast Securities.
Out of these, Sinha Securities, Rapid Securities and Royal Securities received only a warning letter. The investigation against the other brokerage firms are still pending.
In March, the SEC formed an enquiry committee into the conduct of Remons Investment & Securities Limited and Wifang Securities; in April into that of Hac Securities; and in May, two enquiry committees were formed against PHP Securities and LankaBangla Securities.
None of these investigations has yet been completed.
In May, the SEC issued a warning letter to City Brokerage Ltd for breaching securities laws.
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