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Stock brokers in a tight corner

Ahsan Habib
Most stock brokers have been incurring losses for many years owing to low turnover in the market and a lack of product diversity.
This led many stock brokers to lay off many of their executives to cut cost during the years while the remuneration of the officials has not increased significantly.
The top 100 brokers are logging profits whereas at least 150 stock brokers are incurring loss, according to a top official of a stock broker.
Rakibur Rahman, one of the directors of the Dhaka Stock Exchange (DSE), said many stock brokers are in a tight position and their condition would not improve until the turnover of the stock market rises.
Daily turnover on the DSE averaged Tk 534 crore so far this year, slightly down from Tk 552.03 crore from last year and much lower than Tk 874.83 crore in 2017, data from the bourse's showed.
"If the stock brokers remain weak, the market will not be strong," Rahman said, urging the regulator to keep alive the stock brokers by increasing turnover.
Rahman, also the managing director of Midway Securities, recommends bringing good stocks to the market and following the rules and regulations strictly to boost the turnover.
The stock brokers will face further competition as the regulator is set to open the licencing of brokerage houses after many years.
The Bangladesh Securities and Exchange Commission (BSEC) is framing the BSEC (trading right entitlement certificate) Rules, 2019 to open the TREC holder licence regime.
Market analysts welcomed the move as granting of licences had been postponed for the last couple of years. They say the brokers that failed to attract investors can merge to survive.
However, the stock brokers, who are facing tough times because of continuous loss, fear that the situation will deteriorate further with the entry of new TREC-holders.
Most of the stock brokers are struggling to stay afloat from the income from transaction fees, their prime source of income, said a top official of a stock broker.
"The brokers hope there will be good days in the future, so they have kept their businesses open despite the losses," said the official, also a leader of the DSE Brokers Association.
A top official of another stock brokerage says the number of stock investors has fallen in the last few years and their investment dipped.
According to the Central Depository Bangladesh, the number of beneficiary owners' account was 25.34 lakh on Thursday, down from 27.96 lakh in December 2013.
Although the turnover has remained almost stagnant in the last few years, the cost of brokerage houses has been rising, the top official said.
He said general investors are also moving away from individually owned stock brokerages to the ones run by financial institutions - a development that is hurting the small entities.
Among the stock brokers operated by financial institutions, PFI Securities incurred a loss of Tk 5.72 crore in 2018, which was Tk 21.59 crore a year ago.
LankaBangla Securities, one of the leading stock brokers, clocked a profit of Tk 28.14 crore last year, down from Tk 82.61 crore in 2017.
Brae EPL's profit fell to Tk 2.42 crore from Tk 20.47 crore while IDLC Securities made a profit of Tk 36.55 crore in 2018, from Tk 38 crore the previous year.
Unicap Securities posted a profit of Tk 43.97 lakh in 2018, way lower than the Tk 2.43 crore achieved the previous year.
The bourse itself is under pressure.
The low turnover of the DSE is not generating enough income for the premier bourse, said a former top official of the DSE.
He said the bourse is struggling to meet the cost from its main source of income. Still, it managed to declare profit in the last few years on the basis of the interest income from the fixed deposit with banks.
"The DSE needs at least Tk 1,000 crore in daily turnover to make profit."
***Competition to intensify further as regulator offering new licences***