The Bangladesh Securities and Exchange Commission (BSEC) will investigate beneficiary owner (BO) accounts of qualified and institutional investors, especially, provident, gratuity and pension funds and their registration in electronic subscription system (ESS) of the two stock exchanges in the country.
The stock market regulator has recently asked the stock exchanges to provide it with detailed information, including bank statements, transactions and audit reports, about such investors.
The commission is aware that there are irregularities in opening BO accounts of qualified and institutional investors and their registration in the ESS in the capital market.
Many of them manage accounts through individual funds. In many cases, such funds are combined individual funds and the profit is shared on a pro-rata basis.
Market insiders said some individuals open BO accounts using fake information and that they get registered in the ESS of the stock exchanges showing a company which is not in operation.
Some have created fake employee funds for making initial public offering (IPO) business in the capital market, sources said.
Some eligible investors who cannot manage their accounts as per regulator conditions are taking help from individual investors, they added.
Market insiders also said many general investors have invested more than Tk1 crore in the capital market but they do not enjoy any quota.
Sources at the stock exchanges said there are over 1,200 active accounts of eligible investors in the capital market. Already, the stock exchange has issued letters to eligible investors who deal with provident, gratuity and pension funds.
Professor Abu Ahmed, a capital market analyst, said the quota systems are not perfect for an IPO market.
"A level playing field cannot be created in the capital market due to quota systems. As a result, some individuals and institutions take advantage of the systems, depriving general investors."
He also said it should be investigated properly as to who registered fake accounts in the name of provident, gratuity and pension funds.
The regulator can take legal action against qualified and institutional investors who deceive the stock market, he suggested.
Sayadur Rahman, president of Bangladesh Merchant Bankers Association (BMBA), said the regulator can take legal actions against irregularities among the eligible investors.
Eligible investors are those who have business operation or investment in Bangladesh and are registered in the electronic subscription system (ESS) of the exchanges, including merchant bankers and portfolio managers, asset managers, mutual funds and collective investment schemes, stock-dealers, banks, financial institutions, insurance companies, fund managers, alternative investment funds, foreign investors, recognised provident funds approved pension funds and approved gratuity funds and any other category as approved by the commission.
And those who have maintained a minimum investment in listed securities before the intended subscription, as per the condition of the consent letter for public issue, shall be eligible for a subscription.