A quarter of beneficiary owner accounts closed in two years

Around 6.56 lakh beneficiary owner (BO) accounts, which are needed to trade stocks, were closed over the last two years mainly due to a lacklustre condition of the primary and secondary markets of securities in the country. 

On July 6, 2023, there were 18.55 lakh BO accounts whereas 25.12 lakh on the same day in 2021, according to data of Central Depository Bangladesh Limited (CDBL).

A few years back, a section of investors was operating a huge number of BO accounts, mainly to participate in lotteries of initial public offerings (IPO) to avail shares at low prices, said an official of a leading brokerage house.

In 2020, the Bangladesh Securities and Exchange Commission (BSEC) changed the system such that all shares were equally divided among everyone who subscribed to an IPO.

Since there are a huge number of investors subscribing to each IPO, the equal distribution system resulted in each getting only a few shares.

On top of that, the stock market regulator set a precondition stipulating that anyone intending to subscribe to an IPO must have at least Tk 50,000 invested in the secondary market.

These two developments meant that operating BO accounts are no longer profitable and so the IPO hunters are leaving the market, said the official requesting anonymity.

"I think this is a good step of the BSEC launching the pro-rata share allocation system instead of lottery system as it will benefit stock investors who hold shares for long periods," he added.

"The number of new BO accounts being opened has dropped massively over the past couple of months," said a top official of a merchant bank.

This is because the secondary market is no longer lucrative, especially for the presence of the floor price, which has turned the market illiquid, so investors are not interested in opening new BO accounts, he said.

The floor price is the lowest price at which a stock can be traded.

At the end of July last year, the BSEC set the floor price of every stock to halt the free fall of the market indices amid global economic uncertainties.

The floor price was the average of the closing prices on July 28 of the year and the preceding four days.

The DSEX, the benchmark index of Dhaka Stock Exchange (DSE), rose 138 points, or 2.21 per cent, in the last two years, shows the DSE data.

Existing stock investors are struggling to make money in the secondary market due to the absence of buyers amidst the presence of the floor price. "So how will new investors come to the market?" asked the merchant banker.

Moreover, the stock market investors did not see any IPO of renowned and reputed companies over the last two years which could have attracted investors, he said.

Some banks and insurance companies went public in the last two years but their participation in the market was mainly to fulfil conditions of the regulator, he said.

So few BO accounts are being opened while many are being closed down, he added.