“Capital Market & Share Management of BRAC BANK”
Chapter-1 Organization Overview
The proposal on “Central Depository System (CDS)- a basic infrastructure for develop the Capital Market & Share Management of BRAC BANK. The program covers a period of 10 weeks of organizational attachment. As a requirement for the completion of the program need to submit a report, which includes the Study on Share market online trading system through CSD.
1.1 Background of the company:
BRAC Bank Limited is a scheduled commercial bank established under the
Banking Companies Act, 1991 and incorporated as a public company limited by shares on 20 May 1999 under the Companies Act, 1994 in Bangladesh. The primary objective of the Bank is to carry on all kinds of banking businesses. The Bank could not start its operations till 03 June 2001, since the High Court of Bangladesh suspended the activity of the Bank. Subsequently, the judgment of the High Court was set aside and dismissed by the Appellate Division of the Supreme Court on 04 June 2001 and accordingly, the Bank has started operations from 04 July 2001.
BRAC Bank Limited, with institutional shareholdings by BRAC, International Finance Corporation (IFC) and Shorecap International, has been the fastest growing Bank in 2004 and 2005. The Bank operates under a “double bottom line” agenda where profit and social responsibility go hand in hand as it strives towards a poverty-free, enlightened Bangladesh.
A fully operational Commercial Bank, BRAC Bank Ltd. focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped within the country. In the last five years of operation, the Bank has disbursed over BDT 1500 crore in loans to nearly 50,000 small and medium entrepreneurs. The management of the Bank believes that this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh.
Since inception in July 2001, the Bank’s footprint has grown to 22 branches, 350 SME unit offices and 19 ATM sites across the country, and the customer base has expanded to 200,000 deposit and 45,000 advance accounts through 2006. In the years ahead BRAC Bank Ltd. expects to introduce many more services and products as well as add a wider network of SME unit offices, Retail Branches and ATMs across the country.
1.2. Corporate Vision, Mission, Goals
“Building a profitable and socially responsible financial institution focused on Markets and Business with growth potential, thereby assisting BRAC and stakeholders build a “just, enlightened, healthy, democratic and poverty free Bangladesh”.
· Continuous endeavor to increase fee based income
· Sustained growth in ‘small & Medium Enterprise’ sector
· Keep our Debt Charges at 2% to maintain a steady profitable growth
· Continuous low cost deposit growth with controlled growth in Retained Assets
· Corporate Assets to be funded through self-liability mobilization.
· Growth in Assets through Syndications and Investment in faster growing sector
· Achieve efficient synergies between the bank’s Branches, SME Unit Offices and BRAC field offices for delivery of Remittance and Bank’s other products and services
· Manage various lines of business in a fully controlled environment with no compromise on service quality
· Keep a diverse, far flung team fully motivated and driven towards materializing the bank’s vision into reality
BRAC will be the absolute market leader in SME business through out Bangladesh. It will be a world- class organization in terms of services quality and establishing relationships that help its customers to develop and grow successfully. It will be the Bank of choice both for its employees and its customers, the model bank across the globe.
Objective of the report:
The Central Depository System concepts are new in Bangladesh and the Internship Report to develop in that area is essential. The main object of the Internship Report is to analyses the Central Depository System and Share Management of BRAC Bank Limited to identify the Stock Market system in Bangladesh.
It would further our operational knowledge on Central Depository System area. It would also familiarize me with the practical aspects of the respective areas and would help us to sort out problems/difficulties with effective remediation.
· The main object of the Internship Report to discuss on the legality and essential of introducing the Central Depository System, method of Central Depository System, advantage and disadvantage of the Central Depository System.
· To discuss the transaction of shares before introducing the Central Depository System and after introducing the system.
· To also placed discussion on investor’s protection by the Central Depository System, attraction of the investors in the capital market in Bangladesh.
· This is also discussed on, opening of Account, pledging, fees and deposits, eligible securities and equity market operation.
· A depository is like a bank for shares instead of money. Instead of holding shares in the form of certificates, investors have accounts in the depository and are able to move securities and settle stock exchange transactions by an electronic update of their accounts.
· The core service of a depository is the efficient delivery, settlement and transfer of securities through a computerized book entry system. The need for a depository arose from shortcomings in the present settlement system, resulting in:
· lengthy delay in delivery, settlement and transfer of securities
· tedious procedures for verification of securities and transfer deeds
· considerable time involved in dispatching cash dividends and bonus shares
· risk of damaged, lost, forged and duplicate securities
· serious problems associated with physical custody
· Tedious procedure involved in pledging of physical securities to raise capital.
Scope of the Report:
This study will deal with CDS, Company Secretariat and Share division activities undertaken by BRAC Bank Ltd. This study will increase the idea of Capital Market & Share Management through Central Depository System (CDS).
Sources of data collection:The project report will be written on the basis of both primary and secondary data analysis. The analyses are:
The primary source of data contains information provided by the BRAC Bank Limited Annual Report, IPO Prospectus and Mohammad Obaydur Rahman, Manager, Company Secretariat and Officers of different levels of BRAC Bank Limited.
The secondary source of data contains information obtained from various Practical Report, Depository Regulations, 2000 and Depository (User) Regulations,2003, Companies Act 1994 , SEC monthly Review, CDBL Annual Report and Internet.
1.3. Share holding structure of BRAC Bank Limited at a Glance
|Types of Share||Ordinary share|
|Date of publication of Prospectus||September 20, 2006|
|Subscription Open||November 12, 2006|
|Subscription Close||November 16, 2006|
|For Non resident||November 12, to November 25, 2006|
|Offer Price (Tk.)||170.00|
|Face Value (Tk.)||100.00|
|Market lot (Share)||50|
|Sponsors Portion (Share)||5,000,000|
|Public Offer (Share)||5,000,000|
|Total Issued Shares||10,000,000|
|Total Paid up Capital (after IPO)||1,200,000,000|
|Reason for IPO:||To strengthen the company’s capital base & augment business expansion.|
|EPS (as per Prospectus)||15.74|
|NAV (as per Prospectus)||172.31|
|Manager to the Issue||AAA Consultants & Financial Advisers|
1.4. Corporate Social Responsibility:
BRAC Bank Ltd has not just a corporate identity it has a social identity too. As a bank they are socially responsible. Fifty percent of the Loan portfolio is diverted to Small and Medium Enterprise banking, and as a financial intermediary they channel funds from the surplus ends to the needy. Countrywide network of SME Units cater to the needs of small entrepreneurs to help them build their asset base. BRAC Bank Ltd is the market leader in SME, striving for socio-economic upheaval in Bangladesh. BRAC Bank Ltd does not support any finances that are detrimental to our environment. A portion of the revenue is channeled to support BRAC schools, where children study for free. 70% of these children are female.
1.5. Nature of business:
A fully operational Commercial Bank focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has largely untapped within the country. The Bank is also actively involved in retail banking and has a broad range of consumer loans ranging from personal loans up to auto loans to debt & credit cards. Furthermore the Bank has gained a strong market share in the global money transfer market or remittance through significant tie-ups with major international money transfer agencies. In the last two years, BRAC Bank has also participated in providing large syndication loans in association with other National Commercial Banks in the country. Today BRAC Bank is considered as fourth generation bank extending full range of banking facilities by providing efficient, friendly and modern fully automated on line service. Since its inception, it has introduced fully integrated online banking service to provide all kinds of banking facilities from any of tits conveniently located branches.
1.6. BBL-At Present:
The financial performance of BBL is found to be satisfactory. During the year 2006 the Bank reported Tk 334.26 million. Profit after Tax (PAT). The growth rate of PAT during this period was 73.47%. Financial performance in 1Q 2006 is also found to be increasing trend. It is noteworthy here that the Bank has turned into a profitable organization in the year 2003 after making loss in first two years of its operation. The above performance of the Bank was based on the higher growth rate of business activities during the period. Net interest income of the Bank has increased by 90.60% during 2006.On the other hand; growth of investment income and fee base income was 74.92% and 97.55% respectively. Operating profit of the Bank increased to Tk 2077.42 million in 2006 from 1173.31 million in 2005, representing growth rate of 77.05%. Earning per Share (EPS) of BBL has increase the same manner from TK 38.54 %in 2005 to TK 63.31% in 2006 per share, representing increase of 64.27%. The Bank has declared 20% bonus share as dividend for its shareholders on the profit of the Bank for the year-end 2007. (1)
Credit Rating of BRAC Bank Ltd by CRISL
|Long Term||Short Term|
A (Adequate safety):-Financial Institution rated in this category is adjudged to offer moderate degree of safety for timely repayment of financial obligation. This level of rating indicates a corporate entity with an adequate credit profile. Risk factors are more variable and greater in periods of economic stress than those rated in the higher categories.
ST-2 (High Grade):-High certainty with regard to the obligor’s capacity to meet its financial commitments. Risk factors are very small.
1. Auditor’s report 2006 of BBL
According to the Credit rating report, 2006 by Credit Rating Information and Services Limited (CRISL),BRAC Bank Ltd. is ratedas “single A” in the long term and “ST-2”
in the short term on the basis of the organization’s strong distribution channel, satisfactory profitability, liquidity risk management structure, and IT infrastructure, adequate capital adequacy and professional management team etc. The key moderating factors for the ratings are limited market share, dependency on high cost bearing fixed deposits, low non-funded business and high HR turnover.
Internal and External source of Cash
(As per Audited Accounts amount in TK)
(1) Internal Source of Cash
|Ordinary Share Capital||120,00,00,000||500,000,000||500,000,000||500,000,000|
|Surplus in Profit & Loss Account||496953184||226,006,069||224,490,340||70,346,259|
Total Internal Source of Cash
From the above table and graph it is noticed that internal flow of cash of the Company is gradually increasing every year and in the year 2007 the rate of increase was highest because of earning maximum profit. So the company’s performance is steadily increasing.
External Source of Cash
Source: BRAC Bank Prospectus
Total External Source of Cash
The External source of cash of the Company is also increasing every year. In the year 2006the rate of increase was lowest and most of the cash coming from the Deposits and Other Accounts not from the Borrowing from Bangladesh Bank, other Banks & Financial Institutions.
1.7 SWOT Analysis of BRAC Bank Ltd
A. Strengths of BRAC Bank limited
1. Strong financial backing form the world recognized financier like ShoreCap Ltd., IFC, and BRAC.
2. Foresighted vision from the recognized management.
3. Professional supremacy and counseling from three major financiers.
4. Well versed and professionally trained sales team managed by aggressive leading giants.
5. The first local bank offering sophisticated online banking.
6. Relentless in pursuit of business innovation and improvement.
7. Value and respect people and make decisions based on merit.
8. Have a strong customer focus and relationships based on integrity, superior service and mutual benefit.
9. “We believe that our high level of personalized service, commitment towards our community”, core values are the key differences between BRAC Bank and the all the rest
10. Strong advertisement coverage.
B. Weaknesses of BRAC Bank Limited :
1. New Entrant in the industry.
2. Conservative in product introduction.
3. Corporate banking division is improving slowly.
4. Small coverage or reach to customer in comparison to other banks.
5. Taking more time to be well staffed and diversified.
6. Facing rapid changes in policy to survive.
1. The sector is growing rapidly and BRAC Bank has already proven itself to avail this opportunity of getting recognition of fastest growing bank in the region.
2. The online banking has a huge potential.
3. BRAC Bank Ltd. introduced SME banking and as the market leader in SME banking made it significantly different from the competitors.
4. Strong-customer focus has a value for its future growth.
5. As a proven profitable entity, BBL can go to public and avail huge amount of investment.
6. Providing real time basis account access service and ATM service at a comparatively lower cost leads it to customer focus.
1. The increase in interest rate on deposit scheme by other banks UPTO 12% is a major threat to its product.
2. Lack of stability in macroeconomic situation.
3. Unstable money market.
4. Rapidly changing regulatory policies.
5. Launching of similar kinds of product by other bank.
A Comprehensive Statement of Income & Expenditure
A comparative income position of the Bank for the period ended March 2006 and for years ended 31st December 2005, 2004, & 2003 are as follows
|Net Interest Income||240,232,370||607,331,119|
|Income from Investment||69,153,731||292,067,158|
|Commission, Exchange and Brokerage||109,557,900||271,073,023|
|Other operating income||786,391||2,846,359|
|Total operating income||419,821,392||1,173,317,659|
A comparative operative expense position of the Bank for the period ended March 2006 and for years ended 31st December 2005, 2004, & 2003 are as follows:
|Total operating Expenses||213,201,027||592,999,647|
|Profit before provision||206,620,364||580,318,012|
|Provision for loans & advances||79,384,437,||239,413,598|
|Provision for other||74,697||544,313|
|Total Profit before Tax||127,161,230||340,360,101|
Source: BRAC Bank Prospectus
1.8 Management Aspects
Like any other business organization, the Top management makes all the major decisions at BRAC Bank Limited. The Board of directors being at the highest level of organizational structure plays an important role on the policy formulation. The Board of directors is not directly concerned with the day-to-day operation of bank. They have delegated their authority to its management committee, which is called MANCOM. Now there are 5 directors in the Top management of the bank. All the directors have good academic background and have huge experience in business. Mr. Fazle Hasan Abed is the chairman of the bank. The board of directors holds meetings on a regular basis.
q The Management Hierarchy of BRAC Bank Limited is given below:
w Board of Directors
w Managing Director
w Deputy Managing Director
w Executive Vice President
w Senior Vice President
w Vice President
w Senior Assistant Vice President
w First Assistant Vice President
w Assistant Vice President
w Senior Principal Officer
w Principal Officer
w Senior Officer
w Officer Grade II
w Officer Grade I
w Junior Officer
Departments of BBL
BRAC Bank Limited had organized and restructured its different departments and working procedures in order to make the bank more dynamic, effective and goal-oriented. According to that, BRAC Bank Limited currently has 15 major departments to provide smooth services to its clients as well as efficient management of the Bank. These Departments are:
1. Human Resource Department
2. Secured Remittance Services Department (SRS)
3. Payment Service Department (PSD)
4. Financial Administration Department (FAD)
5. Corporate Department
6. Company Secretariat & Risk Management Department
7. SME Banking Department
8. Retail Banking Department
9. Customer Service Delivery Department (CSD)
10. Asset Operation Department (AOD)
11. Impaired Asset Management Department (IAM)
12. Treasury Department
13. Cards Department
14. External Affairs Department
15. General Infrastructure Department (GIS)
1.9. Products & Services of BRAC Bank Limited
BRAC Bank Limited as a third generation bank is trying heart fully to gain competitive advantage than the other banks through a regular balanced mix of cost leadership strategy and differentiation. The concentration strategy of its branches in major commercial areas puts it in a favorable position.
BRAC Bank offers access to a wide range of products and services that can meet all financial needs of Individuals and corporations including banking, investing, mortgages, lines, loans and more.
According to the official website BRAC Bank Limited serving the following products and services to the customers:
|Loans and Advances|
|High Flyer Loan|
|Life Style Loan|
|Unsecured Personal Loan|
|Credit Card Loan|
|Premium Term Deposit|
|ABIRAM -Fixed deposit|
|DPS-Deposit Premium Scheme|
|Transaction Sales/Priority banking|
|Our Target Market|
1.10 Name of Branches
At Present BRAC Bank Limited has 26 branches across the country.
|Serial No.||Branch Name|
|02||Motijheel Branch, Dhaka|
|03||Dhanmondi Branch, Dhaka|
|04||Satmasjid Road Branch, Dhaka|
|05||Banani Branch, Dhaka|
|06||Moghbazar Branch, Dhaka|
|07||Uttara Branch, Dhaka|
|08||Mirpur Branch, Dhaka|
|09||Nawabpur Branch, Dhaka|
|10||Rampura Branch, Dhaka|
|11||Keraniganj Branch, Dhaka|
|12||Narayangonj Branch, Narayangonj|
|13||Ganakbari Branch, Savar|
|14||Sonagazi Branch, Feni|
|15||Agrabad Branch, Chittagong|
|16||Momin Road Branch, Chittagong|
|17||Halishahar Branch, Chittagong|
|18||Sylhet Branch, Sylhet|
|19||Zindabazar Branch, Sylhet|
|20||Beani Bazar Branch,Sylhet|
1.11. Information Technology of BBL
Within a short of period of operation, BBL has built up satisfactory level of soft and hard IT infrastructure for smooth banking business operation and quick decision- making process of the management team. The company uses MBS banking software with required modules. The above modules generate some MIS report for internal and external purposes. In addition, the Bank uses the Phoenix Software for ATM and Access Card management. The branches are linked with optical fiber or radio links. However, some limitation has been found in MBS Banking Software for increasing demand of IT support. The board already sanction fund for acquiring new powerful integrated banking software from abroad.
1.12. Target Customer:
As the main product of BRAC Bank Ltd is SME, BRAC Bank has a strong SME focus and has developed a wide range of SME business products, these are customized for specific localized small and medium business across the country. The SME loan products cover a range of rural, semi-urban and urban financial needs in the market. Besides them, industries, transport business, education institutions, medical centers, marine business, any other high worth companies, individuals, etc are also the main customers of the bank. The bank has the ATM card and Credit card facility, so the users of the same are also in target.
Advancement in Information Technology (IT) has ushered in a new era of growth and development in the global business environment. The Central Depository System (CDS), involving electronic book entry to record, register and transfer securities is a significant contribution of the Information Technology revolution to the capital markets of the world. Change in ownership of securities takes place without physical movement of certificates and without the necessity of executing/printing transfer instruments under the Central Depository System, resulting in scrip less trading of increased volumes of securities in vastly shortened settlement periods of 2 to 3 days. Central Depository System is an integral part of all developed stock markets of the world and has already caught on in many of the developing countries. Robust markets in Aisa (India, Pakistan, Thailand, Malaysia etc) have all established Central Depositories in recent years, covering stocks and shares as well as fixed income instruments. The Central Depository System eliminates-
· Lengthy delays in delivery, settlement and transfer of securities
· Tedious procedure of verification of securities and transfer deeds
· Extended time needed in delivering benefits like cash dividends, bonus and right shares
· Risks of damaged, lost, forged and duplicate certificates
· Serious storage and safe keeping problems associated with physical custody and
· The tedious procedure and risk involved in raising money against pledging of physical securities.
On the basis of The Depositories Act 1999,<href=”#_ftn1″ name=”_ftnref1″ title=””> and The Depositories Regulations 2000 <href=”#_ftn2″ name=”_ftnref2″ title=””>, the Central Depository Bangladesh Limited (CDBL), only one CDS operator , was incorporated as a Public Limited Company on 20th August,2000 to operate and maintain the Central Depository System (CDS) in our country.
There are 24 Sections in the Depositories Act 1999 and describes each and every points in these sections.
On the basis <href=”#_ftn3″ name=”_ftnref3″ title=””> of the Depositories Act 1999, and prior approval of the Securities and Exchange Commission, Central Depository Bangladesh Limited, only one Central Depository System operator in Bangladesh made Bye-Laws to function and maintain the Depository System.
Legal and Regulatory Structure
There is a sufficient legality in the Depositories Act 1999 to incorporate the central depository system in our country. By dint of the legality the Central Depository Bangladesh Limited (CDBL) was incorporated as a Public Limited Company on 20th August, 2000 to operate and maintain the Central Depository System (CDS) of Electric Book Entry for stocks and shares, as well as providing various other investor services including facilitating secondary market trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank.
On the basis<href=”#_ftn4″ name=”_ftnref4″ title=””> of the Depositories Regulation 2000, Securities and Exchange Commission constituted a high power monitoring cell to ensure the security and control of the depository system and its operating procedures.
Depository and its legality
The Depositories Act, 1999,<href=”#_ftn5″ name=”_ftnref5″ title=””> defines the depository. “Depository” means a company constituted with the institutions specified by regulations for the purpose of maintenance and transfer of securities through book entry and registered under the Companies Act.”
Legality: There is sufficient legality in respect of Depository. Depositories Act 1999 and Depositories Regulations 2000 have given power to the operator to operate and maintain the Depository System and also given legal protection to the depository participators. Before enact the Depositories Act there was no depository system and as well as legal protection of the participators.
A depository is like a bank for shares instead of money. Instead of holding shares in the form of certificates, investors have accounts in the depository and are able to more securities and settle stock exchange transactions by an electronic update of their accounts.
The core service of a depository is the efficient delivery, settlement and transfer of securities through a computerized book entry system.
A depository can be compared with a bank. A depository holds securities of investors in electronic form. Besides holding securities, a depository also provides services related to transaction in securities. At this moment CDBL is the only depository in Bangladesh.
Need for Depository and its legality
Legality: In early 1999 erstwhile Government felt to introduce Depositories Act to operate Central Depository System for the greater of the investors and chunk the Capital Market in our country. Then Government passed in the Parliament Depositories Act, 1999, providing a legal basis for depositories in Bangladesh. On the basis of Depositories Act 1999 and Depositories Regulation 2000 and Depositories Regulations (user) 2003, Central Depository Bangladesh Limited started operation of Central Depository System in our Country.
The need for a depository arose from shortcomings in the present settlement system, resulting in:
· lengthy delays in delivery, settlement and transfer of securities;
· tedious procedures for verification of securities and transfer deeds;
· considerable time involved in dispatching cash dividends and bonus shares;
· risk of damaged, lost, forged and duplicate securities;
· serious problems associated with physical custody;
· tedious procedure involved in pledging of physical securities to raise capital.
Central Depository Bangladesh Limited (CDBL), a joint venture company setup by banks, stock exchanges, Asian Development Bank and other institutions operates the Central Depository System in Bangladesh.
Central Depository Bangladesh Limited (CDBL), by converting physical certificates into electronic form, will eliminate the risks of damaged, lost, forged and duplicate share certificates. The instantaneous delivery through electronic book entry will result in immediate transfer of ownership, which presently can take over a month. Central Depository Bangladesh Limited (CDBL), in the long term, will also reduce the costs of the investing public.
Depository Participants and its legality
About the Depository participants described in the<href=”#_ftn6″ name=”_ftnref6″ title=””> Depositories Regulations (user) 2003.
On the basis of the Regulations and the bye-laws of Central Depository Bangladesh Limited, the following types of organizations may become Central Depository Bangladesh Participant:
1) Stock Brokers/dealers (members of the Dhaka and Chittagong Stock Exchanges.
3) Financial Initiations
4) Insurance companies
5) A statutory organization
6) Merchant Bankers
7) Asset Managers
9) Any other capital market intermediaries registered with the SEC
Participants are divided into the following categories:
a) Trading participant
b) Full Service Participant
c) Custody Participant
d) Settlement Agent Participant.
Legality: There is sufficient legality in respect Depository Participant which is mentioned earlier.
Account Opening and its legality
Legality: There is sufficient legality in respect of Account Opening. Depositories Regulations (user) 2003 <href=”#_ftn7″ name=”_ftnref7″ title=””> explained about the Account Opening and maintaining of the depository. Depositories Regulations and By Laws of Central Depository Bangladesh have given more legal protection to the Depositor Participates in the Account Opening. Account holders may take shelter of law in case any discrepancy. All kinds of document in respect of Central Depository System are prima facie evidence and will treated as secondary evidence in Courts as per Evidence Act 1872 .
The Depository Participant will request the investor to fill in an Account Opening Form and sign a Terms & Conditions document which sets out the rights and duties of both the investor and the DP. The DP will then open an account for the investor in the CDS.
Normally the account will be in the name of the investor. If the DP is going to mix one investor’s securities with another in an omnibus account, then this must be specifically agreed to by the investor in writing.
Where the account is in the name of the investor, then the law provides that the account holder is members of the company even through his securities are dematerialized.
The DP is required (under the regulations) to provide statements on at least a monthly basis if there are movements on the account. Even if there are no movements the participant must provides a quarterly statement.
Dematerialization (Demat) and its legality:
Dematerialization is a process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor’s account to the Central Depository Bangladesh Limited (CDBL) part of the company’s register.
Legality: There is also sufficient legality in respect of Dematerialization (Demat). Central Depository Bangladesh Limited, CDS Operator to effect the dematerialization as per provision of Depositories Regulations and its by-laws which is approved by the Securities and Exchange Commission. To protect the interest of participant, there is provision of sufficient legal protection.
The Depositories Regulations (user) 2003<href=”#_ftn8″ name=”_ftnref8″ title=””> reveals – When the Depository declares any security eligible for dematerialization, the owner of that security can open an account with the Depository or its participant and deposit securities that are in his own name or in the name of his customer, if he is a custodian, to the issuer for dematerialization
The Central Depository Bangladesh Limited describes about the dematerialization.<href=”#_ftn9″ name=”_ftnref9″ title=””>
An account holder may proceed to convert his securities held in physical form into dematerialized form by filling up and signing a dematerialization request form (DRF) as specified in form 08 in triplicate and getting the relevant security certificates scrutinized/vetted by his CDBL participant.<href=”#_ftn10″ name=”_ftnref10″ title=””> The CDBL participant shall enter from the 2nd copy of the DRF a demat instruction into the system in accordance with the user manual<href=”#_ftn11″ name=”_ftnref11″ title=””>. The CDBL shall provide issuers with details of all dematerialization requests through the system in accordance with the user manual<href=”#_ftn12″ name=”_ftnref12″ title=””>. Documents representing securities held in physical form including certificates and/or letters of allotments shall be presented by the shareholders or his/her nominees to the issuer alongwith the top copy of the DRF for conversion of securities to dematerialized form<href=”#_ftn13″ name=”_ftnref13″ title=””>. The issuer is responsible for ensuring that only valid dematerialization requests are confirmed to CDBL and warrants that such securities exist, are validity issued and stand in the company register in the name of the account holder who has sought dematerialization in respect of those securities <href=”#_ftn14″ name=”_ftnref14″ title=””>. The issuer shall in all cases retain the DRF. The issuer shall return the certificates relating to those securities in respect of which dematerialization is rejected to its owner unless otherwise required by any law in force for the time being <href=”#_ftn15″ name=”_ftnref15″ title=””>. In all cases where any issuer rejects any request for dematerialization of any securities, the issuer shall communicate in writing to the concerned CDBL participant and the account holder, the reason for such rejection <href=”#_ftn16″ name=”_ftnref16″ title=””>. The issuer shall accept full responsibly for cancellation, mutilation or destruction of certificates and/or other documents of title to securities received and accepted by it for dematerialization and for the safe custody thereof pending cancellation, mutilation or destruction<href=”#_ftn17″ name=”_ftnref17″ title=””>. Credit of securities into an account shall be made when the issuer confirms the transfer of securities to the CDBL portion of the register (demat) or confirms the credit of a fresh issue of securities to the account holder<href=”#_ftn18″ name=”_ftnref18″ title=””>.
Rematerialization (Remat) and its legality:
Legality: There is also sufficient legality in respect of Dematerialization (Demat). Central Depository Bangladesh Limited, CDS Operator to effect the dematerialization as per provision of Depositories Regulations and its By laws which is approved by the Securities and Exchange Commission. To protect the interest of participant , there is provision of sufficient legal protection.
If any person wishes, he may covert the dematerialized securities in his account again into rematerialized form in accordance with the Bye-laws<href=”#_ftn19″ name=”_ftnref19″ title=””> .
Dematerialization is a process by which electronic securities are converted into physical certificates i.e. electronic holdings back into material certificate.
The depository Participant will instruct Central Depository Bangladesh Limited through the system and the securities will then be debited from the account upon confirmation by the issuer conveyed electronically through the system. The issuer will transfer the holding from the depository portion of its register to the certificated portion. The issuer will provide the investor with a share certificate within 30 days of a dematerialization request.
Pledging and its legality:
A Depository or Depository Participant may provide pledge facilities to its customers<href=”#_ftn20″ name=”_ftnref20″ title=””>.
By dint of the regulation account holders may use the shares in their depository accounts as collateral against a loan without the need to rematerialize the securities (provided the pledgee agrees to take collateral in this form). The pledgee must be a participant or an depository account holder. The Pledgor gives instructions to his participant to pledge his shares to the pledgee. The Pledgee must confirm acceptance of the pledgee. The shares are the “frozen” in the account of the pledgor and cannot be moved until instructions are received from the pledgee. The instruction from the pledgee may be to release the pledge or to move the shares to his own account. As the shares remain in the account of the pledgor, the pledgor will receive all benefits and will still able to vote.
Services of Depository and its legality:
Legality: As per Depositories Regulation and the exercise of Bye Laws of Central Depository Bangladesh Limited, operator gives the above mentioned services. In any discrepancies, participators may take legal shelter which is mentioned in the Regulations.
· Dematerialization of shares-converting physical certificates to electronic form (Regulation 38)
· Rematerialization of shares converting electronic securities into physical certificates.(Regulation 39)
· Transfer of securities (Regulation 41-43)
· Settlement of trades executed into the stock exchanges (Bye-laws 10-10.2.5)
· Pledging of dematerialized securities (Regulation 44)
· Electronic credit in public offering of companies (Regulation 9)
· Issuance of non-cash corporate benefits such as bonus, right shares in electronic form. (Regulation 45-47)
Buying and Selling and it legality:
On the basis of Regulation<href=”#_ftn21″ name=”_ftnref21″ title=””> of the Depositories Regulations (user) 2003 with own By Laws 10, Central Depository Bangladesh, only Operate of Central Depository System. On the basis of regulations and By Laws, CDS operator transfers the securities ownership.
Legality: The main function of Central Depository System is Buying and Selling and transfer of securities ownership. For the greater interest of the buyers and sellers, passed the Depositories Act and Regulations. Before Depositories Act and Regulations, there was no Depository System. In 1999 Government passed the Depositories Act for the greater interest of the investors. There is sufficient legal right in Depositories Act. Because all kinds of documents/papers will be treated as Prima Facie Evidence in Court of our Country.
The introduction of Central Depository System does not make any difference to the process of buying and selling although it does make a difference to the settlement of such trades.
Where investors have Central Depository System Account through their broker, then the act of giving a sell order to the broker also authorize him to move securities from the investors account to settle the sale. The broker will move the securities to his Clearing Account when he enters the order into the market. If the order is executed then the securities in the Broker’s Clearing Account are used to settle the sale. If the order is not executed then the broker will move the securities back to the investor’s account from the broker’s Clearing Account.
Where investors have a Central Depository System Account through a custodian (who is not a broker) such as a bank, then they must advise their custodian bank that they have sold as they do for physical securities. However, the securities must be in a Central Depository system Account before they are sold and the broker may wish to check this fact with the custodian before executing the order.
On the settlement date of a brought trade, the broker will move securities from this Clearing Account to the account of the buying investor (provided the investor has paid) Investors may leave the securities in their account (ready for sale when they wish to sell or to avoid the need to hold certificates) or they may request the participant to rematerialize the securities.
Eligible Securities and its legality:
Legality: There is sufficient legality in respect of eligible securities.
Regulation<href=”#_ftn22″ name=”_ftnref22″ title=””> of the Depositories Regulations (user) 2003 explains about the eligible securities. On the basis the regulation and own By Laws of CDS operator, operator determines the eligible securities.
Usually the exchanges arrange spot trading of shares of any company for a day followed by three days trade suspension prior to its admission into Central Depository System. Securities and Exchange Commission in the first stage has a preference for issues of “A” category companies for dematerialization. However, with the startup of the Central Depository System distribution of all initial public offerings must be through the Central Depository System. Therefore, Initial Public applicants have to open depository account with a Depository Participant to receive any allotments against their IPO applications.
Depository eligible securities include:
· Securities listed on a Stock Exchange
· Securities issued by the Government and other debt instruments
· Other securities such as mutual fund units, commercial papers etc
· Must be in an account in the depository before they may be sold
· Will be added to an account in the depository after they have been brought.
Treasury Bills Electronic Registry and its legality :
Legality: There is sufficient legality in respect of Treasury Bills Electronic Registry. On the basis of the regulation and the own By Laws of Central Depository Bangladesh Limited, Central Depository Bangladesh Limited performs the Treasury Bills Electronic Registry.
As per Regulation <href=”#_ftn23″ name=”_ftnref23″ title=””> of the Depositories Regulations (User) 2003 and the By Laws of Central Depository Bangladesh Limited Treasury Bills is one of the eligible securities.
As part of its ongoing efforts to improve market infrastructures, the Bangladesh Bank has opted for the use of an electronic registry for its Treasury Bills to foster the development of a secondary market in Treasury Bills in Bangladesh. The Central Depository Bangladesh Limited has provided the infrastructure for Bangladesh Bank’s electronic registry by linking up all banks participating in Treasury Bills auctions to the Central Depository System of Central Depository Bangladesh Limited.
Statement of Accounts and its legality:
Legality: There is sufficient legality in respect of Treasury Bills Electronic Registry. On the basis of the regulation and the own By Laws of Central Depository Bangladesh Limited, Central Depository Bangladesh Limited performs the Treasury Bills Electronic Registry.
Participants can print their owner statements of account using their own terminals, including statements for clients who opened accounts through them.
Statements can be generated as often as necessary showing the beginning balance for each Treasury Bill held by the holder, the transactions for the period and the ending balance.
Bangladesh Bank can also print the Statements of Account for the registered holders of Treasury Bills at any predetermined frequency.
Provision of Penalty:
There is provision of penalty which is mentioned in the Section 15(1) and 15(2) of the Depositories Act,1999. <href=”#_ftn24″ name=”_ftnref24″ title=””> provides “If a person contravenes or attempts to contravene or abets the contravention of any provision of this Act, he shall be punishable with imprisonment for a term not exceeding five years, or with fine or with both.
The Depositories Act<href=”#_ftn25″ name=”_ftnref25″ title=””> provides where any person guilty of an offence mentioned in sub-section (1) is a company or any other body corporate each of its directors, managers or any other officer responsible for administration of its business shall be deemed to be guilty of the said offence, unless he proves that the offence was committed without his knowledge, or that he exercised due diligence to prevent the commission of the offence.
The Depositories Regulations (User) 2003<href=”#_ftn26″ name=”_ftnref26″ title=””> provides “ The commission may suspend or cancel Registration Certificate of a person contravening any provision of these Regulations or any directive issued there under, or may take further punitive measures against any person accused in an investigation by the Commission.”
“Provided that, no penal action shall be taken against the person concerned without giving him a show cause notice and a reasonable opportunity of being heard. Provided further that, the affected person may appeal to the Commission under the Securities and Exchange Commission (Appeal) Regulations, 1995, which shall be settled as per the said Regulations.”
Compensation System and its legality:
Legality: There is a provision in the Depositories Regulation to compensate the participants who are suffered loss by the operator.
The Depositories Regulation<href=”#_ftn27″ name=”_ftnref27″ title=””> reveals– “Compensation System – The Depository shall have adequate arrangements, which may include insurance to lawfully compensate any person suffering a loss on account of the Depository. Provided that, the insurer, any of its subsidiary companies or any of their officials, shareholders or representatives, during the period of insurance, shall not be included or be in the Board of the Depository”
It is believed that insurance coverage to investors who have suffered monetary loss as envisaged by depository participants is not possible at this situation for practical difficulties. But, like other depositories of the world’s stock markets, there should be a compensation fund in protecting the investors’ interest. And the compensation fund may consist of in the main contributions by the stock broking companies which are depository participants (DP) and contributions by CDBL.
Role of CDBL in Share Trading and Share management
Background of CDBL
Central Depository Bangladesh Limited (CDBL) has been registered as a Depository by the Securities and Exchange Commission under section 4 of The Depositories Act 1999 and regulation 5 of The Depositories Regulations 2000.
Central Depository Bangladesh Limited is desirous of establishing a Depository system, And whereas it is desirable that the affairs of the Depository system be established and regulated in accordance with the Depositories Act 1999, the Depositories Regulations 2000, and the Depository (User) Regulations 2003, it is also desirable that the contract to be entered into between each user of the Depository System and Central Depository Bangladesh Limited be consti