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Settlement Procedure Of A Brokerage House: A Case Study On Sharp Securities Ltd

1.4 Overview of Sharp Securities Limited Your dependable partner for Share Trading 1.4.1 Historical Background of the Brokerage House Sharp Securities Limited is one of the leading consummate brokerage houses of Dhaka Stock Exchange Limited. Sharp Securities Limited was established in December 2004 under the Companies Act (Act XVIII) of 1994 as a Private Limited Company. 1.4.2.1 Mission of the company The Sharp Securities Limited is committed to satisfy diverse needs of its clients through an array of services by using appropriate technology and providing timely service so that a sustainable growth, reasonable return and contribution to the development of the overall economy of the country can be ensured with a motivated and professional work force. 1.4.2.2 Vision of the company To become one of the leading Stock Broker of Dhaka Stock Exchange Limited. 1.4.2.3 Goal of the company To achieve 25 crore annual profit by the year 2012. 1.4.3 Profile of the Brokerage House Registration of the Brokerage House: Sharp Securities Limited Brokerage house is registered under the Companies Act (Act XVIII) of 1994 as a Private Limited Company. Head office Contract Address: Samabaya Bank Bhaban (5th Floor) 9/D, Motijheel C/A, Dhaka-1000 02-9513651-4, 02-9513656 (PABX) 02-9561340 (CEO), 02-9567007 (CDBL) Fax: 880-2-9562701, E-mail: ssl_216@yahoo.com Age of the Firm: 7 Years from 2004 Key Personnel: Chairman:

Mr. Nazmul Alam Siddiqui


Managing Director:

Mr. Syed Golam Mustafa

Director:

Mr. Major Syed Golam Wadud (Retd.)

Director:

Mr. Mozammel Haque Bhuiyan

Director:

Major M.M. Mustafa Zamal (Retd.)

Director:

Mr. M.M. Fazllul Haque

CEO:

Mr. Major Ahmed Ali Khan (Retd.)

Corporate Office Dhaka Samabaya Bank Bhaban (5th Floor) 9/D, Motijheel C/A, Dhaka-1000 02-9513651-4, 02-9513656 (PABX) Fax: 880-2-9562701, E-mail: ssl_216@yahoo.com 1.4.4 Company’s Values: Employees of Sharp Securities Limited (SSL) share certain common values which help to create a SSL culture. Those are: •

The client comes first.

Openness to new ideas and new methods to encourage creativity.

Quick decision making.

Flexibility and prompt response.

A sense of professional ethics.

1.4.5 Strategies: •

To strive for customer satisfaction through quality control and delivery of timely services.

To review and update policies, procedures and practices to enhance the ability to extend better services to clients.

To train and develop all employees and provide adequate resources so that customer needs can be responsibly addressed.

To promote organizational effectiveness by openly communicating company plans, policies, practices and procedures to all employees in a timely fashion.

To cultivate a working environment that fosters positive motivation for improved performance.

To increase direct contact with customers in order to cultivate a closer relationship between Sharp Securities Limited and its clients.


1.4.6 Sharp Securities Ltd, Company: •

Do business in professional and courteous manner.

Work with our clients to fully understand their needs.

Provide our clients with expert advice (Technical Analysis).

Give our clients a fair price.

Handle our clients’ order promptly and accurately.

Provide support, as required, to assure total satisfaction.

Hassle free money deposit and withdrawal.

1.4.7 FACILITIES FOR CLIENTS •

BUYING AND SELLING SHARE

OPEN BENEFICIARY OWNERS (BO) ACCOUNT

EDUCATING NEW INVESTORS

SEPARATE TRADING COUNTER FOR OUR VALUED FEMALE CLIENTS

CONDUCT INVESTORS AWARENESS PROGRAM REGULARLY

ONLINE TRADING

1.4.8 Sharp Securities Ltd. Services: •

Full Service Depository Participant.

BO Account Opening.

Buying and selling share.

Separate Telephone trading terminal.

Separate trading counter for our valued female customer.

Trade facilities for Non Residence Bangladeshi.

Highly Developed Back office Software.

Large Multimedia Trading Screen.

Real Time Online Trading.

Educating new Investors.

Conduct Investor’s Awareness Program regularly.

Sophisticated Research and Development Cell.

Prompt, Reliable and Friendly Client Services.

Highly Skilled Management.

Well equipped trading house with sophisticated technologies.


1.4.9Departments: •

CDBL Department.

IT Department.

Accounts Department and

Trading Department.

CDBL Department: CDBL department works with the shares. There are 4 work stations in our CDBL department. BO entry, Share settlement, Demat of paper share etc are the main works of CDBL department. IT Department: Sharp Securities Ltd. has IT department, this department’s main work is to maintain Software and Hardware related problems, main server or network related problems, which server helps to control all the branches. Accounts Department: Account department record controls and hold overall company accounts and control, recorded and holds clients account information. Company all account system recorded by Tally and manually but clients account recorded by the back office file. Account department follow the General Accepted Accounting Principle (GAAP) all term and conditions for creating there Company Balance Sheet. External Audit: G-kibria Audit firm permanent audit firm. This firm annually auditing the Sharp Securities Ltd. accounts. Internal Audit: Internal Audit process done by company Account department. Internal auditing process done monthly basis. Company all transaction done by the One Bank Limited. Company Average turnover is 20 corers. Trading Department: Trading department of the Sharp Securities Ltd. main work is Buy and Sale shares. Any clients who have opened there account in Sharp Securities Limited, He/she can buy or sale there shares by this trading department. Trading department control and help for trading. This department gives client’s different type’s information for buy or sale there shares. 1.4.10 Growth of the Company: The company started its journey in August 2005. Since its inception the Company gave maximum attention to achieve the highest satisfaction of its clients. The company


management was encouraged seeing the response and enthusiasm of the clients to expand the company activities within Dhaka. Sharp Securities Limited was the pioneer to start its operation at Uttara area as Stock Broker in only 200 square feet accommodation. In 02 years time now it has two branches in approximately 2000 square feet accommodation at North Tower and Uttara Tower respectively. It also opened a Branch at Anannya Shopping Complex, DOHS Baridhara, Hatirpool and another at Surma Commercial Centre, Chaya Toru 01, Lamabazar, Sylher. Three other branches are about to start their operation as soon the permission would be obtained from DSE and SEC at Dhaka and Sylhet respectively. Sharp Securities Limited will continue its effort to expand its operation within and outside Dhaka. The landmark event of the Company’s expansion is as follows: Financial Growth The company has achieved its financial growth gradually and consistently. It has started its operation with the authorized capital of 03 (Three) Crore and Paid up Capital of 1.5 (One and Half) Crore Only. During the year 2008-2009 the company has earned a net profit which is 50.19% more than that of the previous year and its capital funds stood at Tk 4.71 Crore. Out of this, Tk. 3.75 Crore consisting of paid up capital by shareholders and Tk. 96.71 Lac represents reserves and retained earnings. The Authorized and Paid up Capital of the Company was increased recently up to 10 Crore and 3.75 Crore respectively. 1.4.11 Land mark events: Date of Getting •

License as Public Limited Company

– 15 May 05

Registration Number as Stock Broker

– 11 Jul 05

Getting the CDBL DP Account

– 07 Aug 05

Date of opening the main office

– 22 Aug 05

Starting the operation

– 22 Aug 05

Approval for Uttara Tower Branch

– 04 Dec 05

Approval for f Baridhara Branch

– 12 Dec 05

Approval for North Tower Branch

– 14 Dec 06

Registration Number as Stock Dealer

– 18 Jun 08

Approval of Sylhet Branch

-- 05 May 09


•

Approval of Hatirpool Branch

-- 03 Aug 10

1.4.12 Turnover State: YEAR BUY 2005 205,983,150.00 2006 2,365,963,481.00 2007 2,365,963,481.00 2008 5,071,218,020.00 2009 10,708,395,344.00 2010 23,533,771,718.00 TOTAL 44,251,295,194.00 1.4.13 Bo Account Opening State: 2005

-

3911

2006

-

933

2007

-

14340

2008

-

4418

2009

-

5325

2010

-

5984

Till 30/06/11

-

919

TOTAL

-

35630

16000

SELL 188,414,022.00 2,028,211,973.00 2,028,211,973.00 4,937,471,505.00 13,370,042,905.00 23,907,952,515.00 46,460,304,893.00

TURNOVER 64,845,857.00 497,543,251.00 4,394,175,454.00 10,008,678,775.00 24,078,438,249.00 47,441,724,234.00 86,485,405,820.00

14340

2005

14000

2006

12000

2007

10000

2008

8000 6000 4000 2000

4418

3911

5325

5984

933

2009 2010 819

Linear (2005)

0

Figure: BO Account Opening State 2.2 Objective of project: The main objectives of the project are 1. To analyze the settlement procedure of Sharp Securities Ltd. 2. To discuss the impact of those activities. 3. To make some recommendations regarding those activities. 4.

Till date


2.3 Background of my working area: The main work of CDBL department is BO entry, share Demat, share settlement, share transfer & transmission etc. My main work is share settlement. I also do other works if necessary. 2.5 Methodology of the report: Nature of the Research: Topic of my research is “Settlement procedure of a brokerage house”. This is a descriptive research. In this research I have described the whole settlement procedure of a brokerage house. Population size: All the brokerage houses that got DSE membership will be counted as population for this research. So the population size for this research is approximately 250. Data collection: Data for the purpose of organizing this report has been collected from both primary and secondary sources. Primary sources of data •

Conversation with the officers and staffs.

Informal conversation with the officers and staffs.

Different manuals of Sharp Securities Ltd.

Secondary sources of data •

Different papers of Sharp Securities Ltd.

Unpublished data of Sharp Securities Ltd.

Different training lecture sheet provided by DSE.

Different text books.

The internet, newspaper was a helpful source of data.

2.6 Settlement Procedure There are two kinds of settlement that a brokerage house do. 1. Share settlement 2. Money settlement. Share settlement:


A brokerage house has to share settlement for every trading day. Share settlement procedure is directly related with CDBL. CDBL is an entity which keeps shares as a safety deposit. It keeps all the records of electronic shares. Shares that were sold or bought by brokerage houses should be settled in matured date. Money settlement: Money settlement procedure is directly related with DSE. DSE has automated software which calculates the amount of money that a brokerage house will receive or will pay. Those payments are made through DSE clearing house. Everyday after the end of trading hour all the broker send cheque to DSE clearing house. They send cheque for the shares they have bought in the trading day. DSE give cheque in the matured day of the shares. That’s how the money settlement process works. 2.6.1 Share Settlement 2.6.1.1 CDBL: Central Depository Bangladesh Limited (CDBL) was incorporated as a public limited company on August 2000 to operate and maintain the Central Depository System (CDS) of Electronic Book Entry, recording and maintaining securities accounts and registering transfer of securities; changing the ownership without any physical movement or endorsement of certificates and execution of transfer instruments. Securities and Exchange Commission has issued a Certificate to CDBL on December 23, 2003 for starting depository business as a depository. 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. CDBL's core services cover the efficient delivery, settlement and transfer of securities through computerized book entry system i.e. recording and maintaining securities accounts and registering transfer of securities; changing the ownership without any physical movement or endorsement of certificates and execution of transfer instruments. The Central Depository System (CDS) operated by CDBL has proved to be a convenient and reliable means to settle securities transaction. The investor has been freed from the hassles of physical handling of certificates, errors in paper work and the risks associated with damaged, lost and forged


certificates. CDBL's operations are carried out in its Main Data Centre which is linked to a remote Disaster Recovery Centre operating as a backup with data update taking place simultaneously. Network connectivity to Depository Participants, Issuers, Banks, Stock Exchanges and Bangladesh Bank is through Front End interfaces accessed by WAN link and dial-up telephone lines. Live operations of the CDS commenced with the inauguration of the Electronic Government Securities Registry (EGSR) by the Governor of Bangladesh Bank on 20th October 2003. The EGSR also serves as a platform for secondary market sale/purchase as well as Repo transactions of government securities to commercial banks linked online to the CDS. Equity market securities dematerialization process i.e. eliminating physical certificate as record of security ownership by substituting it as an electronic book entry record in the CDS commenced on 24th January 2004 with the entry of Square Pharmaceuticals Limited into the CDS.

This is the basic outlook of VEDAS (Versatile Engine for Depository Accounting System). This software used for all the activities of CDBL. Settlement transfer is one of the applications of VEDAS. It used for share pay in and pay out. 2.6.1.2 How the total process works: CDBL use VEDAS (Versatile Engine for Depository Accounting System, a software developed by CMC Ltd, India). Settlement transfer is one of the applications of VEDAS. It used for the share pay in and pay out. All electronic shares transferred through CDBL settlement system. A broker sell matured shares by its TWS (Trading work station) by the order of its client. When a broker sells a share for its client, it’s called pay in. After selling share, it is given to CDBL in T+0 day from the individuals BO account. CDBL collect the share and


keep it for the brokers who have bought it. In the matured day (e.g.: A, B, N and G category T+3 and for Z category T+9) CDBL pays the share to buyer broker who distribute it to buyers BO account. This process is called pay out.

This is basic outlook of settlement application. All pay in and pay out setup start from this page. Setup Option: The first step is setup a transaction. Both pay in and pay out setup should be done in offline mood. If the setup is given in online mood then it will be uploaded directly and there will be no option for modifying or deleting the transaction. So we setup a transaction in offline mood to avoid mistake. In the setup form there are two options. Transferor details: To setup a transaction we have to provide some information. First one is exchange ID. As we know, there are two stock exchanges in our country. One is DSE and another is CSE. Share settlement for both exchange done through CDBL settlement system. So we have to specify the exchange ID. For DSE the exchange ID is 10 and for CSE it is 11. Then comes the field of BO ID. Every client has a different BO ID (The ID where the shares are kept in). ISIN is the field for inputting company name. In the quantity field we have to give the number of shares that pay in or pay out. Internal reference number is where the local code is given.


Transferee details: The second part is transferee details. Here we have to give the broker code i.e.: for sharp securities ltd it is 216. Then the BO ID of the broker and quantity to be paid in or out. After giving all the information we commit the transaction.

This screen will appear after pressing setup offline. Here, you have to give the transferor details. First the exchange ID. We know there are two stock exchanges in our country. For DSE the ID is 10 and for CSE 11. Then put BO ID of the client in the next line. The BO ID should contain 16 digits. After that the ISIN (Company name) and quantity of the share should be given.

Then the transferee details, here we have to give the broker code/ trading ID. Every brokerage house have different broker ID given by DSE. After giving the broker ID, BO ID of the broker appears automatically. Finally we give the quantity and finish the form. We commit the transaction by clicking commit button. After committing the transaction is all ready for acceptance and uploading.


Then we have to approve the transaction. The approval should be also in offline mood.

In the approval menu we have to give the exchange ID and ISIN (Company name)

Then the accept button will appear.


We

accept

the

transaction

for

the

purpose

of

uploading.

After accepting the transaction we upload it to the CDBL server. CDBL keep it and in the matured day they pay the share to the buyer broker. This is the process of pay in share. Pay out is almost the same. Modify: The second option in the settlement menu is modify. Modification of a transaction is also done in offline mood. When any kind of mistake happens, the modify option helps to recover from that error. All transaction uploaded in a sequential mood. So, to modify, we have to know the sequence number or search it by group criteria. It is not possible to modify once it is uploaded.


Delete: A transaction can be deleted with the delete option. Delete option also work in offline mood. Uploaded transaction can not be deleted. For mistakes or any other purpose, we may have to delete transactions.

Inquire: After uploading a transaction it can be inquired from the CDBL server. The inquire option works in online mode. The inquire option only works for uploaded transactions.


Approve Once we have set up a transaction in offline mood then we have to approve it. After making all the check, we approve it in offline mood.

Uploading The transactions that are approved offline should be uploaded. It is uploaded directly to the CDBL main server. Once the transaction is uploaded it can never be changed. 2.6.1.3 Paying Shortage: Sometimes trader does mistakes. Mistakes like selling share before it is matured or selling share from a code where the share does not belongs to. To recover the mistakes, we have to pay share from other codes. At the end of the day, we have to pay all the shares to CDBL either it sold because of mistakes or truly sold. So, when the mistakes happen we give the shares from some known code of our client with the permission from them. Then when the share becomes matured, we give it back to the original code. If the sold share does not exist in our house, then we have to manage it from other houses. In the same way we have to pay it back to them. 2.6.1.4 Clearance from CDBL: After all the settlement done, CDBL runs EOD (End of the Day scheduler). Before that, every house has to take clearance by contacting with them through phone. After taking clearance it is the end of settlement procedure for that day. 2.6.2 Money Settlement


2.6.2.1 Settlement of Stock Exchange Transactions Regulations, 1998 No. DSE-343/97/910 - In exercise of the powers conferred by section 34(1) of the Securities and Exchange Ordinance, 1969 (XVII of 1969), Dhaka Stock Exchange makes, with the prior approval of the Securities and Exchange Commission, the following regulations, namely:1. Short title - These regulations may be called the Settlement of Stock Exchange Transactions Regulations, 1998. 2. Definitions- In these regulations, unless the context otherwise requires,(a) “DSE” means Dhaka Stock Exchange Ltd. (b) “Clearing house” means the facilities provided by DSE for completion of transactions through receipts and deliveries of securities and/or cheque/pay order/demand drafts. (c) “Contract” means a contract of transaction executed between the Buying Member and Selling Member in the trading system of DSE. (d) “Trading day” means the specific day on which transactions are carried out by the Members in DSE (i.e. T+0). (e) Regulation 2(e) has been substituted as follows since 13-9-2001 :‘Settlement day’ means the day on which transactions that were carried out by the Members on a trading day are settled by them through delivery of securities and/or cheque/pay order/demand draft to the clearing house of DSE, and which shall be the first day subsequent to the trading day, i.e.T+1 for A and B category companies, and the fourth day subsequent to the trading day, i.e. T+4 for Z category companies. (f) If any settlement or clearance day falls on any holiday, the next day subsequent to the holiday shall be the settlement or clearance day. Explanation- In this regulation, “holiday” means a day which is so declared by DSE. (g) “Member” means member of DSE who are registered as the stock broker/dealer by the Securities and Exchange Commission under the Securities and Exchange Commission (Stock-Broker, Stock-Dealer and Authorized Representative) Regulations, 1994. 3. Previous regulation 3 has been substituted as follows since 13-9-2001:“Contract note- All transactions carried out in DSE shall be evidenced by a computerized contract note having a contract number with date of execution of trade as prepared automatically through the DSE automated trading system immediately upon completion of trade in DSE. Subject to the provisions of regulation 12 all transactions evidenced by such contract note shall be settled through the clearing house.”


4. Previous regulation 4 has been changed as follows since 15-4-2001: “Position for settlement- (1) The clearing house shall work out the due position of every member in every scrip of the following category of companies, which shall be described as A-category companies, in which the member has dealt in on a trading day by adjusting the total buy with the total sell of that scrip; and shall also ascertain the net balance receivable from or payable to every member for the trading day; and shall notify every member the due position and the net balance as aforesaid of the trading day within the subsequent day of the concerned trading day for settlement . (As per SEC Directive # SEC/LSD/Directive/SE/200/01 dated 1/ March 2003 SEC has directs as under) “Adjusted due position mechanism for settlement of script only as provided (Now by Regulation 4(1) of Settlement of Transaction Regulations, 1998 of Prevailing) Dhaka Stock Exchange Ltd. shall remain suspended from 19th March 2003 until further order. If, however, a company fails to recommend/announce a total dividend (SEC directive at least 60% (sixty percent) of the rate of dividend paid for the last time dated 6-5-2002) shall be outside the netted settlement system from the date of such declaration of dividend till the date of holding the next annual general meeting. A-category companies Companies which are regular in holding the current annual general meetings and have declared dividend at the rate of ten percent or more in the last English calendar year : Provided that transaction for odd lot (other than market lots or multiple of market lots) and big lot (single or more certificates containing multiple of market lots in each certificate) may be kept outside the adjusted due position mechanism for settlement. (2) Transaction of shares (other than those of Mutual Funds) of the following category of companies, which shall be described as B-category companies, shall be kept outside the adjusted due position mechanism for settlement B-category companies Companies which are regular in holding the annual general meetings but have failed to declare dividend at least at the rate of ten percent in the last English calendar year. (Added on 13-9-2001) (2.1). In case of the newly listed securities, the rate of earning per share (EPS) based on the audited accounts of a full year of twelve months, as contained in the prospectus of the concerned companies, shall be treated as substitute of the rate of dividend applicable for ‘A’


and ‘B’ category of companies if no dividend were declared by such companies in the last English calendar year: Provided, however, that the net profit after tax, or net profit after adding back the tax holiday provision, as the case may be shall be the basis for calculating the EPS. 3. For previous regulation 4(3), the following new sub-regulation 4(3) has been substituted since 13-9- 2001:(3) Transaction of shares (other than those of Mutual Funds) of the following category of companies, which shall be described as Z-category companies, shall be kept outside the adjusted due position mechanism for settlement G-category companies (Greenfield companies) (Dated: August 08, 2002) N-category companies Dated: July 03, 2006) All newly listed companies except Greenfield companies will be placed in this category and their settlement system would by like B-category companies Z-category companies Companies which have failed to hold the current annual general meetings or have failed to declare any dividend or which are not in operation continuously for more than six months or whose accumulated loss after adjustment of revenue reserve, if any, is negative and exceeded its paid up capital: Provided that the chief executive officer of the exchange may bring any other company under this category, if deemed necessary, with the prior written consent from the Commission: Provided further that the words, ‘or whose accumulated loss after adjustment

(Added on

of revenue reserve, if any, is negative and exceeded its paid up capital’ shall 12-3-2002) not be applicable for the companies which have declared dividend out of the current profits in the last English calendar year and held annual general meeting(s) relating to all outstanding financial year(s) despite having such accumulated loss exceeding the paid up capital. 5. Security deposit- Every member shall keep such amount of money as security deposit with DSE as determined by DSE from time to time to meet any exigency. 6. Settlement by delivery of securities and payment by cheque/pay order/demand draft by member- Every member shall deliver securities and make payment by an account payee cheque/pay order/demand draft issued in favor of Dhaka Stock Exchange Ltd. and drawn on a scheduled bank in Dhaka city to the Clearing house on the settlement day.


Provided however that such settlement by member may also be made through the Regional Clearing house of DSE, if so declared by DSE, as opted before-hand by the member and agreed by DSE. 7. Automatic buying in and selling out: For regulation 7, the following new regulation has been substituted, as follows, since 10-5- 1999:(i) If a member fails to deliver securities and/or make payment by cheque/pay order/demand draft within the settlement day, DSE shall automatically square up the unsettled transaction by buying-in or selling-out, as the case may be, in DSE after the day subsequent to the settlement day on the risk and account of the defaulting member, without any further reference. DSE shall inform the defaulting member as to the difference money, if any, for payment immediately after buying in or selling out by DSE. (ii) If a cheque issued by a member is dishonored by his/its bank, DSE shall automatically square up the unsettled transaction by selling out his securities in DSE after dishonor of the cheque on the risk and account of the defaulting member without any further reference to him. Dishonor of cheque shall be treated as non-payment for that purpose. DSE shall inform the defaulting member as to the difference money, if any, for payment immediately after selling out by DSE. (iii) If required quantity of security can not be bought-in as per (Effective subregulation (i) because of suspension of the trade or de-listing of from a security or for any reason whatsoever, the defaulting member shall 14-9-2000) make payment of the amount equal to the buying price plus the contract charge and commission for the unsettled security by pay order/demand draft to the clearing house on the next day of the settlement day (i.e. T+2), and the buying member shall receive the payment from the clearing house on the second day subsequent to the settlement day (i.e. T+3) instead of the security in respect of the transaction carried out on trading day.; (iv) The defaulting member shall not be allowed to carry on (iii) renumbered trading in DSE from the day subsequent to the settlement day as (iv) on until payment of the difference or compensation money and fine 14-9-2000) as prescribed under regulation 9 are made to DSE. Excess difference money, if any, shall be forfeited by DSE. Provided that if any member fails to make payment and/or deliver securities within the settlement day more than once in any calendar month of English era, DSE shall inform SEC in writing details of such default cases immediately after closure of the settlement time determined by DSE for the settlement day. Such member shall not be allowed by DSE to


carry on trading in DSE from the day subsequent to the settlement day in respect of the second failure until written clearance to this effect is issued from SEC to DSE. 8. Clearance by delivery of securities and issue of cheque by DSE- The Clearing house shall deliver securities and make payment by account payee cheque issued to a member in respect of the transaction carried out on each trading day on the second day subsequent to the settlement day, i.e. T+3 for A & B category companies and on the 3rd day subsequent to the settlement day i.e. T+7 for Z category companies. 9. Regulation 9 has been changed as follows with effect from 10-5- 1999:Fine for default- The defaulting member shall be liable to pay a fine to DSE for each default as per the following schedule ________________________________________________________________________ For value equivalent

Fine per day

________________________________________________________________________ Up to Tk. 1 (one) lac

Tk.

5,000

Above Tk. 1 lac and up to Tk. 2 (two) lac

Tk.

7,500

Above Tk. 2 lac and up to Tk. 10 (ten) lac

Tk. 10,000

Above Tk.10 lac and up to Tk. 50 (fifty) lac

Tk. 25,000

Above Tk.50 lac and up to Tk. 1 (one) crore

Tk. 50,000

Above Tk. 1 (one) crore Tk. 1, 00,000 plus the amount of fine as per the above fractional slabs. 10. Regulation 10 has been substituted as below with effect from 11-8-1999:Replacement/Refund, etc. against bad or defective securities- If any securities delivered by a member turns out to be forged, fake stolen, invalid, defective in any way whatsoever, the defaulting member prevailing) shall be liable to replace such securities or refund the amount at his selling price with interest at 2.5% per month for the period covering from the settlement date up to the day of the replacement/refund, etc. are completed, along with all benefits attributable to such securities at the settlement date, absolutely as per the buyer’s option, within seven market days of issuance of the written notice of demand by DSE. The defaulting member shall be barred from carrying on trading in DSE from the eighth market day of such notice if the member concerned fails to make replacement/refund, etc. Within the said seven days until the replacement/refund, etc. is completed to the satisfaction of DSE:


Provided that DSE shall from time to time prescribed/determine the modus operandi concerning identification of the defaulting member, notice, rectification, replacement/refund, etc. and/or otherwise handling of the bad or defective securities: Provided further that no complaint will be entertained by DSE unless it is lodged within one month from the end of the book closure date of concerned company or six months from the date of purchase, whichever is earlier: Provided further that if DSE receives a complaint as aforesaid it shall issue the notice of demand as mentioned above within three days from the date of receipt of the complaint. 11. Continuous failure of a Member to pay any amount, difference money, interest and/or fine or replace any defective securities.- If any member fails continuously to pay any amount, difference money, interest and/or fine in terms of regulations 7 and 9; and replace any defective securities along with the attributable benefits, if any, in terms of regulation 10, DSE shall have the right to adjust the security deposit of the defaulting member; and in case of shortfall, to sell the membership of the defaulting member to meet the shortfall. 12. Direct settlement between the members: Previous provision of the regulation 12 has been replaced by the following new provisions from 7-2-1999: - The existing section 12(a) shall be renumbered as 12(a) (i) and the following new rules 12(a) (ii), 12(a) (iii), 12(a) (iv), 12(a) (v) and 12(a) vi) shall be inserted: (a) (i) Spot transaction- Members shall be allowed to carry out spot transaction in DSE arising out of the closure of book or closure of the renunciation period of listed companies as decided by DSE, to be settled directly between the members within the trading day (i.e. T+0) for dematted shares and within the next trading day (i.e. T+1) for non-dematted shares with information to the clearing house. The members concerned shall submit details of the settlements along with the documentary evidence thereof, as prescribed by DSE in this behalf, to the clearing house within 10:00 A.M. of the next second trading day (i.e. T+2). 12(a) (ii) In case of dematted shares/bonds settlement will take place to the member clearing A/c just normal transactions. The selling broker shall deposit the pay in transfer form with DP at T+0 while the buying broker shall deposit cash or pay order or demand draft or make direct transfer of funds to DSE Clearing A/c on T+0 day within banking hour & report the same to Clearing department of DSE.


12(a) (iii) In case of default by either party, the party concerned shall be subjected to default members as per regulation 7 and 12 of the “Settlement of Stock Exchange Transaction Regulation, 1998” as amended up to date and the relevant. 12(a) (iv) In case of default on the part of selling broker the client of buying broker shall be entitled to enjoy all benefit accruing to spot transaction from the selling broker through the Stock Exchange. The relevant transaction of defaulting seller shall be removed from payout data file while for the defaulting buying broker’s relevant transaction will be replaced by DSE’s Clearing Account. 12(a) (v) If trading of the Exchange is Closed for any unavoidable circumstances the settlement date shall automatically be deferred and to the next working day. (b) Transaction of foreign buyer and/or seller. - Members shall be allowed to carry out transaction of foreign buyer and/or seller involving a custodian bank to be settled directly between the member through the custodian bank within the fifth day subsequent to the trading day, i.e. T+5, in respect of the transactions carried out on each trading day with intimation to the clearing house. The members concerned shall submit details of the settlements along with the documentary evidence thereof, as prescribed by DSE in this behalf, which shall include a confirmation certificate issued by the custodian bank concerned to DSE in respect of settlement of transaction, to the clearing house within 10:00 A.M. of the sixth trading day subsequent to the concerned trading day (i.e. T+6). The defaulting members, as decided by DSE, in respect of (a) or (b) above shall not be allowed to carry out trade in DSE from the day of default (i.e. T+2 and T+6 respectively) until the concerned trade is settled to the satisfaction of DSE and a fine of Tk. 5,000 per day in case of spot transaction and Tk. 10,000 per day in case of transaction of foreign buyer and/or seller, as the case may be, for each default is paid to DSE. DSE shall simultaneously furnish details of such default to the Securities and Exchange Commission (SEC). 13. Prohibition of carry forward or short selling- No member shall be allowed to short sell any securities or carry forward any transaction. The defaulting member shall be barred from carrying out trading in DSE immediately upon detecting the default by DSE through spot verification of the member’s books & records. DSE shall simultaneously furnish details of such default to the Securities and Exchange Commission.


Explanation – ‘Short selling in relation to a security, means the sale (Added on 17-6-2000) of the security which a member does not either own in his own account or possess for the account of his client at the time of sale. Provided that the defaulting member shall not be allowed to carry out (Added on13-9-2001) trade until a fine equivalent to the short-sell amount is paid to DSE: Provided further that if the defaulting member infringes this provision for more than once in a month of the English era, the suspension of his trade shall continue, without prejudice to the provision of regulation 16, until a written clearance is issued by the Commission in this respect. 14. Settlement to client by delivery of securities and payment by cheque by a member- A member shall make settlement to his/its client by delivery of good securities and/or payment by cheque “good for payment” within one day of his/its receipt of securities and/or cheque from the Clearing house. Any default shall attract a fine of Tk. 500 for each day for each default. Interest shall also be payable to a client for delayed payment at 1.5% per month. 15. Reporting to the Securities and Exchange Commission- DSE shall furnish a weekly report to SEC in the form determined by SEC on clearance and settlement of transactions within two days of the end of the week.

16. Violations to attract penal provisions- Violations of these regulations shall attract penal provisions of the Securities and Exchange Commission (Stock-Broker, Stock-Dealer and Authorized Representative) Regulations, 1994; the Securities and Exchange Commission Act, 1993; and/or the Securities and Exchange Ordinance, 1969. 17. Suppression of existing Regulations- These regulations supersede any other Regulations relating to clearance and settlement of transactions in force in DSE. 2.6.2.2 Money settlement by Sharp Securities Ltd The Clearing and Settlement module provides the management of trade from the point of entry into the Settlement Pool trade database until it has been delivered, settled and removed from

the

Settlement

Pool.

It

consists

of

three

major

business

processes.

Settlement: The process of overseeing that delivery of all instruments to the buyer and payment of all moneys to the seller has occurred before removing the trade from the settlement pool. Here is a complete picture of the settlement system for all of our 427 Instruments in Five (5) groups in the Four (4) markets.


A, B, G and N group:

The above cycle is valid for A, B, G & N category instruments traded in Public, Block & Odd-lot market.

Z Group:

This cycle is valid only for Z group instruments traded in Public, Block & Odd-lot market.


Instruments Of All Groups Traded In Spot Market:

The above cycle is valid for A, B, G, N & Z category instruments traded in spot market. Remarks: * If any instrument declared as Compulsory Spot then Trades of Block and Odd-lot market of that Instrument will be settled like Spot Market. * Howla Charge, Laga Charge & Tax are always payable to DSE at Pay-In date for both Buyer and Seller traded in Public, Block & Odd-lot Market. * Howla Charge, Laga Charge & Tax are always payable to DSE at T+1 day for both Buyer and Seller traded in Spot Market 2.6.2.3 How the process works: We have to pay cheque to DSE for the shares that are brought. The cheque is paid in T+1 day. DSE pay us cheque in the T+3 day for A, B, N and G category and T+9 day for Z category. Spot transaction for all the categories paid in T+0 day. There is automated network software named CNS. From CNS the brokerage houses download reports about their payment details.


This is the basic outlook of automated clearing and settlement system. We have to give specific user name and password to download reports from CNS. To know the exact amount to be paid or received from DSE, we use this software. Through this software we enter to the DSE server to download reports. Here we have the option to know date wise payment schedule. We just have to give a specific date and member code to have the report.


3.1 Problems Identified: 1. All the share settlement is done manually. There is no automated software provided by CDBL for share settlement. So it is a problem for houses to settle the shares manually. So they made auto software by third party software developer for auto settlement process. 2. Traders often make short sell or immature sell. They do it mostly unintentionally. There is no clear instruction from CDBL about the settlement of those shares. So the houses have to give those shares from there client code and when the share become mature then they pay it back to the original client code. 3. In money settlement, DSE pay cheque in T+3, T+9 days for the shares that were sold. An additional day is needed for collecting the money. This additional day harms the financial institutions. Time is money for them. 3.2 Recommendations: 1. As the normal share settlement procedure is manual, so CDBL should provide automated software or upgrade there existing software to provide automated settlement which will save time and will provide accuracy. 2. Every house should have a BO account from where they will give shortage for the short sell or immature sell. DSE and SEC should permit them to do so. 3. DSE should pay all the money to houses through online. They should use online banking for the houses. This will help the houses to have the money early and to use it for other purposes.

3.3 Conclusion: Capital market in our country is growing faster. There are ups and downs in our capital market but after all those everyone is expecting that it has a bright prospect. Have worked under the CDBL department of Sharp Securities Ltd. Sharp Securities Ltd is a fastest growing organization. I have worked with the detailed procedure of share and money settlement. Our settlement system is very organized and up-to-date. Although there are some limitations but it can be overcome with the time. 3.4 BIBLIOGRAPHY


• • • • • •

Different papers of sharp securities ltd. Some definitions used in this report are taken from websites like Wikipedia. Settlement & Clearing (http://www.dsebd.org/settle.php) About CDBL (http://www.cdbl.com.bd/overview.php) CDBL prospectus (http://www.dsebd.org/ipo/CDBL.pdf) DSE Monthly Review – Silver Jubilee Special Edition, 2010

Settlement procedure of a brokerage house a case study on sharp securities ltd  

Sharp Securities Limited is one of the leading consummate brokerage houses of Dhaka Stock Exchange Limited. Sharp Securities Limited was est...

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