A move gets underway to recompense stock investors' losses through insurance products if and when their brokerage firms fail or default on restoring their interests, sources said.
Bangladesh's premier bourse-Dhaka Stock Exchange (DSE)-already met with the insurance regulator on the matter recently. A committee headed by Harunur Rashid, a director of the Insurance Development and Regulatory Authority or IDRA, has also been formed to prepare such new insurance tools.
Such products are available in the United States of America-world's largest economy and have to manage some highest risks sometimes. They work to restore investors' cash and securities when their brokerage firms fail.
"We've already organised a seminar drawing all stakeholders on the introduction of the securities investor-protection insurance," said an official at the DSE.
He said compensation for losses of transactions is not possible, but if the TREC [trading right entitlement certificate] holder or broker-dealer fails to repay or goes for liquidation, the investors will get back their investment.
An official of the state-owned non-life insurer-Sadharan Bima Corporation (SBC)--told the FE that they attended the meetings on the matter. He said SBC would design a product, for which the TREC-holders will pay the premiums.
Another source said that DSE had already asked SBC to design a product within December.
Currently, DSE and Chittagong Stock Exchange (CSE) have investor-protection fund. It is applied if the broker becomes insolvent or goes for winding up. But the fund is small in sizes.
The CSE, in collaboration with its TREC-holder companies, established CSE Investors' Protection Fund in 2000 to compensate within defined limits the claims of the client against defaulting broker.
However, in the USA there is a separate organisation named SIPC authorised and created under the Securities Investor Protection Act 1970. The SIPC oversees the liquidation of broker-dealers who go bankrupt, lapse into financial trouble, or if the assets of their customers go missing.
The intent of the SIPC is to return the customers' securities and funds to them as quickly as possible.
The focus of the SIPC is getting assets returned from bankrupt or financially-troubled firms. The SIPC does not investigate fraud or securities crimes. It is not an agency, nor is it part of the United States government. Essentially, it is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by the firm, with a limit of up to $250,000 for cash.
However, some brokerage people said Bangladesh’s market was yet to reach that level to introduce such sophisticated products.
They also said the insurance industry was also beset with many irregularities.
Mohammed Mohiuddin, managing director at the Island Securities of the CSE, told the FE: " The USA traffic law will not be applicable to Bangladesh".
He said insurance claim settlement would be a big problem.
DSE has 302 TREC-holders while CSE 171.
