The Bangladesh Securities and Exchange Commission has tightened the screws on market intermediaries including stockbroker, merchant banker, asset manager, fund manager, and credit rating company with mandating to maintain minimum capital requirement on continuous basis.
A full functional stockbroker and dealer must maintain Tk 15 crore minimum amount of total capital requirement and the merchant banker Tk 35 crore to continue their operation in the capital market.
The asset manager, fund manager, credit rating company must maintain minimum capital at Tk 10 crore, Tk 5 crore and Tk 5 crore respectively. If they go for additional operations, they would require maintaining additional capital.
The commission has published the Bangladesh Securities and Exchange Commission (Risk Based Capital Adequacy) Rules, 2019 on its web site.
Capital adequacy means the level of total capital against the total risk exposure of a registered entity that is required to be maintained as per the rules to ensure continuation of a safe and efficient operation and to withstand against any seen and unforeseen losses, the rules say.
Therefore, the commission ordered the market intermediaries to ensure the minimum capital according to their business operations.
Regulatory capital means the minimum amount of total capital requirement that the intermediaries are required to maintain on continuous basis, the rules say.
The minimum regulatory capital for stockbroker has been set at Tk 5 crore if the broker would not deal with other scope except the general broking (the broker deals with retail and institutional clients’ account directly).
Each merchant banker and portfolio manager who will deal with all the scope of operation that includes issue management, under writing, portfolio management, proprietary fund management must maintain the regulatory capital of Tk 35 crore.
The minimum requirement has been set at Tk 5 crore if the merchant banker only deals with issue management.
According to the rules, capital adequacy requirement must be maintained on continuous basis by all registered entities against their level of risk exposures within three years from the effective date of the rules.
The capital adequacy ratio would be measured by dividing the total capital by the total risk requirement and then multiplying the result with 100.
Each registered entity must ensure for capital adequacy purposes that capital adequacy ratio must be maintained minimum 120 per cent, i.e. its total capital requirement must be, at all times, minimum 1.20 times of its total risk requirement and Its core capital must be, at all times, greater than its operational risk requirement.
The counting of the year-end capital adequacy must be part of the financial statements and the statutory auditor must also provide a separate report about the accuracy of the computation in the financial statements.
The commission or the exchange, as applicable, must time to time implement an early warning system, by order in writing, to ensure the appropriate capital adequacy level if it falls below 120 per cent of the total risk requirement.
The commission must impose any type of operational restriction or condition under the early warning system to maintain the appropriate capital adequacy level anytime.
Each registered entity must maintain a mandatory provision at least 10 per cent of profit after tax of last year as capital reserve and the full amount of such reserve must be accounted for in computing total capital.
Each registered entity which is providing margin financing must maintain a mandatory provision of 1 per cent of all outstanding margin exposures, the rules say.
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