Wednesday, August 3, 2011

SEC plans to bring discipline in Omnibus Accounts

The Securities and Exchange Commission has planned regulations for the Omnibus Accounts in two weeks as they were the "real culprits" behind the December-January stock market crash, an SEC member said.

"We'll take decision within next two weeks regarding the Omnibus Accounts," SEC member Helal Uddin Nizami told on Monday evening.

Nizami, a professor of Accounting and Information System Department of Chittagong University, said merchant banks and state-run investment bank ICB have huge number of Omnibus Accounts, which are not under the surveillance of the SEC.

He said this kind of accounts is the real culprit behind the recent share market debacle, which saw the benchmark Dhaka Stock Exchange General index plunging 45 per cent in just six weeks, wiping out savings of thousands of investors.

An omnibus account is a specific stock holding account that involves multiple investors. The individual investor does not have his or her name attached to the account, but still they are actual stock holders.

Such accounts only show the aggregate volume of shares that are posted into those accounts. As a result, it is not possible to trace out the issue-wise or client-wise transactions of actual number of shares.

The newly appointed SEC member said the regulator would bring discipline to these accounts in an effort to stabilise the market and avert future crash.

"A vested group is there who favour continuing such accounts, but we are determined to bring discipline in this kind of accounts," he said.

He said the SEC is helpless to track down transaction made through the Omnibus Accounts as these are not under the jurisdiction of the regulator.

"It is very difficult to find out the records of these accounts from the Central Depository Bangladesh Limited (CDBL) and it takes a lot of time to figure out their transaction," he said.

"You can find out every individual's BO (Beneficiary Owner) account information from the CDBL. If a single BO account holder transact crores (one crore= 10 million) of taka this can be figured out," he said. "But this is not easily possible in case of the Omnibus Accounts," he added.

The SEC member said the Omnibus Accounts would have to be operated like the other BO accounts. "They'll be just like the other BO account holders, nothing else." His comments echoed the findings of the government-appointed share scam probe body, which revealed that at least Tk 2,500 crore ( Tk25 billion) was traded from the hidden or omnibus accounts ahead of the market crash.

The committee has found that these hidden accounts were used as a major tool of stock market manipulation. According to the probe body's report, Tk2,348 crore (Tk23.48 billion) was traded from nine omnibus accounts of the ICB alone.

The committee held responsible 30 big traders including the ICB for the share market debacle and said most manipulators did trading through the Omnibus Accounts. The probe body headed by an ex deputy governor of the central bank, however, could not identify the traders who were suspected of using Omnibus Accounts in a bid to elude detection of their foul-play.

The report says most big players chose omnibus accounts to gamble in the market, as it is not possible to find out issue-wise or client-wise transactions of actual number of shares from the Omnibus Accounts. There was no transparency in transactions made from these hidden accounts and the account holders, although well-known figures, had traded through Omnibus Accounts, not beneficiary owner (BO) accounts, said the probe report.

News Source:
The Financial Express

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