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NRBC Bank Securities is facing a full-scale regulatory investigation over alleged non-compliance, including the submission of fabricated data on negative equity to the market regulator.

The probe has been ordered by the Bangladesh Securities and Exchange Commission (BSEC), which formed a two-member inquiry committee last week. The committee has been asked to submit its findings within 60 working days.

The decision follows preliminary evidence of regulatory breaches, including possible misreporting of negative equity and failure to maintain adequate provisions against losses.

Focus on negative equity and dividends

Under the terms of reference, the committee will examine whether the brokerage declared or distributed cash dividends during periods of negative equity or unrealised losses.

Regulators say negative equity often signals mismanagement of margin accounts and exposes a firm to significant operational risks. If coupled with unrealised losses in its own investment portfolio, those risks intensify.

“In such a situation, the company should not declare or distribute cash dividends,” a regulatory official said.

The investigation will also assess whether the firm provided inaccurate or falsified information to the regulator regarding its financial condition.

Margin violations and risky trades

The BSEC has found initial evidence that the company may have traded in speculative or “junk” stocks through beneficiary owner (BO) accounts with negative equity.

The committee will review whether such accounts were used for buy-sell transactions, IPO applications or portfolio management, despite regulatory restrictions.

It will also examine alleged breaches in block and bulk transactions, as well as violations of margin discipline rules set for brokerage operations.

Client account misuse under scrutiny

Another key focus will be whether margin accounts were opened or used without proper client consent.

Regulators have received complaints that some brokerage firms use client BO accounts as marginable accounts without clear agreements, exposing investors to unexpected losses.

Insiders said many clients may not fully understand the terms they sign while opening accounts, only to later find their portfolios eroded due to margin loans.

Management accountability

The inquiry will also assess the role and responsibility of the company’s top management, including the chief executive officer, managing director and board of directors.

The brokerage has faced regulatory action in the past. In October 2024, the BSEC fined the firm Tk 627.6 million for a shortfall in consolidated customer accounts. Earlier, in 2022, it received a warning over compliance failures.

The latest probe signals a stricter regulatory stance as authorities move to enforce discipline and restore confidence in the capital market.