Global Securities Markets: Navigating the World's Exchanges and OTC Markets

CASE STUDY RELATING TO PASSENGER MARKETS

The following case study illustrates potential traps for unwary investors who trade in passenger markets.

The Bangladesh Matter

In 2007, eight clients of a U.S. broker trading in Bangladesh began accumulating shares of ABC Ltd. (ABC Bank), a Bangladeshi company that trades on the Bangladesh exchange. Ultimately, the investors accumulated 694,860 shares. The combined holdings exceeded 5 percent of the outstanding shares, although no single investor's holdings exceeded that amount. Pursuant to Bangladeshi securities laws, the accumulation of more than 5 percent of a company's shares by a single shareholder triggered a three-year holding period for the shares. Attempts by the broker's clients to sell their ABC Bank shares were initially blocked by the Bangladeshi exchange because, on the depository record, it looked as if the broker (through its subcustodian) beneficially owned the shares. The shares were later unrestricted from sale, but this matter is illustrative of the care that must be taken with passenger markets.

1. Note that some passenger markets, such as Korea, offer alternative holding arrangements under which brokers and custodians may open nominee-type accounts in the broker's or custodian's name. They will be required to disclose the names of the customers on request from the regulators.

2. Incredible as it may sound, there are more than 80 million individual accounts at the Chinese depository.