The securities regulator has proposed a sweeping overhaul of margin financing framework, introducing stricter leverage limits, stronger risk management requirements and enhanced investor protection while allowing market intermediaries to expand their lending capacity under tighter regulatory oversight.
The Bangladesh Securities and Exchange Commission (BSEC) on Sunday published draft amendments to the Bangladesh Securities and Exchange Commission (Margin) Rules, 2025, inviting comments, suggestions and objections from stakeholders within two weeks.
The proposed amendments mark one of the most comprehensive overhauls of the country's margin financing regime in recent years under the leadership of newly appointed BSEC Chairman Masud Khan.
The reforms aim to align Bangladesh's margin lending practices with international prudential standards while strengthening governance and restoring investor confidence.
A senior BSEC official said the amendments are part of the Commission's broader reform agenda to curb excessive leverage, improve risk management and enhance accountability among stockbrokers, merchant banks and portfolio managers providing margin loans.
Eligibility criteria revised
The draft retains the restriction on margin financing for companies with a price-to-earnings (P/E) ratio above 30 or negative earnings per share (EPS), but proposes removing the existing market-wide P/E condition.
Currently, financiers cannot extend margin loans beyond a 1:0.5 equity-to-loan ratio when the overall P/E ratio of the Dhaka Stock Exchange (DSE) main board exceeds 20. The Commission believes company-specific fundamentals provide a more appropriate basis for determining eligibility.
For banks, financial institutions and insurance companies, the draft proposes replacing the P/E ratio with the price-to-book (P/B) ratio, arguing that book value is a more suitable measure for asset-based businesses whose earnings are often affected by provisioning and interest rate movements.
Under the proposal, banks and financial institutions with a P/B ratio above three and insurance companies with a P/B ratio above one will not qualify for margin financing.
The amendments also exclude securities listed under the G (Greenfield), N (Newly Listed) and Z categories, as well as securities traded on the SME, Alternative Trading Board (ATB) and Over-the-Counter (OTC) platforms, citing their relatively higher risk and lower liquidity.
Relief for small investors
To broaden access to margin financing, the Commission has proposed reducing the minimum investment required to obtain a margin loan to Tk 300,000 from Tk 500,000.
At the same time, it plans to increase the aggregate lending capacity of margin financiers by raising the ceiling on outstanding margin loans to five times their core capital or net worth, up from the current three times.
Leverage and risk controls strengthened
The draft also introduces a clearer leverage framework by capping margin financing at an amount equal to an investor's own equity, effectively maintaining a maximum equity-to-financing ratio of 1:1.
For listed life insurance companies, however, the financing limit will remain unchanged at 1:0.25, allowing borrowing of only up to 25 per cent of investors' equity.
The Commission has also proposed revising maintenance margin requirements. A margin call will be triggered when portfolio value falls below 70 per cent, compared with the existing 75 per cent, while the compulsory liquidation threshold will remain unchanged at 50 per cent.
The proposal also relaxes the single-security exposure limit by allowing financiers to allocate up to 20 per cent of their total outstanding margin portfolio to a single listed security, up from the existing 15 per cent.
Governance and operational reforms
To strengthen governance, every margin financer will be required to maintain a dedicated bank account exclusively for margin financing activities. Existing branch-based or digital booth-based accounts must be closed within six months unless specifically approved by the Commission.
The draft also expands the definition of margin financiers to include stockbrokers, merchant bankers and portfolio managers registered with the Commission, while asset managers acting solely as fund managers will remain outside its scope.
Each margin financer will be required to formulate a comprehensive margin financing policy fully compliant with the Commission's regulations, replacing the existing requirement for a "conservative policy."
The amendments further require every margin financer to establish a risk management committee comprising at least two members. The committee must meet at least four times a year, with its proceedings submitted to the board of directors.
For Islamic finance, the draft introduces a formal regulatory framework for Shariah-compliant margin financing, requiring relevant policies to receive prior approval from a Shariah Supervisory Board or Shariah adviser before implementation.
Market participants say the proposed reforms are broadly in line with international prudential standards and could strengthen the resilience and stability of Bangladesh's capital market over the long term.
Some brokerage firms, however, cautioned that the tighter eligibility criteria and revised maintenance margin requirements could dampen short-term trading activity and reduce the use of margin financing, particularly among active retail investors.
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