The Bangladesh Securities and Exchange Commission (BSEC) has proposed sweeping amendments to the Bangladesh Securities and Exchange Commission (Margin) Rules, 2025, aiming to strengthen risk management, enhance investor protection and align the country's margin financing framework with international standards.
The securities regulator on Sunday invited comments, suggestions and objections from stakeholders on the proposed amendments and requested them to submit their opinions within two weeks from Sunday.
The proposed amendments introduce significant changes to the way brokerage houses, merchant banks and portfolio managers provide margin financing, with tighter leverage limits, stricter maintenance margin requirements, stronger governance standards and more rigorous eligibility criteria for securities.
One of the key proposals is to cap margin financing at a 1:1 equity-to-financing ratio, meaning a margin financer cannot provide financing exceeding a customer's equity in a margin account. For listed life insurance companies, however, the financing limit will be restricted to 25 per cent of the investor's equity.
The draft also proposes that investors must maintain equity equivalent to at least 70 per cent of outstanding margin financing. If the equity falls below this level, the broker must immediately issue a margin call through written notice, email or SMS. Investors will have three trading days to restore the required margin. Failure to do so will bar them from receiving additional margin financing, while brokers may sell securities to rebalance the account.
If an investor's equity falls below 50 per cent of the outstanding margin financing, the margin financer will be required to compulsorily liquidate the necessary securities without further notice.
To reduce concentration risk, the draft limits investment in any single listed security to 20 per cent of a margin provider's total outstanding financing. It also prohibits margin financing for securities with a price-to-earnings (P/E) ratio above 30 or negative earnings per share (EPS).
For banks, financial institutions and other financial service companies, the Commission proposes using the price-to-book (P/B) ratio instead of the P/E ratio. Shares with a P/B ratio above 3, and insurance companies with a P/B ratio above 1, will not qualify for margin financing.
The proposed rules also bar margin financing for securities listed in the G, N and Z categories, as well as those traded on the SME, ATB and OTC platforms. In addition, investors must hold at least Tk 300,000 worth of listed securities to qualify for margin financing.
The amendments further require every margin financer to maintain a dedicated bank account for margin financing activities and cap total outstanding margin financing at five times its core capital or net worth, whichever is higher.
The Commission also proposes expanding the definition of margin financer to include stock brokers, portfolio managers and merchant bankers, while requiring every institution to formulate its own margin financing policy and establish a risk management committee with at least two members.
The draft further seeks to ensure the independence of research by prohibiting firms from directly linking analysts' remuneration to trading commission income. It also introduces a regulatory framework for Shariah-based margin financing, requiring approval from a Shariah Supervisory Board or adviser.
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