The securities regulator is set to defer the implementation of its directive regarding the cap on margin loan interest for six months considering the interest of the market and its operators.
The assurance of deferring the directive came Sunday at a meeting held at the office of the Bangladesh Securities and Exchange Commission (BSEC).
The securities regulator issued a directive on January 14, 2021 setting the highest interest rate at 12 per cent on margin loan disbursed against listed securities.
The directive said the highest spread on the cost of margin loans will be 3.0 per cent.
The president of the Bangladesh Merchant Bankers Association (BMBA) Md. Sayadur Rahman said the representatives of top brokers and merchant bankers called on the BSEC chairman to press the necessity of deferring the directive.
"We made a plea for deferring the implementation of the BSEC's directive for one year. The BSEC has agreed in principle to defer the directive for six months," Mr. Rahman said.
The representatives of EBL Securities, IDLC Investments, LankaBangla Securities and City Brokerage, among other, attended the Sunday's meeting held with the BSEC chairman Prof. Shibli Rubayat Ul Islam.
The BMBA on March 24 sent a letter to the BSEC chairman with a plea for deferring the implementation of the directive regarding the cap on margin loan interest till June 30, 2022.
In its letter, the BMBA said the directive should remain deferred until the low cost fund becomes available and the negative equity burden of the stock market intermediaries is resolved.
They said the market operators who disburse margin loans receive funds at an interest of 13 per cent.
"So, it's difficult to comply with the BSEC's directive regarding the highest interest cap on margin loans until low cost funds become available."
They said due to the huge negative equity and accumulating interest, the capital market intermediaries are already over-burdened.
"The merchant bankers are not getting any interest from the negative equity codes but they have to service full interest to banks and non-banking financial institutes (NBFIs) in regular intervals," the BMBA letter said.
According to the BMBA letter, the 12 per cent cap will drastically limit their ability to provide fresh margin loan to clients and it may compel them to call back existing margin loans as actual cost of fund of the market intermediaries is much higher than the cap due to the negative equity burdens.
"The market may face sell pressure if they call back existing margin loans."