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The securities regulator has approved the draft of the Bangladesh Securities and Exchange Commission (Margin) Rules, 2025, allowing credits for purchasing 'A' category stocks only.
The draft rules also prohibit margin loans to investors having less than Tk 1.0 million in equity investment.
Both the changes have been brought as per suggestions of the taskforce. Earlier, margin loans were available for A and B category stocks and other securities, and no mandatory minimum equity investment was in place to avail of the credit facility.
"Investors do not need margin loans to purchase debt securities as such instruments offer fixed income," said BSEC spokesperson Md. Abul Kalam.
The Bangladesh Securities and Exchange Commission (BSEC) approved the draft rules on Tuesday based on a report recently submitted by the taskforce of the capital market.
The changes are aimed at minimizing risks associated with loans or the burden of negative equity. Lenders must conduct risk profiling of their clients before the disbursement of margin loans.
The revised margin rules will be applicable equally for stock brokers and merchant bankers.
The existing margin rules are meant for stock brokers. Merchant bankers provide credit facilities in compliance with the Merchant Banker and Portfolio Manager Rules, which impose some restrictions.
Why should credit facilities be restricted?
Many investors had no financial ability to mitigate the risks of margin loans but still received loans to invest in equities. Eventually their investments were wiped out and replaced, in extreme cases, with negative equity.
Take for example that a retired person has a capital of Tk 5 million. An investment of the entire fund in equities, with margin loans, poses high risk because of the unavailability of further cash from such individuals.
The same reason applies to housewives and students and so they are barred by the revised rules from getting credit facilities.
To be eligible for margin loans, clients, as recommended, must have the minimum prescribed equity investment for at least six months prior to receiving a loan.
The loan ratio remains at 1:1, with a new condition barring loans against unrealised profits.
Credit facilities are prescribed to be limited to A category stocks to discourage deceptive measures by companies to maintain status to enjoy benefits offered by the facilities.
Over the years, many companies have been disbursing nominal dividends so their stocks are labeled as marginable securities.
The taskforce also suggested empowering stock exchanges to determine marginable securities.
As per the draft rules, the existing maximum P/E (price-earnings) ratio of 40 of marginable stocks will not change. However, the exchanges will see whether any security exhibits frequent volatility.
A stock showing frequent volatility will be excluded from the list of marginable securities, said the taskforce in its report. Moreover, stocks having good liquidity will be prioritized in the disbursement of margin loans.
The malpractice that has played a big role behind negative equity is the disbursement of margin loans against locked-in shares as collateral.
Shares of sponsor-directors of listed companies are not sellable. But many sponsors received loans having a lien on their shares. Eventually, such loans became irrecoverable.
The taskforce recommended that no credit be given, putting a lien on locked-in shares.
The regulator will seek public opinions on the draft margin rules. The rules will come into effect through a gazette notification on completion of the relevant processes.
CSE listing proposal rejected
Meanwhile, the securities regulator at a meeting on Tuesday rejected the proposal of the Chittagong Stock Exchange (CSE) to list on the Dhaka Stock Exchange (DSE).
The CSE proposed the direct listing method for its listing, which is applicable only for the state-run companies.
The CSE's proposal to issue 20 per cent shares through private placement and 15 per cent through a public offer contradicts with the exchange's demutualization act.
Besides, the port city bourse now has no operating profit from its core business. The CSE also did not include its prospectus with the proposal submitted to the BSEC.
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