The capital market reform task force has proposed that investors having investment of less than Tk 10 lakh in the stock market would not be eligible for margin loans.
The task force on Monday submitted two draft recommendations to the Bangladesh Securities and Exchange Commission, proposing an amendment to the Margin Rules, 1999, and the Mutual Fund Rules, 2001.
Currently, any investor having any investment amount can get margin loans at ratio of investment and loan at 1:1.
A margin loan is a type of loan offered by financial institutions, such as stockbrokers or merchant banks, to investors for purchasing stocks or other securities. The loan is secured by the investor鈥檚 existing securities or cash deposits as collateral.
The draft recommendation for margin rules said individuals without regular income, such as retirees, students, and housewives, should not be eligible for these loans unless they qualify as high-net-worth individuals.
Institutions must also conduct mandatory risk assessments for clients before granting loans, a step not mentioned in the existing law.
The existing rule allows initial margin deposits within seven days of the transaction. The task force recommends that initial deposits must be made before the transaction.
Additionally, the task force recommended for the agreements between clients and lenders to be standardised across institutions and facilitated online.
There should be an expiry date of margin loan contract. It can be tied to 6 months to 1 year, with renewal options, provided equity level meet margin agreements, the draft recommendation reads.
Another proposal in the draft recommendation was to set the maximum margin loan ratio strictly at 1:1, whereas the current rules lack such a strict limit.
The draft also recommended for loan contracts to have expiry dates of six months to one year.
The task force proposed that accounts with negative equity should not be charged interest, which is not addressed in current regulations.
They also emphasised that institutions should maintain clients鈥� equity at no less than 125 per cent of the debit balance and should have the right to liquidate pledged shares without complex procedures.
To improve market stability, the task force recommended implementing Risk-Based Capital Adequacy rules for stockbrokers and conducting yearly stress tests to assess market resilience.
The current law allows exposure limits without strict provisions for specific sectors. The new proposal limits single-client exposure to a maximum of 10 per cent of the lender鈥檚 capital and caps single-sector exposure at 30 per cent.