BSEC proposes major amendments to margin loan rules

The Bangladesh Securities and Exchange Commission (BSEC) has drafted amendments to the BSEC (Margin) Rules, proposing significant relaxations to make margin loans more accessible to investors and expand the lending capacity of market intermediaries.

The proposed changes aim to eliminate practical and operational complexities, create a more investor-friendly framework and boost liquidity in the country’s capital market.

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Key proposals

Extension to low-dividend companies: Under the draft rules, investors will be eligible for margin loans to purchase shares of B-category companies even if the companies pay less than a 5 percent dividend.

Currently, only B-category companies paying a minimum dividend of 5 percent qualify for margin financing.

Lower minimum account threshold: The minimum equity value required in a Beneficiary Owner (BO) account to qualify for margin loans is proposed to be reduced to Tk 3 lakh from the current Tk 5 lakh requirement, which must be maintained for at least one year.

Higher intermediary lending cap: Stockbrokers and merchant banks will be allowed to provide margin loans of up to five times their core capital or net worth, up from the existing cap of three times.

Removal of free-float cap requirement: The mandatory requirement for a listed company to maintain a minimum Tk 50 crore in free-float market capitalisation to qualify for margin loans will be scrapped.

Single-stock exposure limit raised: The maximum margin exposure limit for a single stock is proposed to be increased to 20 percent from the existing 15 percent.

Adjustment to maintenance margin: A margin call will be triggered when a portfolio’s value falls below 70 percent, down from the existing threshold of 75 percent. The compulsory forced-sale trigger will remain unchanged at 50 percent.

P/B ratio limits for financial institutions: While non-financial companies will retain the maximum price-to-earnings (P/E) ratio limit of 30, financial institutions will be evaluated using the price-to-book (P/B) ratio.

Banks and financial institutions with a P/B ratio exceeding 3 will be excluded from margin financing, while insurance companies will face a P/B cap of 1.

The BSEC said the draft amendments were approved in principle at its 913th meeting and have been published to solicit feedback and opinions from market stakeholders before they are finalised.