BSEC clears revised margin rules, sets P/E cap at 40

The Bangladesh Securities and Exchange Commission (BSEC) has approved revised margin lending rules, setting a maximum price-to-earnings (P/E) ratio of 40 for margin-eligible shares across all sectors except life insurance.

People familiar with the matter said the revised rules were approved at the commission's regular meeting today (11 August) and are expected to be sent to the Bangladesh Government Press (BG Press) on 13 August for gazette publication.

The rule-making team has been given two days to finalise the regulations before publication, according to the sources. However, BSEC Executive Director and spokesperson Abul Kalam told TBS he was unaware of the matter.

Under the revised framework, the P/E ratio will be the key valuation criterion for determining margin loan eligibility for banks, non-life insurers and companies in other sectors. The condition will not apply to life insurers.

The rules introduce a trailing P/E ratio, calculated using the current share price against earnings per share (EPS) generated over the previous 12 months. The ratio will be updated when companies publish new quarterly financial results.

The revised framework drops the price-to-book (P/B) ratio as an eligibility criterion for banks and non-life insurers. The earlier draft had proposed maximum P/B ratios of 3 for banks and 1 for insurance companies.

The draft rules had triggered price adjustments in several margin-eligible stocks, with market participants saying the impact spread to the broader market.

The revised rules also give investors more room before their securities can be liquidated. A margin financier must issue prior notice if an investor's equity falls below 50%. If equity subsequently falls below 25%, the financier can liquidate the securities without prior notice.

The earlier draft had proposed a margin call below 70%, followed by a three-trading-day window to restore the required equity. It also allowed liquidation without prior notice once equity fell below 50%.

Despite the relaxed conditions, shares of Z, N and G category companies, as well as securities listed on the SME, ATB and OTC platforms, will remain ineligible for margin financing. Only A and B category shares on the main board will qualify.

For general securities, the margin financing ratio will be 1:1, allowing investors to borrow an amount equivalent to their own equity. Life insurers will have a separate margin financing arrangement.

The revised framework is expected to improve liquidity and investors' purchasing power, although greater leverage could also increase speculative trading and forced-selling risks during market downturns.