Capital market reform: Taskforce submits final margin rules recommendations with minimal changes
Investors must have at least six months of experience in secondary market investments and a minimum capital of Tk10 lakh to qualify
The Capital Market Reform Task Force has submitted its final recommendations for updating the Margin Rules, 1999, with only minor adjustments from its earlier draft.
The final recommendations were formally handed over to the Bangladesh Securities and Exchange Commission (BSEC) today (27 April), following a round of stakeholder consultations.
Earlier on 10 February, the Task Force had submitted a draft proposal to the commission aimed at modernising the Margin Rules and regulations governing mutual funds.
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Stakeholders were then invited to provide feedback based on which the final recommendations were prepared and submitted.
However, a member of the Task Force told The Business Standard that although feedback was sought from all relevant stakeholders, very few responses were received, leading to the final recommendations being submitted with minimal changes.
In its draft of the Equity Margin Rules 2025, the Task Force proposed several reforms, including a ban on individuals becoming company directors by acquiring shares through margin loans.
It warned that such practices pose risks to lenders, as shares used to secure directorships often become unrecoverable, jeopardising the recovery of principal and interest.
The Task Force highlighted that such practices pose risks to lenders' ability to recover principal and interest, as shares used to secure directorships often become unrecoverable. To prevent misuse, the proposed regulations introduce stricter conditions for margin loans.
Investors must have at least six months of experience in secondary market investments and a minimum capital of Tk10 lakh to qualify. Additionally, individuals without a regular income must have a disclosed wealth of at least Tk2 crore.
The Task Force also recommended tightening stock eligibility criteria for margin loans. Only "A category" shares would qualify, with the price-to-earnings (PE) ratio threshold reduced to 30 for general companies and 20 for banks and non-bank financial institutions.
Furthermore, if a client's account value falls below 125% of the debit balance, institutions would have the right to liquidate assets without prior notice to restore the balance to at least 150%.
If the lender fails to act promptly, they must cover the loss to ensure a 25% equity-to-debt ratio.
Finally, the proposal allows investors to maintain both cash and margin accounts under the same depository participant (DP), but margin accounts will be restricted from participating in IPO subscriptions, which must be made through cash accounts.
