Dhaka stocks hit three-month low amid anxiety over 'margin loan rule' reform

The Dhaka stock market extended its losing streak today as anxiety over the impending finalisation of the amendment to margin loan rules deepened, pushing the benchmark DSEX index to its lowest point in three months. 

The market's sharp downturn reflected both the scale of investor panic and the fragile confidence that continues to dominate trading floors. Market insiders say investors have been offloading shares on speculation that the regulator might finalise the rules without fully considering feedback from stakeholders. 

The DSEX fell by 80 points, or 1.55%, to close at 5,116 — a significant retreat below the psychological 5,200 mark last seen in early July. The blue-chip DS30 index also slid by 28 points, or 1.43%, to 1,967. 

Across the board, the weakness was widespread: out of 396 traded issues, 328 declined while only 33 advanced. Turnover dropped by 20% to Tk487 crore, suggesting that many investors chose to stay out of the market amid heightened uncertainty. 

Market capitalisation fell by Tk7,000 crore to Tk6.98 lakh crore, dropping below the Tk7 lakh crore threshold for the first time in three months. 

In October alone, the benchmark index has lost 331 points, erasing roughly Tk30,000 crore in market value. The Chittagong Stock Exchange mirrored the same sentiment, with both of its key indices slipping sharply.

Regulatory overhang and market sentiment

The root of the market's nervousness lies in fears surrounding the Bangladesh Securities and Exchange Commission's (BSEC) proposed overhaul of margin lending regulations. 

The proposed framework, if enforced as drafted, would tighten eligibility for margin loans and make many existing holdings ineligible for borrowing. This could compel brokerage firms to liquidate shares currently held on margin accounts to remain compliant, adding another wave of selling pressure to an already fragile market.

For investors, the broader concern is liquidity. Margin loans are an integral part of market activity, allowing investors to borrow funds to purchase additional shares and thereby amplify trading volume. 

Any abrupt tightening of these rules could reduce liquidity, slow trading, and limit short-term market participation. In essence, the fear of regulatory tightening is already acting as a form of tightening itself — draining market confidence even before the rules take effect.

This reflects a classic policy anxiety effect: when reforms aimed at discipline are perceived as threats to liquidity, sentiment deteriorates faster than fundamentals. 

For brokerage houses, a sudden contraction in margin eligibility could immediately impact revenue from interest on client loans, while also reducing commission income due to lower trading volumes. 

The uncertainty is therefore being priced in not just by retail investors but also by intermediaries whose operations depend heavily on turnover.

The reform framework and its intent

The BSEC, however, maintains that the proposed "Margin Rules (Repeal), 2025" aims to strengthen market structure rather than disrupt it. 

The amendment is part of a broader reform effort designed to align margin practices with international standards and reduce systemic risk from over-leveraged positions. 

Officials have stated that investors and brokers will be given sufficient time to adapt once the rules are finalised, and that the commission's objective is to enhance transparency and protect long-term investor interests.

Under the proposed framework, investors would need to maintain an average annual investment of at least Tk5 lakh to qualify for margin loans. These loans could only be used to purchase securities, not for cash withdrawals or fund transfers, ensuring that borrowed funds remain within the capital market ecosystem. 

Smaller portfolios between Tk5 lakh and Tk10 lakh would qualify for a 1:0.5 loan ratio, while those exceeding Tk10 lakh could borrow up to 1:1.

Eligibility will also depend on the quality and liquidity of the underlying stocks. Only securities with a free-float market capitalisation above Tk50 crore would be eligible for margin financing, and if a company's capitalisation falls below that threshold, brokers must liquidate the shares within five trading days. 

Stocks with high price-to-earnings ratios, audit qualifications, going-concern issues, or halted operations would be excluded, as would those in the "B" and "Z" categories or listed on the SME, ATB, and OTC boards.

In effect, the regulator is attempting to build a cleaner, more disciplined credit ecosystem around capital markets — one that favours quality over speculation. 

However, the transition could create a near-term liquidity squeeze, as large segments of small-cap and speculative stocks lose access to margin financing. For investors, this means short-term volatility, but for the market as a whole, it could pave the way toward a healthier structure if implemented with care and clarity.

Market performance and broader implications

Despite the broad decline, a few banking stocks managed to post gains: ICB Islamic Bank rose 8.69%, Union Bank 5.55%, and Global Islami Bank 5.26%. 

However, losses dominated the session, with LankaBangla Finance plunging 12.72%, Apec Tannery falling 12%, and Peoples Leasing and Fareast Finance each dropping 9.09%. 

The most actively traded stocks were Orion Infusion, Dominage Steel, Khan Brothers PP Woven Bag, Fareast Knitting, and Summit Alliance Port.

The current turbulence highlights the delicate balance between regulatory tightening and market stability. While the BSEC's effort to modernise and discipline the lending structure is a step toward long-term resilience, its short-term communication challenge remains significant. 

If investors interpret the reforms as restrictive rather than reformative, the market could face a confidence crisis before it benefits from structural improvement.

Ultimately, the situation underlines the need for gradual implementation and consistent regulatory messaging. Confidence in reform depends not only on the soundness of policy but also on how predictably and transparently it is introduced. 

The coming weeks will determine whether the market sees this episode as a temporary overreaction or the start of a deeper recalibration driven by new rules of the game.