Margin loans open to all, Tk5 lakh minimum investment to scrap

The Bangladesh Securities and Exchange Commission (BSEC) has approved draft amendments to the Margin Rules, 2025, relaxing several restrictive provisions introduced last November to improve market liquidity and make margin lending more accessible.

Infograph: TBS

The proposed amendments, approved today (14 July), will be published in newspapers and on the commission's website for public opinion before being finalised.

The existing rules, introduced under the previous commission led by Khondoker Rashed Maqsood by replacing the Margin Rules, 1999, drew strong criticism from brokers, lenders and investors. 

Since taking office in June, the new commission led by Chairman Masud Khan has pledged to make the framework more market-friendly. BSEC spokesperson Abul Kalam said implementation of the rules exposed practical difficulties, prompting the proposed revisions.

In an interview with The Business Standard, Masud Khan said the current framework is overly restrictive and prevents excess liquidity in the banking sector from flowing into the capital market.

"BSEC will set broad risk parameters. Beyond that, brokers will have the flexibility to develop their own risk management frameworks and determine whom to lend to," he said.

Margin loans opened to all investors

The commission will remove restrictions on extending margin loans to students, homemakers and retired persons. 

Under the current rules, only high-net-worth individuals within some of these groups could qualify under lenders' internal policies – a provision strongly opposed by market participants and challenged in court. 

The amendment will allow lenders to provide margin financing to all investors based on their relationship with clients and internal risk assessment.

More stocks eligible for margin financing

The amendment will make all 'A' and 'B' category stocks eligible for margin loans by scrapping the existing requirement that 'B' category companies must pay at least a 5% dividend. 

Securities listed on the SME, ATB and OTC platforms will remain ineligible.

Tk5 lakh investment requirement dropped

The regulator will abolish the requirement for investors to maintain an average investment of Tk5 lakh in listed shares over the previous year to qualify for margin loans. Instead, investors must maintain a minimum equity of Tk3 lakh.

"The one-year Tk5 lakh investment requirement will be withdrawn, but a Tk3 lakh minimum equity requirement has been added for prudent risk management. If someone invests Tk10,000 today and seeks a margin loan tomorrow, that would not be logical," Abul Kalam said.

Margin call threshold lowered

Under the current rules, lenders must issue a margin call when a portfolio's value falls below 75% and execute a forced sale when it drops below 50%. 

The amendment lowers the margin call threshold to 70%, while the forced-sale threshold remains unchanged.

P/E restrictions relaxed

The proposed amendments retain the restriction on margin lending for stocks with a price-to-earnings (P/E) ratio above 30 but change how the ratio is calculated. Instead of using the cumulative earnings per share of the latest four quarters, the P/E ratio will now be based on annual audited financial statements.

The commission will also remove the rule linking margin financing to the market's overall P/E ratio. Currently, if the main board's market P/E exceeds 20, lenders cannot provide financing above a 1:0.5 equity-to-loan ratio. 

Under the amendment, lenders will be able to extend financing of up to a 1:1 ratio based on mutual agreement with clients, regardless of the market P/E.

Higher lending limit for financiers

The commission also plans to raise the ceiling on margin lending by financiers from three times their core capital or net worth to five times their net worth, allowing brokers to extend significantly larger margin portfolios.