Provisioning against negative equity deferred to 31 December

Stockbrokers and merchant banks have been given an extension until 31 December 2025 to make full provisions for the negative equity in their clients' margin‑loan accounts.

However, each firm enjoying this relaxation must submit a board‑approved, implementable road‑map by 30 June 2025 detailing how it will achieve full provisioning, announced the Bangladesh Securities and Exchange Commission (BSEC) after its 953rd commission meeting today (24 April).

The previous deadline was on 31 January this year but the bearish market did not let most of the market intermediaries to comply with the deadline as they sank into around Tk10,000 crore bad assets in leveraged client accounts.

As a result, the DSE Brokers Association and the Bangladesh Merchant Bankers Association wrote to the regulator seeking time extension.

Negative equity is created when a broker or merchant bank does not trigger forced selling of securities that a client buys with money borrowed from the broker or merchant bank.

For instance, a client has Tk100 of his own and he borrows Tk100 from the broker to buy shares at Tk200. If the stock price slides and the broker fails to secure its own fund by forced selling before the client account's equity hits below the lent amount here creates a negative equity.

Since margin loans have no collateral other than the securities in account, negative equity turns irrecoverable unless the securities price bounce back significantly.

The stock market after the 2010 crash caught the gigantic negative equity problem as the regulator then verbally ordered firms not to trigger forced selling.

Other than a very few self-governed firms, most are yet to get rid of the mounting bad assets.