No margin without regular income, Tk5 lakh investment in stock market: Draft rules

Infographics: TBS

The Bangladesh Securities and Exchange Commission (BSEC) has published a draft of the new "Margin Rules (Repeal), 2025," which stipulates that to take margin loans for buying shares, an investor must have an average investment of at least Tk5 lakh in a year.

According to the draft law published today, students, homemakers, and retired individuals who do not have a regular income cannot be granted margin loans. This decision considers their limited financial capacity and the need to ensure investment safety. 

The BSEC invited public comments regarding the rules that can be shared until 3 September.

Margin loans are loans provided by brokerage houses and merchant bankers to buy shares. Since these groups typically lack a stable source of income or rely on limited income, investing in the stock market with borrowed money can be risky. To mitigate this risk and protect their finances, margin financing is prohibited for them, according to the BSEC.

The draft rules state that margin must be provided to individual investors only and cannot be granted on a joint or cash basis. The margin agreement will be valid for one year and requires mutual consent to renew the extension.

Margin cannot be provided against unrealised gains. Only securities can be purchased using margin; cash withdrawals or transfers are not allowed. For portfolios valued between Tk5 lakh and Tk10 lakh, margin will be provided at a 1:0.5 ratio. For portfolios above Tk10 lakh, the ratio will be 1:1.

Margin can only be provided for securities with a free float market capitalisation above Tk50 crore. If the market capitalization later falls below this threshold, the securities must be sold within five trading days to adjust the account.

Also, shares with a trailing P/E ratio above 30 are not eligible for margin; sectoral P/E ratios or ratios below 30 will apply. The stock exchange will regularly publish P/E ratios.

Listed companies with material misstatements in the qualified opinion in audited financial statements, going concern risks, or halted operations are not eligible for margin. Shares categorised as "B" or "Z," unlisted securities, or those on SME, ATB, or OTC boards are also ineligible. 

Margin cannot be provided for securities issued by the margin financier or its promoters. Investors can still buy such shares using their own funds. Margin cannot be used for public offerings, takeovers, significant share acquisitions, or to become a director.

Investors cannot use shares bought on margin to become company directors. Directors cannot use margin to buy their company's shares. Locked-in, lien, blocked, or director-held shares cannot be used as margin.

In return for margin, the investor must pay a prescribed interest or profit on a quarterly basis, either in cash or by selling sufficient shares to cover it.

The investor's regular income must be verified before granting margin. This includes checking income certificates, salary statements, bank statements, and TIN (Taxpayer Identification Number). 

Investors must provide complete information to open a margin account, which the brokerage will verify. Providing false information will result in action under the commission law.

Margin cannot exceed the investor's equity. Normally, the equity-to-margin ratio is 1:1. If the company's market capitalisation is more than seven times its issued capital, the margin ratio will be 1:0.5. Information about such companies will be published on the stock exchange website. 

At all times, the investor's equity must be at least 75% of the margin or 175% of the portfolio value. If this falls below the required level, the brokerage will issue a margin call in writing, via email, and SMS. If the investor fails to meet the margin call three consecutive times, the brokerage may sell shares with a seven-day notice.

If the investor's equity falls below 50% or the portfolio's margin value falls below 150%, shares must be sold without prior notice. Any negligence in this case will be the responsibility of the brokerage house.