DSEX tumbles as investors panic over final approval of new margin rules

Dhaka's stock market witnessed a sharp reversal on Tuesday as investor sentiment turned jittery following the Bangladesh Securities and Exchange Commission's (BSEC) final approval of the new margin rules.

The benchmark DSEX index of the Dhaka Stock Exchange (DSE), which had been up by 50 points until 12:30pm, tumbled by 72 points in the last two hours of trading as panic gripped the market over the implications of the regulatory changes.

Infographics: TBS

At the close of the session, the DSEX ended 22 points lower at 5,089, erasing early gains. The blue-chip DS30 index, however, edged up slightly by 3 points to 1,968, while 80 issues advanced, 241 declined, and 72 remained unchanged.

Despite the selloff, turnover rose 21% to Tk478 crore, reflecting a surge in trading activity as investors scrambled to adjust positions.

A source at the BSEC confirmed that the commission had indeed held a meeting on Tuesday to give final approval for the much-debated margin loan rules, which will soon be gazetted. The development comes after months of speculation and anxiety that have weighed heavily on market sentiment.

BSEC spokesperson Abul Kalam told TBS earlier that the new rules were being finalised after incorporating feedback from all market stakeholders. He urged investors not to give in to panic or rumours, stressing that "a vested group is trying to destabilize the market" by spreading misinformation.

Kalam assured that even after the rules are approved, "stakeholders will be given sufficient time to comply with the new legal requirements."

Yet, the regulator's assurances have done little to calm nerves. The root of the market's unease lies in fears that the new rules will significantly tighten the criteria for margin lending – the credit facility that allows investors to borrow funds to buy more shares. Such lending is a key source of liquidity in the market, amplifying both trading volume and investor participation.

What's in the Margin Rules

Under the proposed "Margin Rules (Repeal), 2025," eligibility for margin loans would be restricted to investors with an average annual investment of at least Tk5 lakh. Borrowed funds could only be used for purchasing securities, not for withdrawals or fund transfers. Portfolios between Tk5 lakh and Tk10 lakh would qualify for a 1:0.5 margin ratio, while those exceeding Tk10 lakh could borrow on a 1:1 basis.

However, the rules go further by narrowing the pool of margin-eligible securities. Only stocks with a free-float market capitalisation above Tk50 crore would qualify, and if a company's capitalisation falls below that level, brokers would be required to liquidate such shares within five trading days. Securities with high price-to-earnings ratios, audit qualifications, going-concern issues, or halted operations would also be ineligible, along with those listed under "B" and "Z" categories or traded on the SME, ATB, and OTC boards.

This tightening has sparked widespread concern that a large number of currently margin-financed shares will no longer qualify, forcing brokers to sell them to comply with the new requirements. Such forced liquidations could unleash another round of selling pressure in an already fragile market, further depressing prices.

For brokerage firms, the potential fallout is twofold. The new restrictions could immediately reduce revenue from interest on client loans while also cutting into commission income as trading volumes decline. Many brokers argue that a gradual implementation or a phased transition period is crucial to avoid a liquidity shock.

For investors, the fear is not only about margin eligibility but also about liquidity evaporation. When access to leverage is curtailed abruptly, trading activity dries up, valuations drop, and confidence weakens – creating a self-fulfilling cycle of decline. As one senior trader put it, "The fear of tightening is already doing the tightening."