BSEC seeks individual data on margin loans from brokerage firm
The BSEC said the data previously submitted by the DBA was in aggregate form and lacked broker-wise analysis or verifiable details.
The Bangladesh Securities and Exchange Commission (BSEC) has found the recent application by the DSE Brokers Association of Bangladesh (DBA) seeking a three-month extension to comply with margin loan regulations to be incomplete, and has asked for specific, detailed information.
"Upon examination, the Commission observes that the submission is non-specific and inadequate for regulatory assessment," the regulator said in a letter to DBA yesterday. It also directed DBA to submit the required detailed information within three working days.
The BSEC said the data previously submitted by the DBA was in aggregate form and lacked broker-wise analysis or verifiable details. In particular, it did not include sufficient information on the adoption of conservative margin policies or compliance with the Risk-Based Capital Adequacy (RBCA) Rules, 2019.
As a result, the regulator said it is unable to properly assess the market's actual compliance status or evaluate risk and preparedness.
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Against this backdrop, the commission has instructed the DBA to provide a list of brokers that have adopted the conservative margin policy, along with the dates of adoption.
It also asked for updated information on those still in the implementation process. In addition, the DBA must clarify whether risk management committees have been formed in each brokerage house and, if not, explain the reasons.
The letter further states that the DBA must submit a separate list identifying compliant and non-compliant brokers under the RBCA Rules. Information is also required on firms that have not applied for an extension regarding provisioning against unrealised losses or negative equity. The regulator said it wants a complete and verifiable picture of the sector.
The BSEC also instructed the DBA to collect and submit detailed information on non-marginable securities held by its member brokerage houses, including quantity, purchase cost, and current market value. The commission believes this data is essential to assess potential selling pressure and market risk.
BSEC Director and Spokesperson Abul Kalam said decisions on margin rules require specific and detailed information, on the basis of which the commission will take further steps. He added that, since the DBA has submitted an application, the regulator has now sought additional data in response.
Brokers say short period is challenging
A section of brokers believes that collecting such extensive information within a short period is challenging, especially for smaller brokerage houses. Despite this, they have reportedly started working to comply with the directive.
DBA President Saiful Islam told TBS that brokerage houses are willing to comply with all requirements of the BSEC. However, he said the current global war situation and economic uncertainty are creating pressure on the capital market, affecting operations.
He added that in such an unstable environment, full compliance with margin rule requirements is becoming difficult. Nevertheless, brokers are trying their best to provide necessary information and reports to the commission.
He also expressed hope that the regulator would consider the current market situation and economic reality while evaluating their application and related issues.
Earlier, in its letter to the commission, the DBA said brokerage houses require adequate time for internal consultation, risk assessment, board approvals, and system integration. It added that most firms were still finalising policy implementation due to a shortage of skilled manpower, lack of technical support, and client feedback issues.
According to the association, full compliance with RBCA rules requires significant system upgrades, staff training, internal audits, and technological improvements. It warned that rushed implementation could lead to operational errors or temporary disruptions in margin services.
Regarding the forced sale adjustment of non-marginable securities from existing margin loan accounts, the DBA said thousands of accounts contain such securities of significant value. It warned that a six-month deadline could trigger distressed sales, increase market volatility, cause losses for retail investors, and put pressure on liquidity.
It also noted that ongoing distress in the capital market, driven by recent global war and fuel crisis conditions, has made implementation more difficult and could further worsen market stress. The association emphasised that a gradual and timely transition is necessary to protect investor interests.
The DBA has therefore proposed an additional three-month extension, making the total compliance period nine months until 31 July 2026, to allow brokerage houses to complete necessary system and policy adjustments and ensure smooth implementation for existing margin clients.
Market's negative equity problem
According to the commission, total negative equity stood at Tk10,425 crore as of February 2025, including Tk8,005 crore in principal margin loans and Tk2,420 crore in accrued interest.
After the 2010 market crash, the stock market has been struggling with a large negative equity problem. At that time, regulators reportedly instructed firms not to trigger forced selling, according to sources.
A total of 146 firms, including 102 brokerage houses of the DSE, 39 merchant banks, and five brokerage firms of the CSE, have been dealing with negative equity for years.
Negative equity occurs when the value of assets purchased through margin loans falls below the outstanding loan amount.
Brokerage firms and merchant banks had extended margin loans for share purchases, but current market prices of those shares are significantly lower than their purchase costs.
The situation has persisted because forced selling has not been fully implemented. As a result, lenders have been unable to recover loans through share sales, keeping the negative equity issue unresolved for years.
To ease pressure on financial institutions, the regulator has repeatedly extended deadlines for adjusting negative equity and provisioning requirements. If loans remain uncollected for more than a year, firms must set aside provisions against the outstanding principal.
However, firms have managed to maintain only Tk2,946 crore in provisions, leaving a net provision deficit of Tk5,058 crore, according to data.
