SEC asks merchant banks to suspend portfolio loan disbursement

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FE Report
The Securities and Exchange Commission (SEC) Monday asked the merchant banks and brokerage houses to suspend portfolio loan disbursement with effect from today (Tuesday) until further order.
Market operators said the SEC action came in the backdrop of an over-heated market.
The loan facilities extended by the merchant banks and some of the brokerage houses to the retail investors have played an important role in setting a bullish trend in the market for the past few months.
The benchmark, DSE General Index, has climbed to nearly 3100-mark from 1656.93 in mid-January and the average daily turnover surged to nearly Tk 3.0 billion from that of Tk 260 million.
The SEC has taken the move out of the feeling that the share market is becoming quite 'risky' for the investors, especially those involved in retail trading because of the large gap between demand for, and supply of, quality shares, said SEC Executive Director Farhad Ahmed.
"Currently, there is an excess liquidity in the market compared to the supply of quality shares. A major portion of funds in the market is supplied by the merchant banks and brokerage houses through loans sanctioned to their clients," he said.
He said, earlier, the SEC imposed some restrictions, including spot-trading of overpriced stocks and withdrawal of netting facility, to contain the unbridled rise in the stock prices but those failed to yield the desired results.
Defending the latest SEC move, Farhad Ahmed said such initiatives will help protect the interests of the retail investors, who are dependent on merchant banks or brokerage houses for funds.
"Our main concern is for the retail investors. Because, many retail investors are involved in marginal trading. The retail investors will face 'double trouble' if they incur losses in share trading after taking loans from financial institutions," he said.
Talking to the FE, the SEC official said the decision is temporary and it will be reversed when the situation improves.
On the possible impact of the latest SEC directive, Chief Executive Officer of the DSE Salahuddin Ahmed Khan told the FE that there could be some negative impact on the market today (Tuesday), particularly in areas where source of investment was merchant banks and brokerage houses.
Replying to a query Farhad Ahmed said the SEC will monitor the activities of the merchant banks and brokerage houses and it will take legal action in case of violation of its latest order.
He said the share prices of some of the companies are over-priced and are not in conformity with their fundamentals.
On Monday, DSE General Index (DGEN), DSE-20 Index (DS20) and All Shares Price Index (DSI) gained 45.258 points, 53.935 points and 35.474 points to close at 3093.540, 2450.285 and 2612.457 respectively.
On the day, the total turnover rose to Tk 2.806 billion from its previous Tk 2.314 billion Sunday last. The total market capitalisation also rose to Tk 757.746 billion from its previous Tk 735.635 billion.
On Sunday last, the first trading session of the week, DSE General Index (DGEN), DSE-20 Index (DS20) and All Shares Price Index (DSI) gained 35.281 points, 70.806 points and 27.641 points to close at 3048.281, 2396.350 and 2576.983 respectively.