SEC mulls raising loan margin ratio to help investors

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FE Report
The Securities and Exchange Commission (SEC) is considering raising the loan margin ratio aiming to help stock market investors get increased fund from the merchant banks.
"The commission is actively considering raising the loan margin ratio in order to widen the purchasing capacity of the investors," Farhad Ahmed, executive director of the SEC, told reporters after a meeting with the merchant banks Tuesday.
"Such a measure will undergo a legal process. The proposal will soon be placed at a commission meeting for approval," he added.
Currently, the loan margin ratio is 1:1, meaning that a client will be able to take equal amount of loan against his or her total cash deposit with the merchant banks for buying securities.
The meeting also decided to relax rules on the loan exposure limit for the non-banking financial institutions (NBFIs) to increase fund flow into the market, he said adding as per current margin rules, the loan exposure limit for an NBFI is five times of its paid-up capital.
The securities regulator's latest move came following Monday's demonstration by a group of small investors, who demanded of the SEC to take steps to stop the market form the continuous slump.
About the allegation that one or two merchant banks have forced their clients to sell stocks for loan adjustment, Mr Farhad said, "In today's meeting, the commission has found some basis of the allegation. One or two institutions have been involved in such wrongdoing."
The commission in no way can allow such malpractice that destabilises the market, he added.
Action will be taken in line with securities rules against those merchant banks responsible for forcing their clients to sell their stocks for loan adjustment, he said.
Mr Farhad said the commission will strengthen monitoring so that such incidence never recurs.
"No inactive merchant banks will be allowed to operate and on the other hand, more licences will be issued to the eligible applicants in order to make their operation competitive," the executive director said.
The benchmark Dhaka Stock Exchange (DSE) General Index (DGEN) lost about 383 points in more than one month, badly affecting the retail investors.
However, it recovered only marginally over the two consecutive days.
"But in real sense, the benchmark index lost more than 500 points because a number of issues listed recently added some points to the index," said a stockbroker.
"However, the steps taken by the SEC will definitely boost the investors' confidence. The steps should be implemented soon," he said referring to previous such meetings that yielded no result.