Investors affected due to absence of specific guideline on margin loans
FE Report | Friday, 18 March 2011
FE Report
The investors are facing problems in getting margin loans in absence of specific guideline, retail traders said. Their problems erupted due to alleged reluctance of bourses and merchant banks in finalising the guideline. The Securities and Exchange Commission (SEC) earlier asked the merchant bankers and bourses to submit a guideline on margin loan by February 10. Following the regulatory instruction, Bangladesh Merchant Bankers' Association (BMBA) submitted a guideline without changing the existing loan ratio fixed at 1:2. But the stock exchanges did not submit their part of evaluation in providing margin loan by saying, "There is no provision of fixing loan ratio in the existing laws of bourses." The SEC sent back the merchant banks' guideline terming it "incomplete and unclear" and demanding incorporation of individual client's limit in the modus operandi. SEC officials discussed the draft with the association members and sought some changes in the planned guideline, pointing out some gaps and recommending a few suggestions so as to make it investor-friendly. The regulator told the leaders of BMBA to make the guideline clear with specific examples for each of the points. They were asked to incorporate some new points to make the guideline complete. The merchant bankers were also asked to add individual client's lending limit and specify clearly as to how much shares a merchant bank can purchase for its own portfolio. But the merchant bankers are yet to submit their clear guideline, despite the deadline was expired. Meanwhile, the clients of a merchant bank staged demonstration as their bank reduced the loan ratio without any announcement. "In absence of guideline we are facing problems as our purchase power presently fluctuates without any statement," Himal Ahmed, a client of a merchant bank, told the FE. "A wrong message of reducing loan ratio was spread when a merchant bank Monday provided loans at the ratio of 1:0.3, in spite of previous day's fixed 1:0.8," he said. "The merchant bankers should take regulatory approval immediately for the guideline to remove ambiguity of margin loan," he added. When asked, BMBA's General Secretary Md. Abdur Rouf said, there was no deadline for submitting the revised guideline. "However, we will submit our revised guideline next week. But the bourses also have responsibility to fianlise the guideline," Mr. Rouf told the FE. When asked, CSE President Fakhor Uddin Ali Ahmed said the existing laws of bourses do not support them to fix loan ratio. "The stock brokers individually can fix their loan ratio. But they are less interested about the guideline as very few of them provide margin loans to their limited amount of clients," Mr. Ahmed told the FE. "Secondly, the guideline is applicable for someone only when he provides loans. Stock brokers are not serious to formulate the guideline as they do not deal with loan business due to fund crisis. If the banks come forward to provide loans to stock brokers they will be interested to formulate the guideline," he said. On February 1, the SEC declared not to intervene in loan ratio, immediate after a board meeting, chaired by SEC Chairman Ziaul Haque Khondker. "From now on the ratio of margin loans will depend on the sole discretion of banks. The merchant bankers and bourses will have to maintain their own guideline in providing margin loans," SEC spokesman Mohammad Saifur Rahman told the reporters.
The investors are facing problems in getting margin loans in absence of specific guideline, retail traders said. Their problems erupted due to alleged reluctance of bourses and merchant banks in finalising the guideline. The Securities and Exchange Commission (SEC) earlier asked the merchant bankers and bourses to submit a guideline on margin loan by February 10. Following the regulatory instruction, Bangladesh Merchant Bankers' Association (BMBA) submitted a guideline without changing the existing loan ratio fixed at 1:2. But the stock exchanges did not submit their part of evaluation in providing margin loan by saying, "There is no provision of fixing loan ratio in the existing laws of bourses." The SEC sent back the merchant banks' guideline terming it "incomplete and unclear" and demanding incorporation of individual client's limit in the modus operandi. SEC officials discussed the draft with the association members and sought some changes in the planned guideline, pointing out some gaps and recommending a few suggestions so as to make it investor-friendly. The regulator told the leaders of BMBA to make the guideline clear with specific examples for each of the points. They were asked to incorporate some new points to make the guideline complete. The merchant bankers were also asked to add individual client's lending limit and specify clearly as to how much shares a merchant bank can purchase for its own portfolio. But the merchant bankers are yet to submit their clear guideline, despite the deadline was expired. Meanwhile, the clients of a merchant bank staged demonstration as their bank reduced the loan ratio without any announcement. "In absence of guideline we are facing problems as our purchase power presently fluctuates without any statement," Himal Ahmed, a client of a merchant bank, told the FE. "A wrong message of reducing loan ratio was spread when a merchant bank Monday provided loans at the ratio of 1:0.3, in spite of previous day's fixed 1:0.8," he said. "The merchant bankers should take regulatory approval immediately for the guideline to remove ambiguity of margin loan," he added. When asked, BMBA's General Secretary Md. Abdur Rouf said, there was no deadline for submitting the revised guideline. "However, we will submit our revised guideline next week. But the bourses also have responsibility to fianlise the guideline," Mr. Rouf told the FE. When asked, CSE President Fakhor Uddin Ali Ahmed said the existing laws of bourses do not support them to fix loan ratio. "The stock brokers individually can fix their loan ratio. But they are less interested about the guideline as very few of them provide margin loans to their limited amount of clients," Mr. Ahmed told the FE. "Secondly, the guideline is applicable for someone only when he provides loans. Stock brokers are not serious to formulate the guideline as they do not deal with loan business due to fund crisis. If the banks come forward to provide loans to stock brokers they will be interested to formulate the guideline," he said. On February 1, the SEC declared not to intervene in loan ratio, immediate after a board meeting, chaired by SEC Chairman Ziaul Haque Khondker. "From now on the ratio of margin loans will depend on the sole discretion of banks. The merchant bankers and bourses will have to maintain their own guideline in providing margin loans," SEC spokesman Mohammad Saifur Rahman told the reporters.