SEC approves margin rules for merchant banks
Thursday, 27 September 2007
The Securities and Exchange Commission (SEC) Tuesday approved the margin rules for merchant banks, barring them from extending credit to their own directors, executives, sponsor-shareholders and nearest relatives of employees, reports bdnews24.com.
The regulator expressed the hope that the new law would help it check manipulation in the market and give merchant banks guidelines for lending.
"Extension of loan to relatives and executives creates space for manipulation. I think the new law will help stop internal manipulation," SEC chairman Faruq Ahmad Siddiq told the news agency.
The regulator approved the rules just after it detected a huge irregularity with AB Bank, one of the largest merchant banks that had extended credits to the relatives of its employees and some of its clients, beyond rational limits.
Market operators previously said some merchant banks, in absence of a set margin criteria, sanctioned loans to their clients irrationally, which in turn resulted in a lingering surge in the prices of stocks and liquidity in the market.
"This approval has given a basis of lending by merchant banks. Earlier, there was no rule," said Salahuddin Ahmed Khan, chief executive of Dhaka Stock Exchange.
The SEC, however, did not fix any margin ratio, saying that it would determine the ratio considering the market situation from time to time.
"We have not fixed any margin ratio in the law. We will rather determine the ratio from time to time considering the market situation," SEC executive director Farhad Ahmed said.
The executive said the commission would enforce the law after it was published in the gazette.
The new rule named "Merchant Bankers and Portfolio Manager Regulation 1996" fixed a maximum limit on loan disbursement against portfolio accounts.
"Loan exposure to any sector will be not more than 50 per cent of total loans extended to an investor," Ahmed earlier said referring that investors sometimes invest 100 per cent of their borrowings in a certain sector.
The SEC executive said the rule advised merchant banks to consider the fundamentals of a company during loan extension.
The regulator expressed the hope that the new law would help it check manipulation in the market and give merchant banks guidelines for lending.
"Extension of loan to relatives and executives creates space for manipulation. I think the new law will help stop internal manipulation," SEC chairman Faruq Ahmad Siddiq told the news agency.
The regulator approved the rules just after it detected a huge irregularity with AB Bank, one of the largest merchant banks that had extended credits to the relatives of its employees and some of its clients, beyond rational limits.
Market operators previously said some merchant banks, in absence of a set margin criteria, sanctioned loans to their clients irrationally, which in turn resulted in a lingering surge in the prices of stocks and liquidity in the market.
"This approval has given a basis of lending by merchant banks. Earlier, there was no rule," said Salahuddin Ahmed Khan, chief executive of Dhaka Stock Exchange.
The SEC, however, did not fix any margin ratio, saying that it would determine the ratio considering the market situation from time to time.
"We have not fixed any margin ratio in the law. We will rather determine the ratio from time to time considering the market situation," SEC executive director Farhad Ahmed said.
The executive said the commission would enforce the law after it was published in the gazette.
The new rule named "Merchant Bankers and Portfolio Manager Regulation 1996" fixed a maximum limit on loan disbursement against portfolio accounts.
"Loan exposure to any sector will be not more than 50 per cent of total loans extended to an investor," Ahmed earlier said referring that investors sometimes invest 100 per cent of their borrowings in a certain sector.
The SEC executive said the rule advised merchant banks to consider the fundamentals of a company during loan extension.