The Bangladesh Securities and Exchange Commission (BSEC) has rearranged the margin lending policy for merchant banks, portfolio managers and brokerage firms in line with the Dhaka Stock Exchange's main price index, DSEX.
An order was issued in this regard on Monday.
BSEC Executive Director and Spokesman Mohammad Rezaul Karim told The Business Standard, "We want to minimise risk about taking margin loans of investors. Because most of the general investors do not know the risk level of a share."
Due to the rearranging of margin lending policy, it will be possible to reduce those risk levelsregarding investments, he added.
He said merchant banks, portfolio managers and brokerage firms, who are involved in share trading through stock exchange, will follow these rules.
He also said member organisations at the Chittagong Stock Exchange will follow the same rules, taking a basis of DSEX.
According to the order, Merchant Banks or brokerage firms will be able to provide margin loans to customers at a maximum rate of 1:1 when the DSEX index is below 4,000.
In other words, a maximum margin loan of Tk1 can be given against the customer's own investment of Tk1.
It will also be able to lend a margin at the rate of 1: 0.75 in case of the index up to 4001-5000.
Besides, it will also be able to lend a margin at the rate of 1: 0.50 in case of the index up to 5001-6000 and at the rate of 1: 0.25 when the index will be above 6000.
This order will be effective from October 1, 2020.
Currently, the maximum margin lending rate is 1: 0.50 and this is the same in all cases.
In other words, a maximum margin loan of Tk0.50 can be given against the customer's own investment of Tk1.
"Margin is the money borrowed from a brokerage firm to purchase an investment. It is the difference between the total value of securities held in an investor's account and the loan amount from the broker.
Buying on margin is the act of borrowing money to buy securities. The broker acts as a lender and the securities in the investor's account act as collateral."