The Securities and Exchange Commission, in a move to cool down the overheated market, decided on Sunday that investors from now on would get margin loans at the ratio of 1:0.5 instead of 1:1, said SEC executive director Forhad Ahmed.
The capital market watchdog directed the merchant bankers and stockbrokers to implement the new ratio from today but did not mention any timeframe for adjusting the extra margin loan accrued at the ratio of 1:1 with the new one.
The stockbrokers and merchant banks until Sunday had been providing investors with loans at a ratio of 1:1 based on a specific formula. According to the formula, the market price of any share was added to its net asset value and the sum of the two figures was divided by two and the amount of money equal to one part of the sum was given to the investors.
For example, if the market price of any securities held by an investor was Tk 500 and its NAV was Tk 100 then the investor would get a margin loan of Tk 300. But as per the new directive, the investor will get a loan of Tk 150 for the same securities at the same market price and NAV, said Akter H Sannamat, managing director of Prime Finance and Investment.
He also said that, if the investors failed to supply fresh funds then the merchant banks would follow the ‘trigger sales’ method to adjust the margin loan.
The latest decision on the margin loan came following a recommendation of the Parliamentary Standing Committee on Finance. The house committee at a meeting before the Eid advised the SEC to stop providing margin loans to check the abnormal surge in the stock market. But the commission in its meeting on Sunday decided to reduce the margin loan ratio instead of stopping margin loan disbursement.
The commission also restricted the recipients of margin loan facility to the new beneficiary ownership account holders for 30 days from opening of the accounts.
The SEC also decided that all kinds of SEC news targeting the investors would be posted on the websites of the bourses.
