Margin loan policy tuned to stock index

The Bangladesh Securities and Exchange Commission (BSEC) has rearranged the margin loan policy in tune with index movements to give a boost to the market while it is in the low and reduce investment risks once it goes higher.

In an order issued on Monday, the stock market regulator said brokerage houses and merchant banks were allowed to provide margin loans on a 1:1 ratio once the DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), crosses 4,000 points.

This means that investors will be able to get a loan equal to what they have deposited or invested. For example, if an investor invests Tk 100, then they can avail a loan of Tk 100 from a merchant bank.

The directive will come into effective from October 1.

For the period when the index remains between 4,001 to 5,000 points, the margin loan ration would be 1:0.75. This implies that if investors deposit Tk 100, then the brokerage houses and merchant banks are allowed to provide them a loan of Tk 75.

In case of the index ranging between 5,001 and 6,000, the margin loan ratio would be 1:0.50. This means investors will get Tk 50 in loan against an investment of Tk 100. When the DSEX crosses 6,000 points, the ratio would be 1:0.25, meaning a Tk 25 loan against every Tk 100 invested.

The ratio had been kept at 1:0.5 for the past four or five years irrespective of the standing of the index.

"With this directive we wanted to reduce risks of investors in an upward market and at the same time, tried to attract them into making investments while the market remained at a lower position," said a top BSEC official.

In response to a query, he said the directive would be applicable for a few years, until or unless the market rises to new heights.

This is a good initiative of the BSEC as it will help give the market a boost while it remains in a lower position, said a stock broker.

On the other hand, it will reduce the risks of market intermediaries, he added.