SEC extends time for margin rule execution
The regulator has extended time for execution of the rules on stockbrokers' margin on additional trade exposure.
“On receipt of appeals from Dhaka Stock Exchange, we've agreed to give more time to stockbrokers to go by such margin rules. The new deadline is January 2,” said an official of Securities and Exchange Commission yesterday.
Meantime, the time extension led to a surge in Dhaka stock prices. The benchmark index of the prime bourse, DSE General Index (DGEN), jumped up 120 points, or 1.4 percent to 8,723.
The DGEN also reached its highest-ever level, surpassing the previous record of 8,721 points on November 25.
Banking stocks led the rally, as the sector went up by 2.91 percent with contributing 42 percent to the total turnover in terms of value -- Tk 2,479 crore.
"Stockbrokers and dealers as well as investors take the time extension positively, which led the market to go up," according to a market insider.
The SEC on November 25 asked the stockbrokers to double their deposit against any additional trade exposure to the capital market in an effort to tighten the liquidity flow.
As per the new rule, a stockbroker or a stock exchange member is supposed to deposit 40 percent of its additional trade exposure, instead of 20 percent, if trade value crosses by Tk 1 crore after the free limit for Tk 5 crore.
For up to Tk 8 crore, the SEC increased the ratio to 60 percent from 30 percent; while the ratio is 80 percent for up to Tk 9 crore. For any amount above Tk 9 crore, the ratio is unchanged at 100 percent.
The revised rule will not allow any member to cover more than 50 percent of the required margin deposit through bank or corporate guarantee.
In line with the previous rule, a stockbroker could cover 10 percent of member's margin by cash, pay order, fixed deposit receipt or other acceptable instruments and the rest through bank guarantee.
Earlier in a meeting with SEC, DSE members also welcomed the proposal on such revision of margin rule by enhancing the ratio.
But now they backtracked on their stand saying that covering 50 percent margin in cash or other acceptable securities might lead many stockbrokers to stop trading after a certain period of time, as they would not be able to cover the margin as required by the regulator.