Broker firms to be allowed to extend margin lending soon

Kathmandu, October 17

Securities Board of Nepal (SEBON) — the capital market regulator — is planning to open margin lending facility through stockbroker firms in the country for the first time. After holding consultations with concerned parties, the regulator is close to coming to a decision on opening margin trading.

“SEBON has held discussions with various concerned authorities several times. I think we will announce our decision just after Tihar,” said Niraj Giri, spokesperson for SEBON.

According to him, SEBON is preparing the directives to put in place the legal framework for margin lending through broker companies.

“It may take a while to implement the decision though, as the legal framework would need to be put in place,” Giri informed.

Both broker firms and investors have been demanding the facility since long. However, the regulatory authority has not taken any action to open margin trading through broker firms yet.

Former chairman of Stock Brokers’ Association of Nepal (SBAN) Narendra Sijapati said that allowing broker companies to extend the facility would create more vibrancy in the secondary market. “If investors are able to get easy access to margin loans either through brokers or financial institutions, they will be able to get more space to play in the secondary market, which in turn would also ensure sustainability of the market,” he said.

As per him, if the broker firms are provided the opportunity to extend margin loans, they will be able to take loans from banks and financial institutions and they will lend to investors. “SEBON should first and foremost finalise the procedures, because it would be complex to implement the new plan,” he opined, adding that the market regulator should clarify the interest rate and the share value against the loan ratio.

Currently, only banks and financial institutions are allowed to extend margin lending. However, due to the ceiling imposed on providing margin lending for banks and financial institutions, small investors have been unable to get loans against shares as collateral.