FE Report (February 23, 2011)
The securities regulator sent back the merchant banks' guideline on margin loans, terming it "incomplete and unclear" and demanding incorporation of individual client's limit in the modus operandi, an official said Tuesday.
The Securities and Exchange Commission made the observation when the merchant bankers association submitted its guideline on margin loans to the regulator at its office in Motijheel.
SEC officials discussed the draft with the association members and sought some changes in the planned guideline, pointing out some gaps and recommending a few suggestions so as to make it investor-friendly.
"We told them to make the guideline clear with specific examples for each of the points. We also ask them to incorporate two new points to make the guideline complete," an SEC official said.
"We have asked them to add individual client's lending limit and specify clearly as to how much shares a merchant bank can purchase for its own portfolio," he said.
The association has been advised to submit the guideline again after making the necessary changes and incorporating the points suggested by the regulator, he added.
"We just have done our job. It is now up to the merchant banks whether they are going to add these points or not," the official said, adding other points in the guideline were up to mark and protected investors' interest.
The association prepared the guideline after the regulator declared last month that it would not fix the margin loan limit for investors any longer and would now allow merchant banks to set the cap on their own.
The association which represents 37 merchant banks now operating in Dhaka and Chittagong has been tasked with drafting a guideline based on which they can set margin loan limits.
The regulator has said it would not intervene in margin loan-related issues any more once the guideline is finalised and approved by the SEC.
"After the guideline is approved, the merchant bankers can revise margin loan ratio once in a quarter or six months," the official said.
In the guideline that the association has prepared, the banks have suggested setting the ratio at 1:2 -- in line with the existing limit fixed by the regulator last month.
A merchant banker said they had a threadbare discussion on the guideline with the SEC officials.
"The regulator has made some specific suggestions on single client's limit and other issues. Personally, I don't think it would be wise on our part to set such limit for an individual investor," the banker said.
"There are big and small investors. We should not impose any barrier for our clients who are big and confident," he added.
The Securities and Exchange Commission made the observation when the merchant bankers association submitted its guideline on margin loans to the regulator at its office in Motijheel.
SEC officials discussed the draft with the association members and sought some changes in the planned guideline, pointing out some gaps and recommending a few suggestions so as to make it investor-friendly.
"We told them to make the guideline clear with specific examples for each of the points. We also ask them to incorporate two new points to make the guideline complete," an SEC official said.
"We have asked them to add individual client's lending limit and specify clearly as to how much shares a merchant bank can purchase for its own portfolio," he said.
The association has been advised to submit the guideline again after making the necessary changes and incorporating the points suggested by the regulator, he added.
"We just have done our job. It is now up to the merchant banks whether they are going to add these points or not," the official said, adding other points in the guideline were up to mark and protected investors' interest.
The association prepared the guideline after the regulator declared last month that it would not fix the margin loan limit for investors any longer and would now allow merchant banks to set the cap on their own.
The association which represents 37 merchant banks now operating in Dhaka and Chittagong has been tasked with drafting a guideline based on which they can set margin loan limits.
The regulator has said it would not intervene in margin loan-related issues any more once the guideline is finalised and approved by the SEC.
"After the guideline is approved, the merchant bankers can revise margin loan ratio once in a quarter or six months," the official said.
In the guideline that the association has prepared, the banks have suggested setting the ratio at 1:2 -- in line with the existing limit fixed by the regulator last month.
A merchant banker said they had a threadbare discussion on the guideline with the SEC officials.
"The regulator has made some specific suggestions on single client's limit and other issues. Personally, I don't think it would be wise on our part to set such limit for an individual investor," the banker said.
"There are big and small investors. We should not impose any barrier for our clients who are big and confident," he added.
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