FE Report (February 02, 2011)
The securities regulator Tuesday allowed merchant banks and brokerages to fix the margin loan limits for their clients, scrapping a decades-long policy that drew sharp criticism during the recent stock crash, officials said.
The Securities and Exchange Commission (SEC) also empowered the country's two bourses to halt abnormal trading of any companies and take actions against rogue traders.
The regulator announced the decision at its office in the capital after meeting with the officials of the country's bourses and leaders of the merchant bank association.
In the wake of a crash in the bourses, Finance minister AMA Muhith last month declared that a move was underway to scrap SEC's decades-long policy of fixing margin loans for the merchant banks and brokerages.
SEC spokesman Mohammad Saifur Rahman said the regulator has now decided to ditch the policy in an effort to bring stability in the market.
"From now on the regulator will not fix the limit of margin loans. The loan providers such as merchant banks and brokerages can fix the limits in line with a guideline," Mr. Rahman told reporters.
He said the merchant bank association has been told to prepare a guideline by February 10 and get it approved by the regulator. They can start providing margin loans to clients once the guideline is okayed.
"The loan providers are allowed to change the margin loan limit two times a year. The revised loan ratio will come into effect on the first working day of January and July respectively," he said.
The decision is seen as a victory for the merchant banks and their thousands of clients who have earlier accused the SEC of creating volatility in the capital market by frequently changing the margin limits.
SEC officials said in preparing the guideline the merchant bankers will take into account the evaluation method of securities stored in clients' accounts, highest limit of loans, rules of margin call, trigger sell and the existing securities laws.
Experts welcomed the regulator's decision but they stressed a clear guideline to avoid irregularities in extending margin loans to investors.
President of Chittagong Stock Exchange Fakhor Uddin Ali Ahmed greeted the decision saying in other countries the amount of margin loans depends on the relation between the lenders and their clients.
"It's a good move. It is going to help the investors. Fixing the margin loan limits is not a job of the regulator," he said after attending the meeting at the SEC.
Former SEC Chairman Mirza AB Azizul Islam said the single borrower's exposure limit must be mentioned in the guideline.
"Otherwise, some lenders may misuse the provision. And big clients will benefit at the expense of smaller investors. The authorities must plug holes in the guideline so that it is not manipulated," he said.
He also said the regulator should be prepared to control any abnormal situation by exercising its power.
The SEC said it will hold the merchant banks and brokerage firms accountable if they misuse the facility and violate the guideline.
The merchant bankers and brokerage firms have also been ordered to submit the statement of margin loans provided to their clients to the SEC every month.
"The DSE and CSE will submit the loan statements of their members and merchant bankers will individually submit their statements to the SEC," Rahman said.
Presently, the merchant bankers and brokerage firms are allowed to provide margin loans at a ratio 1:2. The SEC regulator revised the loan ratio twelve times during the past two years.
The SEC said the regulator has empowered both the stock exchanges to take necessary measures against unusual trade or demote a company to the over-the-counter (OTC) market from the main board.
"From now on both the stock exchanges can halt unusual trade of any listed company," Rahman said.
But after taking action against abnormal activities, the stock exchanges will have to inform the SEC regarding the measures, he said.
Rahman said the decision was taken following advice from different stakeholders so that self-regulated organisations (SROs), i.e. the bourses, can play effective roles in controlling unusual trading in the stock market.
DSE President Shakil Rizvi who also attended the meeting said the move would strengthen the bourses and allow them to sort out irregularities quickly.
SEC members---Muhammad Yasin Ali and Mohammad Anisuzzaman, Bangladesh Merchant Bankers's Association President Sheikh Murtoza Ahmed and leaders of b the stock exchanges were present in the meeting, chaired by SEC chairman Ziaul Hoque Khondker.
The securities regulator Tuesday allowed merchant banks and brokerages to fix the margin loan limits for their clients, scrapping a decades-long policy that drew sharp criticism during the recent stock crash, officials said.
The Securities and Exchange Commission (SEC) also empowered the country's two bourses to halt abnormal trading of any companies and take actions against rogue traders.
The regulator announced the decision at its office in the capital after meeting with the officials of the country's bourses and leaders of the merchant bank association.
In the wake of a crash in the bourses, Finance minister AMA Muhith last month declared that a move was underway to scrap SEC's decades-long policy of fixing margin loans for the merchant banks and brokerages.
SEC spokesman Mohammad Saifur Rahman said the regulator has now decided to ditch the policy in an effort to bring stability in the market.
"From now on the regulator will not fix the limit of margin loans. The loan providers such as merchant banks and brokerages can fix the limits in line with a guideline," Mr. Rahman told reporters.
He said the merchant bank association has been told to prepare a guideline by February 10 and get it approved by the regulator. They can start providing margin loans to clients once the guideline is okayed.
"The loan providers are allowed to change the margin loan limit two times a year. The revised loan ratio will come into effect on the first working day of January and July respectively," he said.
The decision is seen as a victory for the merchant banks and their thousands of clients who have earlier accused the SEC of creating volatility in the capital market by frequently changing the margin limits.
SEC officials said in preparing the guideline the merchant bankers will take into account the evaluation method of securities stored in clients' accounts, highest limit of loans, rules of margin call, trigger sell and the existing securities laws.
Experts welcomed the regulator's decision but they stressed a clear guideline to avoid irregularities in extending margin loans to investors.
President of Chittagong Stock Exchange Fakhor Uddin Ali Ahmed greeted the decision saying in other countries the amount of margin loans depends on the relation between the lenders and their clients.
"It's a good move. It is going to help the investors. Fixing the margin loan limits is not a job of the regulator," he said after attending the meeting at the SEC.
Former SEC Chairman Mirza AB Azizul Islam said the single borrower's exposure limit must be mentioned in the guideline.
"Otherwise, some lenders may misuse the provision. And big clients will benefit at the expense of smaller investors. The authorities must plug holes in the guideline so that it is not manipulated," he said.
He also said the regulator should be prepared to control any abnormal situation by exercising its power.
The SEC said it will hold the merchant banks and brokerage firms accountable if they misuse the facility and violate the guideline.
The merchant bankers and brokerage firms have also been ordered to submit the statement of margin loans provided to their clients to the SEC every month.
"The DSE and CSE will submit the loan statements of their members and merchant bankers will individually submit their statements to the SEC," Rahman said.
Presently, the merchant bankers and brokerage firms are allowed to provide margin loans at a ratio 1:2. The SEC regulator revised the loan ratio twelve times during the past two years.
The SEC said the regulator has empowered both the stock exchanges to take necessary measures against unusual trade or demote a company to the over-the-counter (OTC) market from the main board.
"From now on both the stock exchanges can halt unusual trade of any listed company," Rahman said.
But after taking action against abnormal activities, the stock exchanges will have to inform the SEC regarding the measures, he said.
Rahman said the decision was taken following advice from different stakeholders so that self-regulated organisations (SROs), i.e. the bourses, can play effective roles in controlling unusual trading in the stock market.
DSE President Shakil Rizvi who also attended the meeting said the move would strengthen the bourses and allow them to sort out irregularities quickly.
SEC members---Muhammad Yasin Ali and Mohammad Anisuzzaman, Bangladesh Merchant Bankers's Association President Sheikh Murtoza Ahmed and leaders of b the stock exchanges were present in the meeting, chaired by SEC chairman Ziaul Hoque Khondker.
No comments:
Post a Comment