Bangladesh Securities and Exchange Commission (BSEC) recently released the draft amendment of ‘Bangladesh Securities and Exchange Commission (Margin) Rules, 2025’ and invited the views of the stakeholders in this regard.
Now, public opinion adoption is a positive initiative. However, some proposals for the draft amendment have already started to have a significant impact on the capital market, especially in the general insurance sector.
As a result, these proposals need to be reconsidered.
The draft emphasizes the latest audited annual EPS. But in the current market reality, a company's recent financial situation is accurately reflected in the Trailing Twelve Months (TTM) EPS. Considering the latest annual EPS alone does not reflect the actual financial condition of many companies.
Besides, the normal price discovery process of the market may also be disrupted. So it is more logical to consider TTM EPS as the basis for determining margin benefits.
Why is there discrimination against the general insurance sector?
In the draft, margin benefits are kept up to three times the book value for banks and financial institutions, but in the case of general insurance companies, it has been fixed only one time. The question is, what is the factual logic behind this discrimination?
If a sector is treated differently than other sectors, it should have a Risk Assessment, Regulatory Impact Assessment (RIA) or any other factual analysis. But no such explanation was presented in the draft.
As a result, questions have arisen in the market about this disparity.
Life insurance and SME companies also need to be reconsidered
In the case of life insurance companies, maintaining the existing margin ratio will not meet the target of simplifying the rules.
Similarly, instead of keeping all companies of SME board out of margin facility simultaneously, eligible companies can be brought under conditional margin facility on the basis of financial capacity, corporate governance, TTM EPS, and liquidity.
Questions about the timing of the draft release
Releasing such a significant policy draft while trading was in progress created immediate market uncertainty. Many investors were forced to make decisions based on incomplete information. This has disrupted the normal pace of the market and created information asymmetry.
Unnecessary volatility can be avoided to a large extent if such important policy decisions are made in the future after the market is closed.
Forced selling is the most worrying issue
Since the publication of the draft amendment, significant sales pressure and price decline have been observed in the shares of general insurance companies.
If this situation continues until the expiry of the feedback period, many margin investors' shares may fall under the forced sale. This is where the biggest question comes up.
If later, the commission revises the draft based on the opinion of the stakeholders, how will the loss of the affected investors be compensated through the already forced sale?
Once this damage is done, it cannot be brought back. So no situation should arise before taking the final decision in which investors face irreparable losses.
Is seeking public opinion merely a formality?
The purpose of calling for public opinion on a draft rule is to formulate an improved and balanced policy considering the views of the stakeholders.
But if there is a major price drop in the market, with forced sales and investors suffering during the adoption of said opinion, then the effectiveness of public opinion adoption remains in question.
More participatory policy-making is needed
There is also discussion about the extent to which the opinion of all market stakeholders have been reflected in the current draft.
The policy could have been more balanced if the participation of investor representatives, merchant banks, asset management companies, listed companies, insurance sector, researchers, and market analysts was ensured, rather than relying on the views of just one or two groups.
That is why organizing a public hearing or stakeholder consultation meeting before finalizing the draft could be a timely initiative.
The capital market of Bangladesh has been going through a crisis of confidence and liquidity for a long time. The main objective of any policy change at this time should be to restore confidence in the market, create an investment-friendly environment, and ensure equal and equitable policies for all sectors.
It is expected that the Commission will seriously consider the stakeholders' views, revisit the draft amendments, and formulate margin regulations that ensure market stability while adequately safeguarding investors' interests.
KBM Moin Uddin Chisty is President, Victoria University of Bangladesh and Vice Chairman, Association of Private Universities of Bangladesh.