BSEC caps interest rate on margin loans

The Bangladesh Securities and Exchange Commission (BSEC) has set a ceiling on the interest rate for the margin loans to retail investors, in yet another thoughtful step from the new commission to safeguard the interests of small investors.

A margin loan is a type of loan taken from a brokerage house to buy more of a security -- such as a stock, bond or exchange-traded fund. 

The existing securities in the account with the brokerage houses or merchant bank act as collateral, with the creditors reserving the right to sell the securities if the terms of the loan are not met.

The interest rate on margin loans ranges from 13 per cent to 15 per cent, Dhaka Tribune learnt after speaking with several investors who trade in some of the top brokerage houses.

From now onwards, stockbrokers and merchant bankers cannot charge more than 12 per cent per annum for such loans. 

The margin loan interest rate can be at most 3 per cent higher than the cost of their fund but cannot exceed 12 per cent, according to a statement on Wednesday from the BSEC following the commission meeting, where the decision was taken.

Also at the meeting, IDLC Finance’s proposal to issue a Tk 500 crore unsecured, non-convertible, zero-coupon, four-year bond to meet its ongoing financial demands got the green light.

The per-unit price of the bond is Tk 50 lakh.

The units will be sold to banks, financial institutions, insurance companies, corporate bodies, asset management companies, mutual funds, and high net worth individuals, “other than existing” shareholders of the company through private placements in cash consideration.

At Wednesday's meeting, the BSEC also fined Skys Securities and Subvalley Securities Tk 2 lakh each for non-compliance. 

Additionally, a fine of Tk 1 lakh was announced for an authorised representative of Subvalley Securities.