Sebon likely to give permission after Tihar holidays
KATHMANDU, Oct 18: The Securities Board of Nepal (Sebon) is preparing to allow stock brokerage firms to provide margin trading service to their clients.
The capital market regulator is planning to expand the scope of operation of brokerage firms by allowing them to provide financing service to their clients for buying shares in the stock market.
According to officials of the Sebon, the upcoming board meeting of the stock market regulator would take the decision, probably immediately after Tihar, allowing stock brokers to provide financing service to investors against securities pledged as collateral.
“Margin trading facility from brokerage firms will come into effect once the board meeting of the Sebon approves this proposal,” Rewat Bahadur Karki, the Sebon's chairperson, told Republica. “The new service is aimed at providing more liquidity facility to investors.”
According to Securities Businessperson (Stock Broker, Securities Dealer and Market Maker) Regulations, stock brokers are allowed to provide brokering services of purchasing or selling the securities in the name of client only as per the client's order.
Karki further said that the Sebon will issue a circular allowing brokerage firms to provide new service to their clients once the Sebon's board meeting approves the proposal.
Under margin trading service, a brokerage firm will provide a certain margin to an investor to purchase shares in the stock market. For example, if an investor has Rs 100,000 and want to purchase shares worth Rs 200,000, (s) he can seek margin trading service from brokerage firms to finance the purchase of the shares which will be held in the investor's account with the brokerage firm as collateral. Such shares would be marked up as the shares purchased under the margin trading and the ownership will be transferred only after the borrower repays the loan.
The brokerage firms make margin calls to the borrower to deposit more fund or sell the stocks if the value of pledged shares goes down by a certain percent.
The Sebon, however, has not made public the upper limit a brokerage firm can lend to investors, whether brokerage firms can borrow from bank and financial institutions (BFIs) to provide margin trading service, interest rates and service charges, among other nitty-gritty.
A Sebon official, however, told Republica that the brokerage firm will be allowed to receive only service charge instead of interest rates for margin trading. “Since only the institutions licensed by the Nepal Rastra Bank (NRB) can charge interest rates, brokerage firms will be allowed to levy certain service fee on their clients for margin trading service,” the official said, requesting anonymity as he is not authorized to divulge details of the proposal to the media.