No margin lending facility for shares of insurance company

KATHMANDU, April 1: Shares of only 31 listed companies are eligible for margin lending facility in the current Fiscal Year 2018/19.

With the release of the list of companies traded in the stock market whose securities will be eligible for investors to purchase through the margin trading facility, investors can purchase shares of only 15 percent of the total listed companies under this new facility. There are a total of 204 publicly listed companies in the secondary market.

Nepse has said that it published the name of companies on Sunday based on the criteria laid out by the Working Procedure on Margin Trading, 2075 BS.

Following the release of the names of publicly listed companies, margin trading facility that will be available from licensed brokerage firms, can be availed only on the securities of 11 commercial banks, six development banks, nine microfinance companies, three hydropower companies, one company from hotels sector, and one telecommunication company.

With this, margin trading for shares of not a single insurance company will be eligible.

The working procedure requires Nepse to make public or update the companies whose securities are eligible for margin trading in each fiscal year. The stock exchange company is bound to update the list within seven months of the start of the fiscal year.

According to the working procedure, securities of those listed companies which have at least 10,000 shareholders and net asset not lower than the paid-up capital will be eligible for margin trading facility from stockbrokers.

Other criteria for eligible companies include distribution of at least 10 percent dividend in the last two fiscal years, minimum 80 percent share transactions in secondary market out of the total trading days, and completion of annual general meeting within six months of the start of that fiscal year.

Under this facility, investors can purchase securities of these eligible companies by paying 50 percent of initial margin out of the average daily trading price of 180 days or market price, whichever is lower, according to the working procedure.

This means an investor can pay 50 percent of the share price and buy the securities of the listed companies from the margin of the stockbroker. However, the stockbroker has been allowed to collect higher initial margin based on the underlying risks of the secondary market or securities risk.

Though the Sebon has been making efforts to introduce margin trading facility for last one year, investors are yet to get this facility owing to lack of regulatory arrangement and procedural formality. The facility was formally introduced after the working procedure was introduced this year.

With the implementation of the working facility, brokerage firms have applied for the license to provide margin trading facility. Nepse's spokesperson Murahari Parajuli told Republica that it has granted the license for margin trading to two stock brokers out of 14 who had applied for the permission. However, they will start providing margin trading service after getting a final nod from the Nepal Rastra Bank.

MARGIN TRADING FACILITY AT A GLANCE:

Total listed companies - 204

Company whose shares are eligible for margin trading for FY 2018/19 - 31

Stock brokers acquiring license for margin trading- 2

Minimum initial margin investor should pay - 50% of share price

Minimum maintenance margin – 40% of closing price

Margin Call -- when share value falls below 40% of closing price

 
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