Stock brokers — surely one of the crucial main intermediaries in the nation’s capital market — beget proposed one other six-year leisure, up to 2030, to step by step protect provisions in opposition to unfavorable equity and unrealised losses to gain to the bottom of these prolonged-standing points.
On the moment, brokers and merchant banks are taking half in now not mandatory products and companies to protect provisions in opposition to unfavorable equity in clients’ margin accounts and unrealised losses in brokers’ seller accounts under extensions granted since 2016.
The fifth extension, allowed by the Bangladesh Securities and Swap Price, is jam to expire on 31 January 2025.
The DSE Brokers Association, an association of DSE brokers, in a letter to the cost before everything of December acknowledged, “To form certain the sustainability of the capital market, there must serene be no extensions beyond 31 December 2030.”
The brokers terror that if the leisure is lifted staunch away, brokerage companies’ order will stagnate, and the market will enter into a extended hibernation, the letter added.
Tk9,700cr unfavorable equity
Stock market faces Tk9,700 crore unfavorable equity burden. Up to 150% margin loan in opposition to equity allowed in 2010 regulations was once practically surging to 200%-400% amid a slack in regulatory oversight for compliances.
With the market smash later that year, unfavorable equity ballooned to over Tk25,000 crore in three to four years as sympathy to protesting traders pressured the regulator to ask brokers and merchant bankers for no pressured promoting.
Brokers and merchant banks present loans to their interested clients for procuring for additional shares and in the declining promote it reduces their equity due to unrealised losses.
As lenders, brokers and merchant banks must jam apart the offer from their earnings in opposition to the unrealised losses.
An funding portfolio loss stays unrealised until the investor sells the securities off at a mark lower than the fee mark and the realm accounting typical asks for 100% provision in opposition to such losses at the linked accounting duration.
Saiful Islam, president of the DSE Brokers Association, knowledgeable TBS, “We beget knowledgeable for time extension and to full chubby provisioning step by step by 2030 thanks to ongoing unstable capital market.”
He added, “The flooring mark has triggered the greatest misery to the capital market, and brokerage homes are the worst victims. Because of the the flooring mark, shares may per chance also now not be sold even after falling under margin calls.”
He acknowledged unfavorable equity has been striking critical rigidity on the brokerage alternate due to downward anguish of the capital market. “If provisioning is done staunch away, most brokerage homes will face a critical crisis.”
In March this year, in step with the ongoing downturn in the stock market, the securities regulator had extended the timeframe for the fifth times to the stockbrokers and merchant banks.
What affect feared, if leisure lifted?
In the letter, the association acknowledged that unfavorable equity incurred in margin accounts in the capital market is currently surely one of the crucial crucial points impacting the monetary smartly being of market intermediaries, including stock brokers.
“If the leisure of provisioning is lifted staunch away and brokers are required to file the chubby provision within twelve months, most stock brokers will must incur enormous losses.
“This may per chance well beget a deteriorating affect on the monetary smartly being of the stock brokers and the general brokerage alternate,” the letter added.
The proposal outlines a step-by-step provisioning knowing as follows: 5% provision for 2025, 10% for 2026, 15% for 2027, 20% for 2028, 25% for 2029, and the final 25% for 2030.
Citing the cost’s newest initiatives to reform the capital market, the association acknowledged, “We request the market to stabilise step by step and stop sustainability, which is willing to in a roundabout way lower the total provisioning requirement triggered by unfavorable equity in margin accounts.
“Moreover, if we take the hit staunch away, most money institutions and brokers will change into bancrupt, and the earnings of listed father or mother companies will seemingly be critically affected.”
No margin loans with unfavorable equity accounts
The association also proposed that no additional margin loans must serene be provided to accounts with unfavorable equity to prevent market intermediaries from taking unfair good thing about the offer leisure.
Additionally, any hobby accumulated from unfavorable equity accounts must serene now not be recorded as portion of the firm’s earnings.
Separate principles on margin loans for directors’ shares
The association urged formulating a separate rule for shares purchased by directors using margin loans, equivalent to practices in the US.
This would allow brokers and merchant banks to liquidate the margin loan without requiring approval when a margin call is resulted in.
The association acknowledged that after an investor sits on the board of directors, the shares owned by the director live locked and require stock exchange reputation of liquidation. The linked rule applies when directors buy shares using margin loans.
It acknowledged, “This restriction has resulted in unfavorable equity from margin loans, as easiest the directors can hang approval from the stock exchange to dump the shares, even when a margin call is resulted in.
“If a separate rule for the directors formulated which is the linked as in USA, the build there’s now not always a such provision of lock-in. this may per chance also just stop additional introduction of unfavorable equity from margin loan taken in opposition to the lock shares.”
