Kathmandu. KATHMANDU: Nepal Stock Exchange (NEPSE) has implemented the Margin Trading Facility Procedure-2082.

In order to make margin trading of securities safe, transparent and systematic, NEPSE has formulated and implemented the work procedure as per Clause 14 of the Securities Board of Nepal’s Margin Transaction Directive, 2082. Members of brokers interested in providing margin trading facility will have to obtain a license from NEPSE.

The transaction member has to apply to NEPSE in the format as mentioned in Schedule-1 for providing margin transaction facility.

The transaction member who wants to provide margin trading facility should have a paid-up capital of at least Rs. 20 crores, has obtained the membership of the Depository, the Depository Member or the Depository Member is a shareholder of the listed corporate organization or the main listed corporate entity of the business member should have obtained the deposit membership and the transaction member should have the license of the Board and the membership of NEPSE.

The decision made by the Board of Directors of the transaction member in connection with the grant of margin transaction facility shall be attached to the application. NEPSE will examine the application for obtaining a license to provide margin trading services from the transaction members and the attached documents. NEPSE will provide a letter of intent if the transaction member is found eligible to provide margin transaction facility during the inquiry. After NEPSE submits the letter of intent (LOI), NEPSE will recommend to Nepal Rastra Bank (NRB) for the works as per Section 76 of the Nepal Rastra Bank Act, 2058 BS. The transaction member has to submit the approval letter from Nepal Rastra Bank as per sub-section (30) to NEPSE.

The transaction member has to renew the license to provide margin trading service by applying to NEPSE within three months of the end of the fiscal year. If the transaction member does not renew the license pursuant to sub-section 910, the license will automatically be revoked

No new license shall be issued to the transaction member whose license has been revoked pursuant to sub-section (20) until one year has elapsed.

The license to provide margin trading facility to the transaction member may be suspended or revoked if it is found by Nepse that the transaction member has acted contrary to the process of harming the investors.

The investor has to apply to the transaction member to open a margin trading account in order to use the margin trading facility. The transaction member shall obtain the application referred to in sub-section (110) from the investor and the customer identification details as prescribed by the Board. After receiving the application and customer identification pursuant to sub-sections (110 and 920), the transaction member shall enter into an agreement with the investor pursuant to Section 15 and open a separate account for margin transactions in his/her name and provide margin transaction facility.

If margin trading facility can be provided from the transaction account of the investor in the trading system of the transaction member, then there will be no need for a separate margin trading account. Under the margin transaction facility, the investor will have to take the minimum amount of the purchase amount from the investor as the initial margin from the investor.

Under the margin transaction facility, the shares purchased, the margin amount and the details of the concerned customers will have to be maintained separately. Under the margin trading facility, the shares purchased will have to be evaluated on a daily marked-to-market basis. However, no additional facility will be allowed on the basis of the increase in the price of the shares. Considering the risk assessment of the client, the market condition and the risk inherent in the shares of the listed corporate, the transaction member may demand a margin higher than the margin mentioned in sub-section (110).