Kathmandu. KATHMANDU: The Securities Board of Nepal (SEBON) has sought suggestions for the Margin Trading Facility Directive-2082. The board has said that the suggestion should be given within seven days.

According to the Directive on Margin Transaction Facility prepared by the Board, 2082 (Preliminary Draft), only the shares of a listed company that has at least 5 million units of ordinary shares, net worth equal to and more than the paid-up capital, has distributed dividend for the last three years, has completed at least two years of listing of the shares issued through the initial public offering and has fulfilled other provisions prescribed by the stock exchange ।

The securities broker should have at least Rs 200 million in paid-up capital, secured RAFSAF membership, depository membership and fulfillment of other provisions prescribed by the securities market.

Similarly, a securities broker should submit an application for consent in the stock exchange along with its financial statements certified by the auditor before issuing margin trading facility. The stock exchange shall make necessary study and consent to the application received pursuant to Sub-section (1) and shall also inform the Board of the same. Prior to the coming into force of this directive, securities brokers who have agreed to provide margin trading facilities from the stock exchange shall not have to obtain consent again. Provided that, the documents that qualify in accordance with this directive shall be submitted to the stock exchange.

Similarly, if the investor is unable to maintain the maintenance margin required for the shares purchased under the margin transaction facility due to changes in the market price of the shares, the securities broker will have to make a margin call to the investor. If the required margin is not maintained or is not contacted after the margin call, the securities broker will be able to sell the shares purchased under the margin trading facility.

Securities brokers should clearly include provisions related to margin call and sale of shares in their working procedures. After the sale of shares, the concerned customer will have to settle the account and inform the stock exchange. If the investor fails to maintain the maintenance margin, the securities broker may take the shares of class “A” and “B” listed companies in the securities market as collateral equal to the amount required to maintain the mortgage margin with the investor.

When calculating the value of the share, only the average price of the stock should be calculated for 180 days or 60% of the market value, whichever is lower. If the maintenance margin is maintained due to changes in the market price of the shares, the securities broker shall release the shares held as collateral at the request of the investors.

A securities broker can provide margin transaction facility by taking loans from banks and financial institutions and unsecured loans from its shareholders or directors. The securities broker business shall comply with the provisions of the prevailing company laws while taking unsecured loan from the shareholders or directors.

The loan taken by a securities broker from a commercial bank to facilitate margin trading and the unsecured loan taken from its shareholders or directors should not be more than 4.5 times the net worth of the securities broker. Securities brokers shall not be allowed to use the cash and shares of one client to provide margin transaction facility to other customers.

Similarly, securities brokers can provide margin trading facility up to five times of their certified net worth. A securities broker business will not be allowed to provide margin transaction facility of more than 20 percent of its net worth to a single customer and members of his or her household. Securities brokers should also pay attention to investment diversification while providing margin trading facilities.