Stockbrokers say they will start margin trading before DashainMargin trading is a platform that enables investors to borrow money from their broker to buy shares.
Nepal Stock Exchange, on Friday had sent letters to the brokerages to operationalise margin trading, immediately.
“Having taken consent of the Securities Board of Nepal, we asked stockbrokers to operationalise the facility as soon as possible,” Murahari Parajuli, a spokesperson for Nepal Stock Exchange told the Post.
Margin trading is a platform that enables investors to borrow money from their broker to buy shares. Both stockbrokers and investors have long been demanding the regulator to allow them the margin trading option to carry out their share transactions, citing that it could boost trading on the stock market.
So far, 21 out of 50 brokerage companies have received license to offer the margin trading facility to their clients.
Bharat Ranabhat, president of Stockbrokers’ Association of Nepal, said the brokerages have maintained a backup station to manage the accounting record of investors who would be involved in margin trading.
“We are now ready to take off with the facility, hopefully we can start operating the feature before Dashain,” said Ranabhat adding the brokerages plan to start pilot services by offering loans to a few investors, at first.
Ranabhat said the stockbrokers have also integrated their backup interfaces with the software used by the CDS and Clearing. CDS and Clearing, a subsidiary of Nepal Stock Exchange, looks after settling the money transactions carried out in sale and purchase of shares.
“The organisation has informed that it has added necessary features in its software that will help maintain the margin trading account of those who wish to conduct margin trading,” said Ranabhat.
Until now, the investors have had no other option but to take a loan from banks to buy shares. In doing so, they have to undergo long procedures to receive loans. Enforcement of margin trading is expected to end such hassles and provide investors with an easy avenue for funds.
Securities Board of Nepal officials, however, say the brokers are reluctant to start margin trading service, citing the low demand for shares at a time when the secondary market is reeling under bearish investor sentiments.
“Stockbrokers might be wishing to stay back as they have to take higher risks on lending money at a time when very few investors are investing in shares,” said a source at the Securities Board.
For around the last two months, the country’s only stock market has been witnessing a bearish trend. Last week, the average daily turnover fell to as low as Rs200.39 million, which is just half of what it used to be a few months ago.
In a period of less than two months, the market capitalisation has come down to Rs1,435.31 billion from Rs1,581.19 billion, wiping Rs145.88 billion from the book value of investors’ portfolios.
In August 2018, Nepal Rastra Bank gave a green signal to the board to Securities Board to carry out margin trading.
In the rule enforced by the central bank, stockbrokers are allowed to fix the interest rate on the loans they would provide the investor. However, the Securities Board can impose a cap, if necessary.