The nation’s stock market is currently undergoing a challenging phase, experiencing a significant decline yesterday amidst ongoing political tensions and regulatory adjustments, particularly alterations in borrowing regulations for share trading.
The DSEX, which serves as the key indicator at the Dhaka Stock Exchange (DSE), plummeted by 122 points, equivalent to a 2.5 percent drop, marking the most severe single-day decline in half a year. The last notable downturn occurred on May 7, resulting in a loss of 149 points, or 3 percent.
Earlier reports from EBL Securities indicated that the DSE ranked as the least performing market globally in October, with its primary index falling by 5.42 percent. This stands in sharp contrast to the positive trends seen in major international and regional markets.
A significant development that unsettled investors was the Bangladesh Securities and Exchange Commission’s (BSEC) revision to the margin loan regulations, permitting investors to acquire funds from stockbrokers for purchasing shares, utilizing the acquired shares as collateral.
The new Margin Loan Rules, 2025, which were officially enacted from October 30, have made it more challenging for investors to secure loans in this manner, diminishing their purchasing capacity and, according to analysts, reducing market liquidity.
The amendments stipulate that investors must sustain an average annual investment of at least Tk 5 lakh to be eligible for margin loans. Certain groups like students, homemakers, and retired individuals, typically lacking a steady income, are ineligible for margin financing due to associated financial risks.
Moreover, margin loans are now solely permissible for share acquisitions, with cash withdrawals or fund transfers prohibited. Investors with portfolios valued between Tk 5 lakh and Tk 10 lakh will receive margin at a 1:0.5 ratio, while those surpassing Tk 10 lakh will qualify for a 1:1 ratio. Margin facilities cannot be based on unrealized gains.
M Shahriar Azad Bhuiyan, a senior research analyst at Unicap Securities, highlighted the impact of the BSEC’s margin rule amendments on market confidence, emphasizing the regulatory shift’s novelty after a quarter-century. He stated the move was justifiable to prevent investors from investing in shares through loans following past misuse and substantial losses.
The adjustment has also granted greater authority to stockbrokers for executing forced sales, leading to unease among investors. The amendment has also revised the qualifying criteria for shares eligible for margin loans, restricting it to A and B category stocks, with companies required to offer at least a 5 percent annual dividend to qualify.
Concerns are further heightened by negative equity scenarios, where the value of shares obtained via margin loans dips below the borrowed amount. Previously, stockbrokers and merchant banks were mandated to settle negative equity within six months, potentially intensifying selling pressure. However, the BSEC recently announced a temporary relaxation for the major 28 stock brokers and merchant banks to adjust.
Despite the regulatory responses, ongoing political tensions and other nationwide issues have instilled caution among institutional and foreign investors, prompting the index’s decline.
Bhuiyan remarked that political uncertainties and activities by major parties and the Awami League have compounded fears amid an already diminished investor confidence due to the regulatory amendments. The announcement of an election date is anticipated to restore confidence among the populace.
A senior official from a leading merchant bank, speaking anonymously, cited the impact of margin regulations and forced selling of negative equity on investor confidence, attributing the market downturn to political turmoil.
Saiful Islam, President of the DSE Brokers Association, highlighted that the market decline also signifies underlying concerns within the financial sector, attributing the recent downturn to long-standing financial misconduct.
Islam mentioned the significant losses faced by investors in several banks, risk exposure in other financial institutions, and potential liquidation of non-bank financial entities, indicating broader challenges in the insurance sector. These factors collectively contributed to the index’s downward trajectory.