Nepse Approves Procedure to Commence Share Margin Trading; Brokers Ready

March 26, Kathmandu – Nepal Stock Exchange (Nepse) has approved the procedural framework necessary to launch share margin trading. The Nepse board of directors sanctioned the procedures on Wednesday, and the margin trading service is expected to be implemented within the next few days.

Nepse has prepared the operational procedures for margin trading, while securities broker companies have also completed their internal preparations. Following the setup of trading management systems and broker data backup storage, brokers will begin offering the service, stated Nepse spokesperson Murahari Parajuli. He added, “Although there won’t be major changes to Nepse’s trading system, some technical adjustments will be necessary on the brokers’ side, which may take some time.”

In line with the Securities Board’s Margin Trading Facility Directive of 2082, Nepse has formulated procedures covering investor identification and branch testing, margin call methods, duration, and share sale arrangements. The procedures clearly specify required documentation, sample agreements between securities brokers and investors, margin account clearing and rollover provisions. The process that investors must follow to repay amounts borrowed under margin trading is also included.

Parajuli explained that Nepse’s procedure includes policy arrangements to ensure investor diversification within the margin trading facility. As per regulations, brokers must obtain permission from Nepse to provide margin trading services, and the related approval decisions must be attached to the application.

Upon reviewing applications and documents received from trading members, Nepse will issue licenses to those authorized to provide margin trading services. The Securities Board will also be informed of this process. If applications or documentation are found unsuitable, the license will not be granted, and reasons will be communicated to the relevant member. Additionally, members must renew their licenses within three months after the end of each fiscal year, as stipulated in the procedures.

Only shares of companies designated by Nepse will be eligible for purchase and sale under brokers’ margin trading services. These companies must have a minimum of 2.5 million shares issued to the public and be listed on Nepse, have net worth equal to or exceeding paid-up capital, maintain profitability for two out of the last three years, and have been listed for at least two years.

Investors wishing to utilize margin trading services must apply to the trading member (broker) to open a margin trading account. In case of bonus shares issued by these shares within the margin account, brokers are allowed to assign separate margin obligations based on bonus share ratios.

The procedures allow brokers to execute margin calls through trading members, requiring investors to maintain adequate margin within seven trading days. If margin is not maintained within this period, brokers may sell shares in the margin account following the eighth trading day.

Should shares in margin accounts become delisted due to mergers, acquisitions, or other reasons, the trading member may request additional collateral following appropriate risk evaluations. The procedures also stipulate that after a margin call, if the market value rises above the initial margin when cash or shares are deposited, investors can reclaim or sell the lesser amount between cash or shares.

When maintaining margin, transferring shares from the investor’s regular beneficiary account to the margin trading beneficiary account will incur fees in accordance with regulations. After share sales, trading members must settle accounts with investors and report the details to Nepse.

Members must identify shares purchased on margin either during daily trading or throughout the clearing period. For clearing, margin trading accounts must be opened with the Central Depository System and Clearing Limited (CDSC).

The procedures require opening margin trading accounts linked with clearing members’ accounts. Annual accounts and audits must be submitted to the board and Nepse within three months after the fiscal year-end. Nepse will oversee the inspection and monitoring of margin trading activities.

Sagar Dhakal, Chairman of the Stock Broker Association, confirmed that securities broker companies are fully prepared to commence margin trading. Apart from some necessary technical arrangements, all preparations have been completed. He stated, “Once Nepse finalizes details, the necessary adjustments will be made and operations will begin.”