Staff Reporter :
Lenders in the stock market will be required to compensate borrower-investors if they fail to initiate forced sales in a timely and rule-compliant manner, according to a recommendation by the task force formed for capital market development.
The task force recently submitted a proposal to amend regulations related to margin loans, aiming to ensure stricter enforcement and protect investor interests.
On Tuesday last, the task force submitted its recommendations to the BSEC Chairman.
For example, suppose an investor has bought shares of a company of Tk 200. the investor himself invested Tk 100 and the remaining Tk 100 was invested from the lender.
However, due to the fall in the market, the price of that share has fallen to Tk 125. Then the lending institution will have to take effective measures to sell those shares. If that measure is effective, the lending institution will get back Tk25 even after adjusting its loan by Tk100. If the lending institution does not take any kind of forced sale initiative even after the market price of the shares falls to Tk 125, and the investor loses all the money due to it, the lending institution will have to compensate for the loss. If the shares are sold after the share price falls to Tk 110 without forced sale then the lending institution will have to pay compensation of Tk 15.
If the portfolio value of a borrower falls to 125 percent due to the fall in share prices, there is a provision for loan adjustment through forced sale.
The members of the task force say that if a lending institution fails to implement this provision and the investor is harmed as a result, the lending institution will have to take responsibility for the loss.
The reason for this recommendation, the task force said, is that if a forced sale is done on time, the investor has a chance to get some of his money back. But if it is not done, the investors suffer more. Therefore, this provision has been recommended to protect investors.
There have been various recommendations regarding loan facilities against shares. One of these is not providing credit facilities to investors with less than Tk 10 lakh.
