Negative equity relief sought amid market woes

Staff Reporter :

The DSE Brokers Association has proposed extending the provision period for unrealized losses (negative equity) against margin loans for stock market investors until 2030.

Considering the current state of the stock market, the association submitted formal requests to the Bangladesh Securities and Exchange Commission (BSEC) on 3 December and again on 10 December to prolong the provision period. This extension aims to prevent the forced sale of shares by investors under margin loan agreements.

The BSEC has already extended the negative equity provision period five times, with the current term set to expire on 31 January 2025.

Stock market experts highlight that after the 2010 market crash, many investors using margin loans suffered severe losses, effectively becoming debtors to merchant banks.

Brokers and merchant banks now have two options to recover the funds locked in these accounts like selling all shares from investors’ accounts, which could escalate selling pressure and negatively impact the market and gradually reducing the debt by creating provisions against these losses.

The association’s proposal stresses that without extending the provision period, selling pressure will increase significantly, further destabilizing the market.

It also warns that brokers and merchant banks will face substantial financial losses if the current deadline is not extended.

Notably, as per a BSEC directive issued on 27 March 2023, the provision period for unrealized losses in portfolio margin accounts of stock dealers and merchant banks was extended until 31 January 2025.

The DSE Brokers Association believes that extending the provision period until 2030 would provide a more stable environment, reducing market volatility and supporting the financial health of brokers and merchant banks.