The Bangladesh Securities and Exchange Commission (BSEC) has approved revised rules for margin lending in the capital market, setting a maximum price-to-earnings (P/E) ratio of 40 for margin-eligible shares across all sectors except life insurance.

The revised rules also remove the price-to-book (P/B) ratio requirement previously proposed for banks and non-life insurance companies.

The decision was taken at the BSEC’s regular meeting on Tuesday (August 11). The finalized rules are expected to be sent to the Bangladesh Government Press for gazette publication on August 13, according to sources familiar with the matter.

However, BSEC Executive Director and spokesperson Md Abul Kalam said he was not aware of the new margin loan rules.

Under the revised framework, the trailing P/E ratio will be used as a key criterion for determining margin-loan eligibility. A company’s P/E ratio will be calculated by comparing its current market price with earnings per share (EPS) over the latest 12 months.

The P/E ratio will be updated when a company publishes a new quarterly financial report.

If a company’s P/E ratio exceeds 40, its shares will not qualify for margin financing. The P/E ceiling will not apply to life insurance companies.

The commission has removed the P/B ratio condition for banks and non-life insurance companies.

The draft rules had proposed a maximum P/B ratio of 3 for bank shares and 1 for insurance companies. However, the condition was dropped from the final framework.

Market participants had earlier expressed concerns that imposing P/B limits could negatively affect several margin-eligible shares, particularly in the banking and insurance sectors. The removal of the condition is therefore expected to ease some of that pressure.

The revised rules have also relaxed the proposed thresholds for margin calls and forced sales.

If an investor’s equity falls below 50%, the margin lender must issue a prior notice. If equity subsequently falls below 25%, the lender can sell the investor’s shares or securities without further notice to adjust the outstanding loan.

The draft rules had proposed issuing a margin call when equity fell below 70% and allowing investors three working days to restore the required equity. Forced sales without prior notice were proposed once equity fell below 50%.

Not all listed securities will qualify for margin loans under the new rules.

Shares under the ‘Z’, ‘N’ and ‘G’ categories will remain ineligible. Securities listed on the SME platform, Alternative Trading Board (ATB) and Over-the-Counter (OTC) market will also remain outside the margin financing framework.

As a result, eligible ‘A’ and ‘B’ category shares in the main market will largely fall within the new margin lending framework.

The revised rules set the margin loan ratio at 1:1 for general securities.

This means an investor with Tk1 lakh in equity may obtain up to another Tk1 lakh in margin financing, subject to meeting the eligibility requirements.

Life insurance shares, however, will have a separate margin financing structure.

Market participants believe the revised rules could expand the pool of margin-eligible securities and increase investors’ purchasing capacity.

The removal of the P/B ratio condition could particularly create an opportunity for some bank and non-life insurance shares to qualify for margin financing.

However, increased access to margin loans could also raise market risks. Greater debt-financed investment may encourage speculative trading, while a sharp market downturn could quickly erode investors’ equity and trigger forced sales.

If large numbers of margin-funded shares are sold simultaneously, selling pressure and market volatility could intensify.

The revised framework therefore seeks to balance greater access to margin financing with risk controls through eligibility criteria and minimum equity thresholds.