SEBON Unveils Preliminary Draft of Directive Allowing Margin Lending Up To Five Times Net Worth

The Securities Board of Nepal (SEBON) has prepared the draft of the Margin Lending Directive 2025 (2082 BS), paving the way for a new framework to enable margin trading through licensed brokerage firms. The Board is introducing the directive to replace the Margin Trading Directive 2017 (2074 BS), which it has decided to scrap.

SEBON released the preliminary draft for public consultation and has invited feedbacks and suggestions. Under the new rules, stock market operators will also be required to prepare and implement operating procedures related to margin trading. Although more than three dozen brokerage firms had obtained licences for margin trading by 2018, only one company had begun offering the service, and even that could not continue it. SEBON aims to make margin trading functional and effective through the new directive.

According to the draft, brokerage firms seeking to provide margin trading must have a minimum paid-up capital of Rs 200 million and must hold clearing membership, depository membership, and other approvals mandated by the stock exchange. Companies already licensed by NEPSE for margin trading will not be required to obtain a fresh licence, but they must submit supporting documents to NEPSE to comply with the new standards.

Margin lending limits

The draft proposes allowing brokerage firms to provide margin lending of up to five times their net worth. A firm may not extend more than 20 percent of its net worth as margin lending to a single client or their immediate family members. The directive also requires firms to ensure adequate investment diversification while providing the facility.

Eligible stocks for margin trading

For margin trading, only companies with at least 5 million listed public shares will qualify. Eligible companies must also have net worth equal to or higher than their paid-up capital, must have distributed dividends in at least two of the past three years, and must have completed at least two years of listing after their IPO.

Initial and maintenance margin requirements

For calculating initial margin, brokers must use the lower of a stock’s 180-day average price or market price. Based on stock classification in the secondary market, the draft requires brokers to collect at least 30% initial margin for Class A companies, 40% for Class B companies, and 35% for other eligible companies.

Brokers must maintain separate records of shares purchased through margin lending and the corresponding margin amounts. Any increase in the value of pledged shares cannot be used to extend additional margin lending. Depending on market conditions and risk, brokers must also maintain a maintenance margin of up to 30% throughout the lending period.

Margin call provisions

If a client fails to maintain the required maintenance margin due to changes in market value, the broker must issue a margin call. If the client cannot restore the margin, the broker may accept shares of Class A or Class B companies as collateral, valued at 60 percent of either their 180-day average price or current market price—whichever is lower. Once the required margin is restored, the broker must release the collateral upon the client’s request.

Settlement of margin trades

Investors using margin trading must open a separate margin trading account and a margin beneficiary account through their broker. The broker, meanwhile, must open a margin settlement beneficiary account at CDSC for settlement purposes. The investor’s margin beneficiary account must be linked to the broker’s margin account or the settlement member’s margin settlement account.