Brokers urge to let them lend clients

KATHMANDU,DEC 15: 

Share brokers are seeking for the permission to undertake margin lending for the investors from the regulator. 

“There is a need to open margin lending services from the brokerage firms in order to boost the market confidence,” said president of Stock Brokers Association of Nepal (SBAN) Anjan Raj Poudel.

Under the margin lending, the brokers can give partial loan to client in order to cover a larger investment than one’s capital could directly cover for a fee. The broker places the buy order on the behalf of clients even if the client furnishes only a portion of total amount required to purchase the shares while the rest of the required amount is furnished by the brokers themselves. The margin account with the brokers acts as leverage for the investors allowing them to purchase shares despite being short of cash. “We have held discussions with different investors’ associations and Securities Board of Nepal and Nepal Banker Association,” he added.

Margin lending by brokerage houses is common practice the world over but the domestic capital market regulator has yet not allowed the brokers to maintain such margin accounts for their clients.

Moreover, borrowing from the financial institutions to buy the shares is not an easy task in the present bearish scenario despite the relaxed provisions by the central bank.

“Brokers understand the financial ability and risk appetite of their clients so they have better judgment about lending them,” pointed out Poudel.

“A comprehensive study is required to ascertain the need and operation of margin lending,” said director of board Niraj Giri. “Even if regulator decides to allow margin lending, it has to prepare strong guidelines.”