Kathmandu: Securities regulator has approved a new margin trading directive that will come into effect from February 13, introducing tighter eligibility, capital, and risk management requirements for both brokers and investors.
The Securities Board of Nepal (SEBON) finalized the “Margin Trading Facility Directive, 2025” after seeking public feedback on a draft version, replacing an earlier 2017 directive that was never implemented.
Issued under the authority of the Securities Act, the new framework allows licensed stockbrokers to offer margin trading facilities to investors, subject to strict conditions. Only shares of listed public companies meeting specific financial and liquidity benchmarks will qualify.
Eligible companies must have at least 2.5 million publicly held shares listed, a net worth equal to or greater than their paid-up capital, profits in at least two of the past three fiscal years, and at least two years elapsed since listing through an initial public offering.
Brokers offering margin trading must have a minimum paid-up capital of Rs 200 million, hold clearing membership, and either be a depository participant, a shareholder in a depository participant company, or a subsidiary of a company with depository membership.
The directive requires brokers to collect an initial margin of at least 30 percent of the market value of shares purchased under the facility. They must maintain separate records of margin-bought shares, margin funds, and client details, and conduct daily mark-to-market valuation. However, investors cannot access additional credit simply because share prices rise.
Depending on client risk profiles, market conditions, and stock-specific risks, brokers may demand margins higher than the minimum requirement.
A maintenance margin of at least 20 percent must be maintained throughout the margin period. If falling share prices erode required margins, investors are responsible for restoring the balance. Brokers must issue a margin call if the maintenance margin is not met, and may liquidate the shares if the investor fails to comply.
Procedures for margin calls and forced sales must be clearly outlined in brokers’ internal processes, and settlements must be reported to the stock exchange. As an alternative to cash, brokers may accept listed “A,” “B,” or “G” category shares as collateral, valuing them at only 60 percent of their market price. Such collateral must be released upon the investor’s request once maintenance margin requirements are restored.
To finance margin lending, brokers may use their own funds, borrow from banks and financial institutions, or take unsecured loans from shareholders or directors in compliance with company law. Total borrowings for margin trading, including bank loans and unsecured shareholder loans, cannot exceed 4.5 times the broker’s net worth. Brokers are prohibited from using one client’s cash or securities to finance margin facilities for another client.
The directive caps total margin exposure at five times a broker’s certified net worth. No single client, including immediate family members or related entities, may account for more than 10 percent of the broker’s total margin portfolio. Brokers are also required to ensure portfolio diversification when extending margin facilities.
Operationally, margin trades must be clearly identified daily during trading, post-trade processing, and clearing. Investors must open separate margin trading and margin beneficiary accounts through their broker, while clearing members must maintain dedicated margin clearing beneficiary accounts with the central depository.
The directive permits brokers to obtain a limited power of attorney to manage margin accounts strictly for the purpose of selling shares and settling obligations if investors fail to repay loans or maintain required margins. In cases where a broker’s trading system can adequately segregate margin transactions within an existing account, a separate margin trading account may not be necessary.
Margin trading agreements will have a maximum tenure of one year, with the option for renewal upon expiry.
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