NEPSE implements working procedure related to margin trading facility

KATHMANDU: Nepal Stock Exchange (NEPSE) has implemented the Working Procedure Related to Margin Trading Facility, 2082, to bring margin trading into a formal, regulated framework and to make the market safer, more transparent and better organised.

Prepared in line with the Securities Board of Nepal (SEBON) Margin Trading Facility Directive, 2082, the procedure defines margin trading as the buying and selling of shares using loans provided by securities brokers. Investors must deposit an initial margin before a transaction and maintain a maintenance margin thereafter.

Brokerage firms wishing to offer margin trading must obtain NEPSE permission and hold a SEBON licence and NEPSE membership. NEPSE has set a minimum paid‑up capital requirement of Rs 200 million and requires clearing membership and depository participant infrastructure.

Margin trading will be permitted only for shares of companies that meet specific eligibility criteria. NEPSE said eligible firms must have at least 2.5 million shares issued to the public, a net worth equal to or greater than paid‑up capital, profitability in two of the last three years, and at least two years since their initial public offering. NEPSE will publish and update a list of eligible companies each fiscal year.

For companies removed from the eligible list, margin facilities must be closed within 30 trading days or a 100% margin must be maintained. Investors wishing to engage in margin trading must open a separate account through a broker, provide mandatory client identification (KYC) details and sign a formal agreement.

Under the rules, investors must maintain a minimum initial margin of 30% of the purchase amount and a maintenance margin of at least 20%, depending on market conditions. If the share price falls and the maintenance margin cannot be sustained, the broker will issue a margin call; the investor must deposit the required cash or additional shares before the next trading day. If the margin is not restored within the specified time, the broker may sell the shares in the margin account without the investor’s permission. If the margin falls below 15%, the shares can be sold immediately.

The procedure prioritises market risk management. Brokers may demand an initial margin above 30% if deemed necessary. Shares in A, B and G categories can be used as collateral but will be valued at 60% of market price. Bonus shares will be automatically included as collateral, while separate maintenance margin provisions may be set for right shares.

NEPSE said the new procedure is expected to institutionalise margin trading in Nepal and curb share transactions based on unregulated debt. Analysts said the move could provide more opportunities for investors but warned that strict risk‑management provisions may increase pressure on small investors.