SEBON Approves New Margin Trading Rules from Falgun 1

Nepal’s capital market is set to enter a new phase as the Securities Board of Nepal (SEBON) has approved the Margin Trading Facility Directive, 2082, replacing the decade-old 2074 framework. The decision was taken during a recent board meeting, with the new provisions scheduled to come into force from Falgun 1.

The revised directive formally opens the door for investors to purchase shares through margin financing provided by licensed stockbrokers. Under this system, investors can buy shares by depositing a portion of the required amount while borrowing the remaining funds from brokers. The upfront amount deposited by investors is defined as the initial margin, while any additional funds demanded when share prices fall below a prescribed level are known as a margin call.

SEBON has clarified that margin trading will not be permitted for all listed companies. According to Clause 3 of the directive, only companies meeting specific financial and structural criteria will qualify. Eligible companies must have at least 2.5 million ordinary shares listed on NEPSE (excluding shares under lock-in), maintain net worth equal to or higher than paid-up capital, and report profits in at least two of the last three fiscal years. Additionally, a minimum of two years must have elapsed since IPO listing. These measures are intended to curb speculative trading in financially weak companies and reduce investor risk.

The facility will also be selectively available among stockbrokers. Brokers wishing to offer margin trading must obtain prior approval from SEBON and meet strict eligibility requirements. A minimum paid-up capital of NPR 200 million, clearing membership, and depository participant status are mandatory. Furthermore, brokers must secure prior consent from NEPSE before initiating margin trading services.

To manage systemic risk, the directive places clear limits on both investor exposure and broker lending capacity. Investors must deposit at least 30 percent as initial margin at the time of purchase and maintain a minimum 20 percent maintenance margin throughout the trading period. Brokers are permitted to provide margin facilities up to five times their verified net worth, while exposure to a single client or related family members cannot exceed 10 percent of the total margin portfolio.

Given the volatility of stock prices, SEBON has made the mark-to-market mechanism compulsory. Brokers must reassess margin positions daily based on prevailing market prices. If an investor’s margin falls below the maintenance threshold, an immediate margin call must be issued. Failure to comply within the stipulated timeframe empowers brokers to liquidate the pledged shares to recover outstanding dues.

Brokers may fund margin lending through their own capital, bank and financial institution loans, or unsecured borrowings from shareholders and directors. However, such borrowings are capped at 4.5 times the broker’s net worth, ensuring leverage remains within controllable limits.

Transparency remains a cornerstone of the new directive. Brokers are required to maintain separate margin trading accounts and margin demat accounts, submit daily margin trading reports to NEPSE, and ensure public disclosure through the exchange’s website. Additionally, brokers must conduct an annual audit of margin trading activities and submit the audit report to SEBON within three months of the fiscal year-end.

Market participants expect the new framework to significantly enhance liquidity in Nepal’s stock market. Small and mid-sized investors will gain greater purchasing power, potentially boosting market demand. At the same time, brokers are expected to diversify revenue streams by earning interest income through margin lending rather than relying solely on trading commissions.

With full implementation from Falgun 1, SEBON anticipates increased liquidity, broader investment participation, and a more disciplined margin trading environment in Nepal’s capital market.