The Securities Board of Nepal (SEBON) has introduced the “Margin Trading Facility Directives, 2082” under Section 118 of the Securities Act, 2063. This comprehensive framework replaces the decade-old Margin Trading Directives, 2074 and aims to bring greater transparency, risk control, and investor protection to leveraged trading in Nepal’s capital market.
For the first time, stock brokers can systematically offer margin trading facilities (दफ्लिंग करोबार सुविधा) to eligible investors, allowing them to buy listed shares by paying only a portion of the value upfront while borrowing the rest from the broker. The new directives strike a balance between expanding market liquidity and preventing excessive leverage.
Who Can Offer Margin Trading?
Only licensed securities brokers meeting strict eligibility criteria can provide this facility:
- Minimum paid-up capital: Rs 20 crore
- Must be a clearing member of the Central Depository
- Must hold necessary approvals from Nepal Stock Exchange (NEPSE)
Eligible Shares for Margin Trading
Only shares of stable, well-established companies qualify:
- Minimum 25 lakh publicly listed shares (excluding promoter/locked shares)
- Net worth equal to or higher than paid-up capital
- Profitable in at least two of the last three financial years
- At least two years have passed since IPO listing
Key Margin Requirements
| Requirement | Percentage | Details |
|---|---|---|
| Initial Margin | Minimum 30% | Investor must deposit at least 30% of the market value upfront |
| Maintenance Margin | Minimum 20% | Ongoing minimum equity the investor must maintain |
| Leverage | Up to 3.33 times | Investor can control shares worth ~3.33 times their own margin |
- Daily Mark-to-Market valuation is mandatory.
- Brokers may demand higher margins based on client risk profile, market volatility, or specific stock risk.
Margin Call & Forced Sale Mechanism
- If maintenance margin falls below 20%, the broker must issue a Margin Call.
- If the investor fails to top up within the stipulated time, the broker can sell the pledged shares to recover the loan.
- In extreme cases, brokers may accept shares from “A”, “B”, or “H” categories (at 60% of market value) as collateral.
Funding Sources & Exposure Limits for Brokers
Brokers may fund margin loans from:
- Own capital
- Bank borrowings
- Unsecured loans from shareholders or directors (subject to Companies Act compliance)
Strict Limits:
- Total borrowing by broker ≤ 4.5 times its net worth
- Total margin facility ≤ 5 times its net worth
- Exposure to any single client ≤ 10% of the broker’s total margin facility
Operational & Reporting Requirements
- Separate Margin Trading Account and Margin Trading Demat Account required
- Brokers must obtain Power of Attorney from clients for enforcement (optional but recommended)
- Daily reporting to NEPSE in prescribed format
- Monthly summary to SEBON
- Annual statutory audit of margin accounts within three months of fiscal year-end
- Mandatory client agreement covering margins, charges, margin call process, fees, and risk disclosures
What This Means for Market Participants
For Investors
- Greater access to leveraged positions with clear rules
- Higher discipline required due to daily mark-to-market and strict maintenance margin
- Improved transparency and protection against arbitrary broker actions
For Brokers
- New revenue stream (interest + fees) but with significant capital and compliance burden
- Stronger risk management systems mandatory
- Only well-capitalised, professionally managed brokers can participate
For the Market
- Expected increase in trading volume and liquidity
- Reduced systemic risk through regulated leverage
- More professional and transparent leveraged trading ecosystem
Our Advisory to Clients
As a leading accounting and advisory firm, we view these directives as a major positive step toward a mature capital market. However, they also introduce complex compliance, risk management, and financial reporting obligations.
The new Margin Trading Directives, 2082 mark Nepal’s capital market moving closer to international standards while safeguarding investor interests.
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