New margin trading directive issued in Nepal; Brokers must have Rs 200 million paid-up capital

KATHMANDU: The Securities Board of Nepal (SEBON) has issued a new directive governing margin trading facilities, formally opening a regulated pathway for investors to purchase shares through loans obtained from broker companies.

The capital market regulator scrapped the earlier directive issued in 2017 (2074 BS) and introduced the new framework on Tuesday. According to SEBON, the revised margin trading directive will come into effect from Falgun 1.

The new provision allows share investors to access margin loans from stockbrokers to finance share purchases, a move expected to enhance market liquidity while bringing tighter risk management and eligibility screening into the system.

Four Conditions for Shares Eligible for Margin Facility

SEBON has set four key criteria that listed companies must meet for their shares to qualify for margin trading:

At least 2.5 million units of public shares (excluding locked-in shares) must be listed and available for trading.

The company’s net worth must be equal to or higher than its paid-up capital, indicating financial stability.

The company must have recorded net profit in at least two out of the last three fiscal years.

A minimum of two years must have passed since the company’s IPO listing.

These conditions are designed to ensure that only fundamentally sound and sufficiently liquid stocks are used as collateral in margin lending, reducing systemic and investor-level risk.

Broker Eligibility Criteria Tightened

SEBON has also defined strict qualifications for stockbrokers wishing to provide margin trading services.

Broker companies must meet the following requirements:

A minimum paid-up capital of Rs 200 million (Rs 20 crore).

Must have obtained clearing membership.

Must either be a depository participant (DP), a shareholder of a DP company, or a subsidiary of such an entity.

In the case of a broker operating as a subsidiary, its parent company must hold depository membership.

These provisions aim to ensure that only financially strong and operationally capable brokerage firms handle leveraged trading activities, which inherently carry higher financial risk.

Loan Tenure and Renewal

Under the directive, the maximum tenure for margin trading loans is one year. However, the facility can be renewed after the completion of the one-year term, subject to compliance with regulatory provisions and broker risk assessment.

Market Impact

Margin trading is widely viewed as a tool to increase trading volume and liquidity in stock markets. By allowing investors to leverage their capital, it can amplify buying power during bullish phases. However, regulators globally also treat it as a high-risk activity due to the potential for amplified losses during market downturns.

With the new directive, SEBON appears to be balancing market development with prudential safeguards, ensuring only financially sound companies and well-capitalized brokers participate in margin lending.

The move is expected to play a significant role in the evolution of Nepal’s secondary market structure, particularly as investor participation and institutional frameworks continue to expand.