The New Nation - Internet Edition

UNB, Dhaka

The Securities and Exchange Commission (SEC) Thursday cautioned small investors of possible risk in investing borrowed money in the capital market.

The stock market watchdog also advised investors not to dabble in highly risky investment market by selling all their belongings like gold, savings certificates and pension fund, as small investors had been the worst sufferers in the 1996 market crash.

"The lenders will realise their money with interest through selling the investors' shares during the market correction period. But the investors will have to count the losses," SEC chairman Faruq Ahmad Siddiqi said at a press conference at the SEC.

The SEC rang the alarm bell as the re-fixed margin rule comes into effect from the next trading day, Sunday, allowing merchant banks or portfolio managers to provide investors with loans to the extent of their investment (1:1).

"It'll not be prudent to invest borrowed money taking high risk as one will have to repay the loan with interest," Siddiqi said, adding that the risk is even higher for the marginal investors.

Replying to a question, he said the regulatory authority reintroduced the rules, including margin rule and netting facility, to increase the fund flow to the capital market.

As the netting facility came into effect last week allowing investors to buy shares immediately after sales deal, the turnover started increasing and hit record highest Tk 372 crore on Tuesday. Stockbrokers projected that fund flow would increase further as the margin rule becomes effective.

The SEC chairman said the new issues of Jamuna oil and Meghna Petroleum took away around Tk 1,000 crore from the market while more issues like Titas Gas would hit the market soon to affect the liquidity position.

"We'll have to reconsider whether the market has the absorption capacity for more issues," he said, apparently in response to the stockbrokers' confidence, as repeatedly voiced, that the market has huge liquidity to absorb more issues.

Whether the SEC had lifted restriction amid demonstration by the investors, Siddiqi said: "The capital market is not a place for demonstration, it's a business spot."

About the market prospect this year, the SEC chairman said the market has a better prospect and some challenges too with the possibility to double the market capitalization due to signs of new issues coming while turnover would rise to few times more.