Broker Firms Move to Raise Funds as Margin Trading Prepares for Wider Rollout

Kathmandu — Broker companies preparing to operate margin trading services have started accelerating the credit rating process required to secure bank loans, signalling that Nepal’s capital market may soon see broader use of broker-led financing.

The move comes after the implementation of the margin trading framework, which allows eligible stockbrokers to provide financing support to investors for share purchases. However, despite the regulatory green light, most brokers have not yet been able to launch the service because of funding constraints, approval procedures and operational requirements.

Vision Securities, Broker No. 34, has completed the credit rating process for a short-term loan of Rs 1.5 billion. The company has received a CARE-NP A2 rating for the proposed borrowing, according to the available details. With this, Vision Securities is preparing to obtain bank financing and start margin trading services.

So far, only Naasa Securities has been providing margin trading service in the market. If Vision Securities begins the service as planned, it will become one of the few brokers to operationalise the facility under the new framework.

The Securities Board of Nepal had brought the Margin Trading Facility Directive, 2082 into implementation from Falgun 1. The directive replaced the earlier margin trading framework and introduced clearer rules on broker eligibility, investor margin requirements, eligible securities, risk management and lending limits.

Under the current system, investors seeking margin trading must contribute a certain portion of their own funds while the remaining amount can be financed through the broker. In a typical structure, an investor purchasing shares worth Rs 100 may be required to contribute Rs 30, while the remaining Rs 70 may be financed through the margin facility.

This 30 percent investor contribution works as the initial margin. Investors are also required to maintain a minimum margin level later. If the value of the purchased shares falls below the required level, the broker can issue a margin call, requiring the investor to add more funds or securities.

The interpretation is clear: margin trading can increase investors’ buying capacity, but it also raises risk. When the market rises, investors using margin can earn higher returns on their own capital. But when prices fall, losses can also be amplified, and investors may be forced to deposit additional funds or sell shares.

For brokers, the challenge is different. They need a stable funding source before providing such loans to clients. Since large-scale margin financing requires significant capital, brokers are turning to banks for credit lines. Under Nepal Rastra Bank’s rules, credit rating becomes important when large loan exposure is involved.

Vision Securities Chairman and Managing Director Raj Kumar Timilsina has said the company is in the final stage of preparation to start margin trading. According to the details available, the company has completed the rating process and is now working on bank loan approval.

The company is preparing to use a receivable financing model to obtain funding from banks. Under such a structure, banks may finance the broker on the basis of its receivables, credit profile, corporate guarantee and expected cash flow from margin trading operations.

This model is significant because it could determine how quickly other brokers can enter margin trading. If banks become comfortable with broker receivables as a financing base, more brokers may be able to raise funds and launch the service. If banks remain cautious, the rollout may stay slow.

Other eligible broker companies are also said to be working on credit rating and funding arrangements. Out of 92 broker companies operating in the market, 31 brokers are reported to be eligible to provide margin trading services, subject to regulatory and operational approval.

The list of eligible brokers includes companies such as Crystal Kanchanjungha Securities, Secured Securities, Vision Securities, Primo Securities, Kohinoor Investment and Securities, Deepshikha Dhitopatra Karobar, Imperial Securities, Divya Securities and Stock House, Aryatara Investment and Securities, Dynamic Money Managers Securities and others.

Several other brokers, including Dakshinkali Investment and Securities, Shweta Securities, Sumeru Securities, Naasa Securities, Siprabi Securities, Bhrikuti Stock Broking, Sundhara Securities, Creative Securities, Trishakti Securities, ABC Securities, Shree Krishna Securities, Online Securities, Sunny Securities, Open Securities Investment, Kalika Securities, Nabil Stock Dealer, Nagarik Stock Dealer, NIMB Stock Markets and Himalayan Securities, are also among those that may provide the service if all requirements are met.

However, market participants say permission alone is not enough. A broker must have sufficient capital, banking support, internal risk management systems, separate margin accounts, client-level exposure monitoring and the ability to handle margin calls in a timely manner.

This is why the actual implementation of margin trading has remained slow. Although the idea has been discussed for years, brokers have found it difficult to arrange funding and design a workable operating model.

Nepal Stock Exchange officials have also indicated that not all brokers can provide margin trading. Only those with required approval and capacity will be allowed to operate the service. Some newer brokers are reported to be seeking approval from Nepal Rastra Bank before entering the business.

The Stock Brokers Association of Nepal has also raised policy concerns. It has suggested that margin trading loans should be developed as a separate financial product and classified as business credit rather than being treated in the same way as regular share-backed loans.

The association has further proposed that share-backed and margin-type lending should be removed from the existing limit linked to banks’ core capital and instead be calculated on the basis of total loan exposure. Brokers argue that unless the policy treatment becomes clearer, banks may remain reluctant to finance the service at scale.

For Nepal’s stock market, wider implementation of margin trading could have both positive and negative effects. On the positive side, it may increase liquidity, support active trading and provide investors easier access to financing through brokers. It could also make the market more modern by allowing investors to receive trading and financing services from the same institution.

On the risk side, margin trading can increase speculative behaviour if not properly monitored. Excessive leverage may create pressure during market corrections, especially if many investors are forced to meet margin calls at the same time. This makes strong supervision, transparent rules and disciplined risk management essential.

The latest preparation by Vision Securities therefore marks an important development, but not a complete breakthrough yet. The real test will be whether banks approve funding, whether brokers can manage risk professionally and whether investors understand the obligations that come with leveraged trading.

If Vision Securities begins the service from the coming fiscal period as planned, it could encourage other brokers to move faster. But the pace of expansion will depend on bank financing, regulatory clarity and the market’s ability to handle leverage responsibly.

For now, broker-led margin trading appears to be moving from policy discussion toward practical implementation. Its success will depend not only on how many brokers enter the business, but also on whether the system can balance market liquidity with investor protection.