NEPSE trading

Financial Literacy
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By NEPSE TRADING

Margin Trading in Limbo for Two Decades: Policy Ambiguity and Technical Gaps Hold Back Reform

Margin Trading in Limbo for Two Decades: Policy Ambiguity and Technical Gaps Hold Back Reform

Kathmandu – It has been nearly two decades since discussions on margin trading began in Nepal’s capital market. Yet the facility remains incomplete and largely ineffective. Introduced to help investors purchase shares even with limited capital, the system has faltered due to policy ambiguity, technical weaknesses, and lack of adequate resources.

In 2017 (2074 BS), the Securities Board of Nepal (SEBON) issued a directive on margin trading, raising expectations among investors and brokers. Some brokerage firms even began limited operations. However, confusion in the directive itself, difficulty in mobilizing funds through banks, and systemic bottlenecks forced the service to shut down within a short span of time, leaving investors disappointed.

Margin trading essentially allows investors to buy securities by paying part of the amount themselves while borrowing the remaining portion from their broker. For example, to purchase shares worth Rs 1 million, an investor pays Rs 500,000 while the broker provides the other half as a loan. The investor then pays interest on the borrowed amount.

In Nepal, however, brokers’ limited capital, lack of an integrated system in NEPSE’s TMS, and cumbersome rules for opening separate accounts have prevented the service from taking root.

Recently, the Nepal Stock Brokers Association submitted detailed suggestions to SEBON. Their demands include creating a separate margin trading window in TMS, introducing real-time margin calculation, categorizing companies based on size, governance and risk with 30–50% initial margin requirements, and allowing brokers to mobilize funds not only from banks but also from non-banking institutions, clients, or promoters.

“We cannot sustain this system with bank financing alone,” said one brokerage director. “There must be room to raise capital from other sources as well, otherwise margin trading will never become practical in Nepal.”

Globally, margin trading has a long history. In the United States, investors are allowed to borrow up to 50% of a stock’s value, with a minimum 25% maintenance margin mandated by FINRA. Total margin debt has now crossed one trillion dollars, a record high. In the European Union, leverage is capped at 5:1 for retail investors, with Negative Balance Protection ensuring that accounts never fall into negative territory.

China, meanwhile, experienced explosive growth in margin lending during the 2014–15 bull market, with debt surpassing ¥2.2 trillion. But when the market crashed in 2015, forced liquidations and margin calls deepened the crisis. Even today, margin debt in China has once again crossed ¥2 trillion, prompting stricter regulation. In India, SEBI’s Margin Trading Facility (MTF) requires investors to maintain at least 20% equity upfront. After the introduction of peak margin rules in 2021, speculative trading declined but overall market stability improved. Japan’s “Shinyo Torihiki” system, accounting for nearly 70% of retail trading, combines strict collateral ratios and short settlement periods to contain risks.

Nepal, by contrast, still lacks intraday trading, which limits opportunities for investors to benefit from short-term price swings. Moreover, while banks currently provide share loans at 8–9% interest, borrowing through brokers for margin trading would likely be costlier. According to Nepal Rastra Bank, margin-type loans from banks and financial institutions had already exceeded Rs 128 billion by mid-2025.

Analysts argue that margin trading remains a necessity for Nepal’s capital market, but its success depends on clear regulations, technical upgrades, and strong investor protection measures. “The absence of a functioning margin system makes investors feel insecure,” said capital market analyst Bishnu Khanal. “If regulators can ensure transparency and strengthen enforcement, margin trading could push Nepal’s market to a new level.”

For now, the central question remains: Can Nepal revive margin trading effectively after two decades of delay? Optimists believe that with the right reforms, the country’s capital market could finally open a new chapter.

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