The Securities and Exchange Commission’s (SEC) new directives on margin lending and Central Bank’s new guidelines on interest rates have triggered a new line of business for some banks, the Business Times learns.
The SEC wants (from January 1, next year) for stockbrokers to extend credit beyond the T+3 (trading day+ three market days) only through a margin trading account. Day traders (from next year) will need to sign a risk disclosure statement and open a day trading account with a margin assigned which will show the trader’s day trading purchasing power.
“There are a few who have started this such as Pan Asia which is moving aggressively towards this. It can become another revenue generator for the banks - especially at a time where they are struggling to lend,” an analyst said, adding that it’s a great opportunity.
Others say that with the CB’s recent circular requesting the commercial banks to ease lending rates to customers, especially on housing and credit card lending has seen banks now moving aggressively into stock market margin providing business.
The CB has requested all banks to take appropriate measures to reduce interest rates housing loans to 14 percent per annum, Interest rates on credit card advances to 24 percent per annum and interest rates on other loans and advances to be adjusted downwards by around a further 1-2 percent per annum by next month.
“Most broking houses will set up their own margin providing companies (obtaining fresh licenses, which a relatively forthcoming) by December 31st. Interest income has also become a lucrative source of income for some broking houses. I doubt whether they will give it up that easily,” Deshan Pushparajah, Manager Corporate Affairs, Capital Alliance Holdings Limited noted.
He said that broking houses will still have their traditional sources of finance, the only new thing required is to switch these into a new company set up with the sole purpose of margin provision.
Another analyst agrees saying that despite some banks benefiting by providing margins, the stock brokering firms will also apply for the margin provider licence from the SEC in order to better serve their clients.