The Securities and Exchange Commission at a meeting on Monday asked the merchant banks to formulate their own guidelines specifying the loan ratio on the basis of share prices for their clients under the maximum rate of margin loan.

‘We have asked them to prepare internal guidelines before February 10,’ said Farhad Ahmed, executive director of the SEC.

He said in their guidelines, the merchant banks would set different rates of loan for their clients, keeping the maximum rate at 1:1, considering the price level of the securities.

‘The internal guidelines will not require commission’s approval,’ said Farhad adding that the merchant banks would follow the guidelines in giving loans.

He said top officials of the merchant banks attended the meeting with Faruq Ahmad Siddiqi, chairman of the SEC, in the chair.

The SEC official said the meeting decided that merchant banks would also have to submit to the commission reports of their loan status on monthly basis.

‘We have already given them a format of the report,’ he said adding that ‘Submission of the monthly report of loan status has been made mandatory.’

He said the regulatory body would also monitor the margin loan rules compliance of the merchant banks.

On Sunday, the SEC re-fixed the maximum rate of margin loan for merchant banks at 1:1 with effect from February 10.

The SEC officials said the commission raised the rate with a view to improving the liquidity situation at the market which had recently been going through somewhat shortage of liquidity inflow.

Earlier on November 25, the SEC lowered the margin loan rate at 1: 0.5 for the merchant banks, withdrawing its earlier order through which the regulatory body stopped merchant banks from providing loan to their clients from November 20, 2006.

On October 23 last, the SEC under amended rules fixed the loan ratio at 1:1 for the merchant banks. Prior to the amendment there was no SEC guideline on offering margin loans and the merchant banks followed their internal code of conduct to approve loans to their clients.

The ratio depicts the value of the collateral in relation to the loan. As the ratio is set at 1:1, the clients will get loans amounting to the value of the collaterals.

To improve the liquidity situation in the market, the SEC also reintroduced financial adjustment facility on last Wednesday against the trading of shares of ‘A’, ‘B’, ‘G’ and ‘N’ categories effective from Sunday.