Margin financing provisions tweaked

  • Markets
  • Friday, 27 Mar 2020

PETALING JAYA: In an attempt to protect investors from the recent margin call and force-selling episode, Bursa Malaysia has waived and modified several provisions related to margin financing for the next six months.

The stock exchange operator said the move is aimed at mitigating the force-selling pressure on the market, as well as safeguarding investors’ interest in respect to those who have pledged their shares for financing.

In addition, these flexibilities may allow investors to provide other types of collateral for purposes of margin financing, if necessary.

The waivers and modifications will be in effect from March 27 to Sept 30.

The initiative is part of a new set of relief measures targeted to a broader group of participants within the capital market. These measures are designed to help lessen the financial burden and provide greater flexibility in navigating the challenging period posed by the Covid-19 pandemic, Bursa Malaysia said in a statement yesterday.

These include a rebate of 50% of the annual listing fees for the year 2020 for listed issuers that had a market capitalisation of below RM500mil as at Dec 31,2019, and reported financial losses for a quarter ended on any date between April 1 and June 30; extension of time to submit a regularisation plan for PN17/GN3 and 8.03A listed Issuers; an automatic one-month extension to submit financial statements; greater flexibility for brokers to manage margin accounts; expanding the list of collaterals for purposes of margin financing; shortened counter service hours by market participants following the movement control order; and extension of time for submission of CDS transaction forms to Bursa Malaysia.

Over the last several weeks, the FBM KLCI has gone on a free fall due to increased margin calls and force-selling.

Investors who cannot cover their margin calls are forced to sell and the stocks they hold fall to new lows. This, in turn, triggers the margin call again, where prices hit new lows and more investors are affected.

For the next six months, stock brokerages or participating organisations (POs) will no longer be required to liquidate a client’s margin account if the equity holding in the margin account falls below 130% of the outstanding balance.

Instead, the brokerage will have the discretion to liquidate the margin account, in accordance with its credit policy.

Brokerages are also allowed to extend further margin financing to clients who are affected by margin calls.

Previously, the stock exchange operator had prohibited brokerages from doing so.

Meanwhile, Bursa Malaysia said that the mandatory requirement for a stock broker to request for additional margin and impose haircuts on any collateral and securities purchased and carried in margin accounts will be removed.

Prior to the change in requirement, brokerages would need to request for additional margins and impose haircuts if there are any unusually rapid or volatile changes in value of the securities, non-existence of an active market for the securities, suspension of the securities from trading on a market or no possibility of immediate liquidation for the securities.

“A PO will instead have the discretion to decide whether to request such additional margin or impose a haircut, in accordance with its credit policy, ” stated Bursa Malaysia.

It added that the requirement for a 100% haircut in the event a counter is suspended for more than two market days has been waived for the next six months.

Bursa Malaysia has also removed the requirement to assign zero value to all other types of collateral as mentioned in Paragraph 1.1(7) of POs’ Directives on Valuation of Collateral and Equity Margin No. 7.30-001.

“Instead, a PO must refer to its credit policy in assigning a value to these other types of collateral, including collateral such as bonds, collective investment schemes, unit trusts, gold and immovable properties, ” it said.

Meanwhile, in view of the MCO which has been extended to April 14, the stock exchange operator has also urged all stock brokerages to limit their counter service hours.

“In order to safeguard the wellbeing of our investors and the PO staff, and to ease the compliance burden of the POs with limited resources during the MCO period, the exchange strongly encourages all POs which provide counter service to their clients or customers to limit their respective counter service hours to between 10am and 3pm during business days, ” it said.

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