Mar­gin fi­nanc­ing pro­vi­sions tweaked

Bursa Malaysia’s move for the next six months is aimed at pro­tect­ing in­vestors

The Star Malaysia - StarBiz - - Front Page - By GANESHWARA­N KANA ganeshwara­[email protected]­tar.com.my

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,” said 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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