Depends on the bank.

1. Maybank's share margin is working more or less this way

2. U still settle all, your margin account goes up 10K

3. Charged monthly if not mistaken, but calculated daily for M2U

4. Based on PURCHASE PRICE, or loaned amount, not market price.

5. I'm not sure, should be interest only, unless either u close the margin account or maybe margin expiry? Based on M2U agent, they mentioned no duration limit!!!




For those still into this, M2U is having promotion till June I think.
Interest is BLR - some percentage, forgot.
I think net is around 3.XX percent, quite cheap I think.
Sound ok to even just buy, say Guiness and just wait for dividend...

Apply before June, u will be entitled to a fixed rate FOREVER.
I didnt believe that as well, but that is what the agent told me over the phone.
I'm gonna go check it out soon.

1. Depends on ER

2. T+4 u start to pay interest on you purchased contract

3. Intest is calculaed on daily basis and payable at the end of each month.

4. Don't have to refer to calculation.


Had a brief stint with dealing with Margn Agreements, so correct me if I am wrong...

Why Margin Facility?
Say a person has substantial amount of shares in an account, he/she is probably holding it for the long haul (cause they are dividend yielding stocks or probably he/she is a director of a company) probably 1 yr?

If your holding your shares, even if there is appreciation or depreciation of value in the said shares... the gain/loss is merely on paper is a person does not realize the value.

So basically if you have shares sitting in an account for a period of 1 year not re-generating any profits (execpt in the case of dividends etc..), its no different from putting your money under the pillow.

One of the unique features of Margin Facility is to allow you to utilize this shares as collateral (shares unlike properties are considered much more volatile, most commercial banks would not accept it as good collateral) after a certain haircut imposed by the Investment Bank.

***

What types of Collateral are acceptable?

1. Shares (namely those permitted by Bursa, main board shares)
2. Cash
3. Though there are other collaterals which are deemed acceptable to the bank, but generally speaking the industry only accepts 1 & 2 above. (if otherwise correct me)

***

The determining factor of when you can withdraw or required to top up your Margin Facility are determined by 3 Equity Ratio (I only know the %pecentage but i don't know exactly how it operates)

180% - equity ratio - allows u to withdraw surplus funds
150% - Margin Call - you can only sell at this level or top up
140% - Force sell - immediate liquidation without notice

the % if you notice may vary from those prescribed from Bursa, for the purpose of margin financing.. certain banks will impose a higher ratio to manage (off set) their clients risk.

***

Last min updated:

Calcluation of Equity Ratio

ER = TMV / OS

ER= Equity Ratio
TMV = Total Market Value of Purchase + Collateral
OS = Net Outstanding Balance (ecl cash deposits)

***

Fees Payable during the tenure of a Margin Facility:

Rollover interest = X% service charge on the total amount outstading of all purchases due and owing as at the date of renewal (normally a margin facility will run for 3 months)

Interest =
1. X% interest will be calculated on a daily basis to be settled monthy (end of the month)
2. Interest chargeable at the from T+4 from the date of contract for purchases.

Commitment Fee
X% based on daily unutilised facility amount to be calculated monthly

***

Another Note*

You will find in some agreements that Margin Facility agreement isn't for INVESTMENT PURPOSES (long/short term), its a must have tool for Speculators (Intra day) but not Investors.

- notice the "commitment fee".

***

The Con of Margin Financing is...
1. If you not using the facility its going to cost you money
2. if you leave it idle more than 30 days from the first day you opened it, the Bank will cancel ur facility
3. Only for intraday player.


This post has been edited by aurora97: Apr 22 2009, 03:19 PM

Just want to ask what you mean by if the facility is not being use, it will cost money?

Previously I'd signed up for Maybank2u, they asked me to open two account. One is Cash one & the other one had margin facility. However, I have not been doing margin type of trading. Even for my margin account, I also bank in cash first(i.e. not using the facility). So far I didn't see any additional charges in my statement. [Note: If there are charges, I will go & cancel this account because I absolutely don't want to fall into trap]

This post has been edited by whizzer: Apr 22 2009, 04:24 PM

Meaning say your approved limit is Rm 500,000 and you only manage to use say RM 10,000. With the balance Rm 490,000 unused. The interest payable on the unutilised portion would be Rm 4900 i.e. 1% commitment fee.

Perhaps other banks offer more competitive packages i don't know, i didnt read your agreement so i can't comment on that. You'd probably know f the is any additional charges at the end of the month or the conclusion of the Margin Facility cycle i.e. 3 months.

***
Investment Bank

Where does the money come from to finance investment facilities like Margin Financing.

I believe this it how it works. You see Investments Bank don't take deposits so basically, IB are already at a disadvanatge. You need money to make money.

So with limited funds an IB has to allocate and give out inter-company loans in order for its subsidiaries to carry out its businesses. In return when this subsidiary grows in size together with a fat bank account, the subsidiary may opt to pay dividend.

*by the way most of this loans to my knowledge never gets repayed, effectively sucking the holdings company (mother company) dry.

Margin Department
This is where indirectly if u can get where I am going at, the Investment Bank is indirectly financing its clients to purchase/sell shares in the open market.

On a lighter note:
- Hence making money out of nothing except for paying the interest and all, other than that ur basically using the banks money to make more money!

On the darker side:
- Margin contributes to some extent to the NPL of an Investment Bank.

So why the commitment fee and potentially charges being added onto the unused portion of the facility? Is because the IB will lose out since it eats into the allocation of monies.



This post has been edited by aurora97: Apr 22 2009, 05:23 PM

Margin trading account and margin financing is two different thing.
Margin trading account is whereby u can buy without upfront money, then top up before T+3.

For M2U margin financing (MF), the good thing from what I was told, is no charges if you don't use, except for the first time minimal application charges, or maybe some yearly fixed charges.

Also I was told they only charge based on the margin account usage, not the margin account limit.

The M2U MF application form has some fields for asset declaration, as well as debt declaration. I suppose every bank / scheme has some formula for margin limit calculation.

Remember also this is SHARE MARGIN FINANCING, so probably u cannot take out cash.

I don't quite agree with keeping shares for dividend is equiv to keeping cash under pillow.
Many of my shares are giving good enough dividend to warrant paying for long term.
Guiness is one such share.

I'm not sure how the banks can categorize your share purchase for investment purposes, or for speculating. I'm guessing its just a guideline.

Whizzer, thanks for mentioning commitment fees, I will check out if the M2U MF indeed has no commitment fees, and also on the calculation for rollover interest.
Will also definitely pay attention to any equity ratio.

Ok. I don't remember signing anything about the facility. Could be that my accounts are both non-margin type ? Its been more than 3 months (so your explanation about the 1% commitmt fee leaves me worried )

Anyway, I open the two accounts last year. Can help to explain the product type ?
Product Type : Z001 - Non-Margin Tempatan
Product Type : D001 - MI Cash Tempatan

The only difference I observe is that the Z001 allows me to buy 2x the market value of the shares I have without me having to have the cash in my account.

---

Added on April 22, 2009, 6:09 pmDidnt see this post I guess mine is margin trading account. Now i wonder why I have two. Guess I didn't really do my homework before signing up.

This post has been edited by whizzer: Apr 22 2009, 06:10 PM

Thanks for clarification.

Margin Trading Account, used this before in HKEbroking... damn shock can even request for increase limit if u burn out the margin trading account. (that is if u have gd track record )

**

I am talking Margin Financing, BUT in relations to MY INVESTMENT BANK not HLE, not MAybank, Not CIMB but my bank.

Also I was told they only charge based on the margin account usage, not the margin account limit.

This is correct perception, but some banks like mine also attach commitment fees payable on the unused portion.

Say your Margin Facility limit is 800,000 granted to you, and u used only about Rm 100,000 (this will incurr the standard agreed interest of X%).. the balance 700,000 will incurr commitment fee charges of X%

***

The M2U MF application form has some fields for asset declaration, as well as debt declaration. I suppose every bank / scheme has some formula for margin limit calculation.

Asset declaration or debt declaration, to my knowledge is merely an over and above requirement imposed on Client. (unless ur talking about Foreign Share Trading - declaration is mandatory)

The calculation is listed above.

I think you one is a Margin Trading Account not Margin Financing...

I think is PBB is offering 4.5%, quite a good rates compare to other bank.

Haiya... just went MBB Investment Centre to check out the promotion.
Seems that I have missed the boat for 3.75% margin financing account!!! If your margin limit is 250K+, it was even lower at 3.25%.

They have increased the rate to around 4.5% (below 250K) liao...
But still okay rate lah.

I have also confirmed that the rate is fixed FOREVER!

Also, no commitment fee below 250K approved limit.
But first time charges quite high around RM700.

For equity ratio, it is around 65%.
Eg, if your shares value is 100K, and your margin financing account is at around 65K, then you will have to either top up money or sell some shares.
So safest to apply limit of 50K if you holding 100K shares, then use only up to 50% of approved limit.

I have also checked and no limitation on what kind of shares you can buy, eg long term / contra also can.

for those taking margin to play share.

I wanna share my experience with you.

Please do not max out your margin facility if you got no intention to top up monthly (injecting capital on a monthly basis)

example,

you have 100k, you can get 150k margin. Meaning you can trade 250k.

Please do not max out 250 in one go.. best is buy to a range of 66 to 75%.. for 250k, meaning 165k to 188k.. this is to safeguard against margin call..

2nd tip.. please allocate some money to inject into your margin facility every month.

3rd tip.. BLR is the lowest right now. the only way BLR is going is -- UP UP UP UP UP!!!

so plan and be prepared for that

i have RM10k in my CDS hlebroking account.But my trading limit is RM20k.
If i deposit RM10k into margin account...would it be like having RM40k trading limit? RM10k cash deposited in + RM10k(margin financed)=RM20k then double up=RM40k?

for most share margin facility, you get 1.5 ratio

meaning,

if u deposit RM10k, you get 15k margin.. meaning u can trade = 10 + 15 = 25k

Hmmm..

1. I already have HLEbroking account, do I still need to provide any information to upgrade to Share Margin Financing account?

2. How does the interest goes? For like extra 10k how many should I pay? Do I need to settle my interest every month or by just settling the interest and not the whole share price of certain stock?

3. Margin finance give me 1.5 ratio but my HLEbroking already give me 2 ratio

4. Does all the rules apply same as normal broking account? Like when I selled all share on one stock, the interest charge will gone on that particular stock that I sold?

Please guide me sifu ^^ I'm ready to sell my body to stock market.. LoL jk

This post has been edited by shoduken: May 18 2009, 10:26 PM

1. You have to apply for this facility. I don't think you need any additional criteria

2. Interest is BLR - 1.75%, you might get lower for HLE. For extra 10k, you should have stock worth 10k, fully paid off. Yes, you settle your interest everymonth, thru deduction from your current account. You are not allow to make withdrawal from current account

3. good if they give you 2 time ratio

4. Interest charge is not gone when you sell your stock. Interest and your stock at hand got no corelattion at all...

Please becareful of SMF.. if you cannot take the heat, becareful of playing with fire

Lets say I pledge 200lots of STAREIT for margin facility. Then I buy more of the same shares with the margin amount. In theory, it will be self sustaining right? ie. dividend will be more than enough to cover interest.

Those margin sifus, how risky do you think this strategy is?
1 = no risk, 10 = Very risky

Thx

My thoughts based solely on theory...
Probably in theory yes it might do the trick...

The performance of the Reit counter,
other factors like act of god (entire building got burnt down )
sudden announcement stating no dividend for that year
negated market volitility,
top ups (margin calls),
Fees/Expenses, cost, losses that you need to finance your purchase,
commitment fees
rollover fees
taxes
commission

etc.....

Yeah, agree. There's still lots of other unsystematic risk to consider.

My thinking is that, after deducting the interest from the income return, there's still a spread of 4-6% to account for the risk. Im still unsure whether its worth taking the risk for an extra 4-6% return.

If you are certain that the price of the reit will not fall,and the total yearly distribution will remain or increase,and that interest rate charged will remain unchanged,then it is worth trying.

But nothing is certain in this world.Also bear in mind that single stock financing is not acceptable to many broking firms.

Yes, this is what we call carry trade.

This is always a risky move. Only do if you afford and dare to take the risk and fully aware the consequences.
Lot of people burnt more than people gain through this way, because of greed and timing. Main reason, people only want to do margin facility when market is bullish time aka market has run up significantly only then people turns more greed want to trade more so using margin.

If market turns out to be good, one can get wealthy very fast, as you put on leverage, people gain 1 you gain 2, so multiply the long term and repeating effect, you will be rich very soon.
People go from 1 to 2 to 4, you go from 2,4,16.

If market turns out to be against you, double trouble, loss on capital while still need to pay interest, worst still can't meet margin call, then have to sell everything to repay. Even market does rebound back, you actually game over as you have to sell everything you got.

One word, nothing is predictable in stock market and market always not behaving what people expected.

One word, nothing is predictable in stock market and market always not behaving what people expected.

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manyak setuju woo..