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

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

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...

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.....

I just realize i work in an Ah Long bank, i suggest you don't come to my bank..