Margin

From Riski

Jump to: navigation, search

Image:Margin Rate Chart.gif Margin rates (Interactive Brokers)

Contents

Overview

In finance, a margin is [collateral] that the holder of a position in securities, options, or futures contracts has to deposit to cover the credit risk of his counterparty (most often his broker).

This risk can arise if the holder has done any of the following:

  • borrowed cash from the counterparty to buy securities or options,
  • sold securities or options short, or
  • entered into a futures contract

The collateral can be in the form of cash or securities, and it is deposited in a margin account. On U.S. futures exchanges, "margin" was formally called performance bond.

For further information see margin at Wikipedia.

Australia will regulate margin lending


Source:Financial Services Modernisation Regulations - Seeking public comment Australian Minister for Financial Services, Superannuation and Corporate Law, August, 2009

Summary of Draft Regulations

Corporations Amendment Regulations 2009 (Margin Loans)

The purpose of these regulations is to make arrangements for margin lending facilities complementing the amendments to the Corporations Act 2001.

The main provisions refined by these regulations include the following:

  • the unsuitability assessment provided as part of the responsible lending requirements does not constitute the provision of financial advice;
  • a detailed methodology is provided for calculating the monetary threshold contained in the Act for distinguishing between retail and wholesale clients in relation to margin loans;
  • a number of specific matters are prescribed that lenders must take into account when conducting the unsuitability assessment as part of the responsible lending requirements. These are matters that are considered to contain particular risks to potential borrowers. It is further prescribed that the same matters must be addressed in a Statement of Advice that recommends a margin loan;
  • a number of situations are specified for which a margin loan must be assessed to be unsuitable for the client; and
  • the contents required of periodic statements for margin lending facilities.

The regulations also include new provisions where specific arrangements are prescribed for situations where a credit limit breach occurs due to unilateral action by the borrower that is beyond the control of the provider. The arrangements allow a grace period for conducting the unsuitability assessment within a defined period after the breach occurs.

The package of regulations and related explanatory material can be found and downloaded at www.treasury.gov.au

Source: ASIC seeks feedback on financial requirements and training requirements for margin lending facilities Australian Securities and Investment Commission, July 13, 2009

"ASIC is seeking public comment regarding the training requirements and financial requirements for firms that offer or advise on margin lending facilities.

Under legislation recently introduced into the Australian Parliament, margin lending will be regulated as a financial product and supervised by ASIC.

ASIC has today released two policy proposals, Consultation Paper 108 Margin lending: training of financial advisers (CP 108) and Consultation Paper 109 Margin lending: Financial requirements (CP 109), which outline how ASIC proposes to:

  • apply training requirements to financial product advisers who advise on margin lending facilities; and
  • apply the financial resource requirements to Australian financial services (AFS) licensees who provide financial services in relation to margin lending facility products.

‘We encourage everyone who has an interest in the regulation of margin lending to use this opportunity to provide ASIC with comments on the policy proposals’, ASIC Commissioner, Dr Peter Boxall, said.

‘These are two of three consultation papers that ASIC intends issuing about its regulation of margin lending prior to the commencement of the margin lending regime. We will also shortly be issuing a consultation paper about dispute resolution requirements for consumer credit, margin lending and trustee companies. All comments received in response to these consultation papers will be closely considered and will help to shape the final policy position."

References

Aspects of Market Integrity Australian Government, Corporations and Markets Advisory Committee, June 2009

External links

Personal tools