KUALA LUMPUR (March 26): Bursa Malaysia Securities Bhd has announced the temporary relaxation of margin financing rules to ease the pressure of forced selling on the market, amid the virus-driven equity rout.

“Due to uncertainties in the global as well as local market arising from the COVID-19 outbreak, selling pressures have impacted the share prices, resulting in forced selling pressure to many counters and affecting investors, especially those with margin accounts.

"In view of the above, and as part of the market management measures, the exchange will facilitate Participating Organisations (POs) to accord the appropriate flexibilities to their clients and also to manage the POs’ credit risks. The measures are aimed at mitigating the forced selling pressure on the market, as well as safeguarding investors’ interest in respect to those who have pledged their shares for financing," the exchange regulator said in a circular to POs this evening.

These flexibilities may also allow investors to provide other types of collateral for purposes of margin financing, as may be necessary, it said.

To facilitate these measures, it has temporarily modified the relevant provisions of the Rules and Directives of Bursa Malaysia.

In particular, Rule 7.30(12) - which dictates that the PO must liquidate the client’s margin account in the event that the equity in the account falls below 130% of the outstanding balance - has been modified to remove the mandatory liquidation requirement. So, the PO now has the discretion to decide whether to liquidate the margin account or otherwise, in accordance with its credit policy.

As such, the provision in Rule 7.30(14), which states that no further margin financing can be extended following the events stated in the rule above, has been waived for consistency.

Besides that, it is no longer mandatory for a PO to request for additional margin, and to impose haircuts on any collateral and securities purchased and carried in margin accounts upon the occurrence of: i) unusual rapid changes in value of the securities, ii) the non-existence of an active market for the securities, iii) suspension of the securities from trading, or, iv) 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,” it said. This is a modification to Rule 7.30(19).

The bourse also modified a paragraph which requires the assignment of zero value to all other types of collateral. Instead, a PO must now refer to its credit policy in assigning a value to other types of collateral, including bonds, collective investment schemes, unit trusts, gold and immovable properties.

The waiver and modification of these rulings will take effect tomorrow (March 27) until Sept 30, 2020.

The bourse also took note of the extended Movement Control Order (MCO) and encouraged all POs, which provide counter service to their clients and customers, to limit their respective counter service hours to between 10am to 3pm during business days.