Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on March 27, 2020

KUALA LUMPUR: Bursa Malaysia has announced the temporary relaxation of margin financing rules to ease the pressure of force-selling on the local market, amid the coronsvirus-driven equity rout.

By the same token, some quarters have raised concerns about the risk brought by the measure in the scenario in which the underlying asset prices remain under selling pressure.

“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 force-selling pressure on 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 force-selling pressure on the market, as well as safeguarding investor interest in respect of those who have pledged their shares for financing,” the exchange regulator said in a circular to POs yesterday 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 today until Sept 30, 2020.

Bursa Malaysia also took note of the extended movement control order and encouraged all POs, which provide counter services to their clients and customers, to limit their respective counter service hours to between 10am and 3pm during business days.

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