KUALA LUMPUR (Sept 28): The temporary relief measures relating to margin financing for equity trades have been extended to Dec 31 to maintain stability in the marketplace amid continued uncertainties arising from the Covid-19 pandemic.

The Securities Commission Malaysia (SC) and Bursa Malaysia Bhd, in a joint statement, said flexibilities accorded under the relief measures will enable brokers to better manage their clients' margin financing facilities.

The relief measures, which took effect on March 27, were due to expire on Sept 30.

During this interim period, brokers can continue to exercise discretion whether or not to impose force selling measures on clients, and accept other types of collateral from investors such as bonds, unit trusts, gold and immovable properties for purposes of margin financing, said SC and Bursa.

Previously, brokers were required to automatically liquidate their clients' margin accounts if the equity value in those accounts fell below 130% of the outstanding balance.

"These temporary measures are subject to brokers meeting their own capital adequacy ratio and shareholder funds as required by Bursa Malaysia. They are also expected to exercise discretion in accordance with their own credit risk policies.

"Both the SC and Bursa Malaysia will continue to monitor developments in the securities market and evaluate the adequacy of existing measures to support an orderly market and to mitigate potential risks," the two regulators said.

A local broker, who requested anonymity, explained that brokers would typically want the equity value to be as high as possible. And should the equity value of a client fall below 130% of the outstanding balance, it would normally already trigger force selling.

In a nutshell, the equity value is the amount a client has in the margin portfolio, while the outstanding balance is the amount owed to the broker.

For instance, an investor who has an oustanding balance of RM100,000 in his margin financing account, when the value of the investor's portfolio falls below RM130,000, he will receive a call from the stockbroker asking him to top up the shortfall in his margin account. If he fails to do so, the stockborker will force sell his shares.

And with these temporary relief measures, it enables brokers to hold back from selling their clients' shares.

"Basically, it's to prevent another bout of bloodbath in the market [that happened in March]," said the broker.

These temporary relief measures are to maintain the stability in the market that could have a ripple effect on other shares, the broker added.

An analyst, also speaking on condition of anonymity, said the move is good for the market as it would result in less selling pressure because clients are given more breathing space to recover.