Margin Call and Forced Selling when using a Margin Trading Account (Grade Based Interest Rate Scheme)
Margin calls are issued once the total collateral in the margin account falls below a minimum percentage of the total amount financed called the margin ratio.
We will illustrate this by using the example in illustration 2 where a SGD750,000 bond is purchased with deposit of SGD250,000 cash as collateral:
Day 1
Value of cash pledged = SGD250,000
Value of bonds bought = SGD250,000 × 3 = SGD750,000
Amount of financing = SGD500,000
Margin Ratio = SGD750,000 ÷ (SGD750,000 - SGD250,000) = 150%
Day 2
Assuming the value of bonds drops 10%
Value of bonds bought = SGD675,000
Amount of financing = SGD500,000
Margin Ratio = SGD675,000 ÷ GD500,000 = 135%
If margin ratio falls below 140%
You are required to provide additional cash (in this case, SGD17,858), marginable securities or liquidate positions within 5 market days, failing which we will liquidate the required amount of securities to bring the margin ratio to 140% or above.
If the OTC bond position has to be liquidated, it will be liquidated per tranche of either SGD250,000 for SGD issues or USD200,000 (or equivalent) for other currency issues. No partial amount per tranche can be liquidated.
If margin ratio falls below 130%
At our discretion, we may liquidate positions to cover the minimum margin ratio without notification. No deposit of marginable shares is allowed for forced selling.
