Shares As Margin Collateral

Lodgement of Shares as Margin Collateral for Derivatives Trading

Bursa Malaysia Derivatives Clearing Sdn Bhd (Bursa Clearing (D)) has established an infrastructure for the lodging of shares as margin collateral for derivatives trading. By designating selected shares as 'Approved Collateral' to be lodged by Clearing Participants, this consequently enables clients to lodge these shares with Futures Brokers/Clearing Participants as margin collateral for derivatives trading. The client remains the beneficial owner of these shares, thus allowing him/her to continue to derive all economic benefits of share ownership of these pledges shares.

This facility further widens the breadth of non-cash collateral that can be used for derivatives trading. It is envisaged that this will reduce the cost incurred by institutional investors, by offering them more flexibility in structuring their financial requirements to meet initial margin obligations for derivatives trading.

Frequently asked questions

What does Shares as Collateral Facility mean?
The Shares as Collateral Facility enables you to deposit selected shares as margin collateral for trading in derivatives contracts listed on Bursa Derivatives Bhd.
How will using shares as collateral benefit me?
You will be able to use the value of your shareholdings, in addition to other accepted collateral, such as Letters of Credit, Bank Guarantees, and selected foreign currencies as margin deposit for your derivatives trading. This facility would be especially beneficial if you are a long-term investor seeking to hedge your portfolio.
How do I use this facility?
Just follow these steps:
1. Execute a Memorandum of Deposit with your Futures Broker.
  This legal document provides for the terms and conditions under which your shares may be pledged under. Futures Brokers/Clearing Participants must also execute a Memorandum of Deposit with Bursa Clearing (D). We recommend that you consult your Broker, and to read and understand the Memorandum prior to using this facility.
2. Open a nominee CDS account in your name.
  This will be done by your broker upon completion of the documentation. A transfer form needs to be executed for the transfer of your shares to this account. Once it is confirmed that the shares have been received by your Broker, the equivalent cash value of the shares will be credited to your derivatives trading account.(refer also to Q.15 below on valuation of shares)
What will happen to my shares?
Upon receipt of your shares, your Broker may transfer the said shares to Bursa Clearing (D). The shares will be held by Bursa Clearing (D) in nominee accounts on behalf of each Futures Broker/Clearing Participant. You remain as the beneficial owner of these pledged shares.
What happens in the even of a corporate action?
Any cash dividend pay out will be distributed to you by your Broker, either by cheque or by crediting your derivatives trading account.

Bonus issues will be duly reflected in your derivatives trading account and account statement from your Broker.

For other corporate actions that require your decision to accept payment (e.g. rights issues, share splits), the affected shares must be withdrawn from your Broker. To affect this, you are required to adhere to the shares withdrawal procedures (refer Q6 below).
How do I withdraw shares that have been pledged as collateral?
You would have to submit a withdrawal request to your Broker. You should be receiving the shares by two (2) market days if you meet the cut-off time stipulated by your Broker. Bursa Clearing (D)'s cut-off time for receipt of withdrawal form from the Futures Broker/Clearing Participant is 11.00 am.
How much does it cost to use this facility?
You may contact your Broker with regards to the application fees.
How are accepted shares determined?
They are selected from the Kuala Lumpur Composite Index (KLCI) constituent stocks, based on the liquidity and volatility of the shares. Acceptable shares are reviewed on a quarterly basis, and the list of currently acceptable shares may be obtained from your Broker.

What are the shares currently acceptable as collateral?
Shares that are accepted as collateral, as of 6 November, 2007 are:

1.	Affin Holdings Bhd	26.	Magnum Corporation Bhd
2.	AirAsia Bhd	27.	Malayan Banking Bhd
3.	Alliance Financial Group Bhd	28.	Malaysian Bulk Carriers Bhd
4.	AMMB Holdings Bhd	29.	Malaysian Resources Corporation Bhd
5.	Astro All Asia Network Plc	30.	Malaysia International Shipping Corp Bhd
6.	Berjaya Sports Toto Bhd	31.	MMC Corp Bhd
7.	British American Tobacco (Malaysia) Bhd	32.	Petronas Gas Bhd
8.	Bumiputra-Commerce Holdings Bhd	33.	PLUS Expressways Bhd
9.	Dialog Group Bhd	34.	POS Malaysia & Services Holdings Bhd
10.	Digi.Com Bhd	35.	PPB Group Bhd
11.	DRB-Hicom Bhd	36.	Public Bank Bhd
12.	EON Capital Bhd	37.	Puncak Niaga Holdings Bhd
13.	Gamuda Bhd	38.	RHB Capital Bhd
14.	Genting Bhd	39.	SapuraCrest Petroleum Bhd
15.	Hong Leong Bank Bhd	40.	Scomi Group Bhd
16.	IGB Corporation Bhd	41.	SP Setia Bhd
17.	IJM Corporation Bhd	42.	TA Enterprise Bhd
18.	IOI Corporation Bhd	43.	Tanjong Plc
19.	Kencana Petroleum Bhd	44.	Telekom Malaysia Bhd
20.	KLCC Property Holdings Bhd	45.	Tenaga Nasional Bhd
21.	KNM Group Bhd	46.	UEM World Bhd
22.	Kuala Lumpur Kepong Bhd	47.	UMW Holdings Bhd
23.	Kulim Malaysia Bhd	48.	WCT Engineering Bhd
24.	Lafarge Malayan Cement Bhd	49.	YTL Corp Bhd
25.	Lion Diversified Holdings Bhd	50.	Zelan Bhd

What happens if my shares are delisted?
Bursa Clearing (D) will impose a 100% haircut on shares lodged by the Clearing Participant in the event of a delisting or suspension. Your Broker will consequently impose the same 100% haircut on your shares, which would mean that your delisted shares would then have no value for purposes of margin collateral for derivatives trading.
How are my shares valued?
Shares pledged as collateral with Bursa Clearing (D) will be re-valued at the end of each business day according to the closing price of shares. In computing the value of your pledged shares for purposes of margin collateral, a percentage reduction from the market value of your pledged shares is imposed as a buffer against price volatility of those shares.

The margin of difference between the actual market value of your pledged shares and the value available as margin collateral is known as a 'haircut'.
What is the 'haircut' rate imposed on the value of shares which are lodged as collateral?
Bursa Clearing (D) imposes a 30% haircut rate on shares lodged by the Clearing Participant. Your Broker may also impose an additional haircut on your shares for purposes of their risk management policies.
What will happen if a Clearing Participant defaults?
Pursuant to the relevant provisions in the Memorandum of Deposits, Bursa Malaysia Derivatives Clearing Bhd is empowered to exercise the power of sale on the approved collateral upon the unlikely event of a default by a Clearing Participant.

If you have not defaulted, then you have the right to determine that your shares be returned by your broker, either in kind or otherwise.

The protection of cash and property lodged with your Broker is assured by the segregation of assets received from clients. According to the Futures Industry Act, clients' assets will not form part of the assets of the Broker for insolvency or winding up purposes.

For further details on this facility, please contact your Broker or Ms. Angeline Yap at 603-20347188 or angelineyapefang@bursamalaysia.com .

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