Season for margin calls

It turned out to be the not so jolly season for margin calls. And everbody who thought they were safe from margin calls investing in rock solid companies like  BHP,WOOLWORTHS, ASX ,RIO TINTO ,WESTPAC ..Etc… , now know better.

Here is the lowdown from Comsec for what you need to do in regards to a margin call

Margin Call Notifications

23 Oct 2008

We will endeavour to notify you when your account has triggered a margin call. We may provide you notice by means of SMS, phone, or email. If we do not contact you in the event of a margin call, it is still your obligation to clear your margin call amount in full within the required time frame.

If you trigger a margin call that is below $5,000, please expect an SMS text message as notification of that margin call. Failure to act on this SMS notice will result in a sell down of a portion of your portfolio to cover the appropriate margin call obligation.

It is your responsibility to provide us with your latest contact details. Failure to do so may result in you not receiving notification of a margin call. To update your contact details, simply:

  1. Login to your margin loan account
  2. On the top left of the website under the ‘Quick Links’ section, click on ‘Profile’

How to manage Margin Calls

Keeping track of your margin loan in times of volatility is easily managed through the CommSec website. Monitoring your margin loan on a regular basis can help minimise the risk of a Margin Call.

If your loan balance exceeds the loan limit by more than the buffer, you are in a Margin Call.

How do I know when I’m in margin call?

The margin call amount is displayed in the Collateral Available field, which appears after opening the Margin Lending page within the CommSec website.

What to do when you are in margin call?

When you are in a Margin Call, you are required to take immediate action to restore your loan balance to your loan limit.

You will need to reduce your loan balance so that it is equal to or below your portfolio’s current lending value. There are 3 ways to do this:

  1. Deposit money to reduce your loan balance
    To save time and manage your Margin Loan at your convenience, you can transfer funds online:

    Step 1. Login to using your Client ID and password.
    Step 2. On the top toolbar, click on Margin Lending then Administration > Margin Loans online requests and forms
    Step 3. Click on the Loan Funds Transfer downloadable link.

  2. Lodge additional securities acceptable to CommSec

    Complete and fax the transfer form to lodge additional CommSec accepted shares or accepted managed funds.

  3. Sell some or all of your portfolio

    Selling shares can be easily facilitated through the website and proceeds are immediately deducted from your loan balance.

Here’s an example of a Margin Call

You bought $40,000 worth of shares by borrowing $20,000 and paying $20,000 from your own funds. If the market value of the share portfolio decreases to $30,000 your equity position falls to $10,000 ($30,000 – $20,000 = $10,000). Assuming a maintenance requirement of 25%, you would need to have $7500 equity (25% of $30,000 = $7500). Therefore, there would be no margin call in this situation because your $10,000 of equity is greater than the maintenance margin of $7500.

But let’s assume the maintenance requirement of your brokerage is 40% instead of 25%. In this case, your equity of $10,000 is less than the maintenance margin of $12,000 (40% of $30,000 = $12,000). Therefore the brokerage may issue you a margin call.

~~ Stock Picks and Stuff from JJ ~~

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