The Securities and Exchange Commission (SEC) has announced a temporary relaxation of certain rules on margin providers.
He said this decision stems from the current situation prevailing in the market and to accommodate investors who are having difficulty in servicing credit obtained from stockbrokers. The easing was discussed with the Colombo Stock Exchange (CSE) and deliberated on certain recommendations made by the CSE.
The SEC said it is considering temporarily relaxing said rules to allow all licensed securities dealers to allow the market value of customer-pledged securities to drop by up to a maximum of 40% from at the current threshold of 25% at the discretion of the investment dealer with the written consent of the client.
Stockbrokers can then advise their clients to make up the shortfall by the next market day. This relaxation will only be permitted by the SEC subject to certain conditions being met by licensed securities dealers. The easing is until May 31 and does not apply to new Margin Trading clients.
Similarly, the SEC has also decided to extend its agreement to all approved margin providers who wish, at their discretion, to relax regulatory standards 5 (d) and (e) applicable to margin trading for the benefit of their clients of the following way;
1) Standard 5 (d) of the Special Standards applicable to Margin Providers provides that the Margin Provider shall maintain a minimum maintenance margin of 30% at all times. At margin provider’s discretion and with client’s written consent, may authorize minimum maintenance margin at 20% instead of 30% before margin provider advises client to make up shortfall within 3 market days
2) Standard 5(e) of the Special Standard applicable to Margin Providers may also be relaxed in proportion to the relaxed maintenance margin
3) The above relaxation of regulatory standards is permitted subject to the margin provider obtaining written consent from the client after clearly explaining the risks associated with such relaxation
4) Relaxation of the above regulatory standards is only permitted to existing customers of the Margin Provider who have entered into a written Margin Provider Agreement on the date
5) The relaxations mentioned above of the Regulatory Standards will not be applicable to new clients of Margin Trading
6) The aforementioned relaxations of regulatory standards will only be effective until May 31
Margin Providers will permit relaxation of the above regulatory standards subject to strict compliance with the conditions set forth above and such relaxation shall not be construed by the SEC as a violation of the Regulatory Standards applicable to Margin Providers.
The relaxation of regulatory standards mentioned above is temporary and should not be considered a modification of existing standards.
The SEC will from time to time monitor and review the impact of the above measures and reserves the right to modify, modify, or repeal these measures at any time before or after May 31 as deemed appropriate.