FAQ

Margin Trading

  1. Can odd lot and block transactions be traded on margin?
  2. What should I do if I want to trade on margin?
  3. How many margin accounts can I open with a securities broker that is allowed to provide margin loan and stock loan?
  4. How long can a margin account stay inactive before it is terminated?
  5. How to close a margin account?
  6. Is there any regulation on short sale prices?
  7. If the amount of a margin trade exceeds the line approved by the securities broker, how is the trade settled?
  8. When should a margin trade be settled?
  9. How is margin on financing and stock loan calculated?
  10. What is the procedure for repaying the margin loan or stock loan?
  11. How does the book closure of a listed stock affect margin short sales?
  12. What can be done if an investor likes to transfer title of stocks bought on margin or stocks deposited as margin on net short position or stock loan during the announced book closure date?
  13. What is the relationship between shares outstanding of a stock and its suspension and resumption of margin trade?
  14. How is maintenance margin for margin trade calculated?
  15. When the outstanding balance of stock loan in the market exceeds the outstanding balance of margin loan, how does it affect margin trade?

1. Can odd lot and block transactions be traded on margin?

Odd lot and block transactions cannot be traded on margin.

2. What should I do if I want to trade on margin?

You should first sign a margin trading agreement and open a margin account with a securities broker before placing orders of margin trade.

3. How many margin accounts can I open with a securities broker that is allowed to provide margin loan and stock loan?

One margin account is allowed per person.

4. How long can a margin account stay inactive before it is terminated?

If a margin account has no activity for a period of three years consecutively, the securities firm will terminate the account and notify the accountholder.

5. How to close a margin account?

If you like to close a margin account, you need to fill out a Margin Account Closing Application and the account will be closed after your broker makes sure that all debts associated with the account are cleared.

6. Is there any regulation on short sale prices?

The short sale price shall not be below the previous day's closing. But the sales of all eligible shares for margin trading are exempt from the price restriction. But the exemption does not apply under certain conditions, as illustrated per the following case: If the subject borrowed security's closing price of the previous day reaches the limit down price, or if the subject security's price is the lowest recorded sell order at market close of the previous trading day (and no trade is executed), then the uptick rule applies for the following trading day and the subject borrowed security may not be entered at a price lower than the previous day's closing price. The exemption is reinstated only after such an aforementioned trading day and only if the subject security's price does not remain at the limit down price at market close.

7. If the amount of a margin trade exceeds the line approved by the securities broker, how is the trade settled?

The investor should settle in cash or by delivery of securities.

8. When should a margin trade be settled?

The investor should deposit the margin on financing or stock loan before 12:00 noon on the first business day after the date of transaction and the securities broker will settle the margin trade on his/her behalf. The entirety of securities bought on margin and proceeds from short sale will be kept in the account as collateral for borrowing.

9. How is margin on financing and stock loan calculated?

Margin on financing is the cost of securities bought on margin minus the margin loan; for short selling, margin on stock loan is the transaction value of shorted stocks sold multiplied by a prescribed percentage.

10. What is the procedure for repaying the margin loan or stock loan?

To repay the margin loan or stock loan, the investor should deliver the money or securities borrowed before 12:00 noon on the day of repayment and fill out a Cash Covering Application or a Short Covering Application. After checking the repayment, the securities broker should return the stocks bought on margin and securities deposit, or proceeds from the sale of shorted stocks and margin deposit to the investor; if the investor has a central depository account, the securities broker should transfer the stocks due to the investor into the account via book-entry before the next two business days (before the second business day after the date of application); if the investor intends to pick up the stocks in person, the securities broker should make delivery before the next three business days (before the third business day after the date of application).

11. How does the book closure of a listed stock affect margin short sales?

Short selling of a listed stock on margin is suspended for four days starting from the sixth business day prior to the announced book closure date. Stocks on loan should be returned before the sixth business day prior to the announced book closure date.

12. What can be done if an investor likes to transfer title of stocks bought on margin or stocks deposited as margin on net short position or stock loan during the announced book closure date?

The investor can pay cash to withdraw stocks bought on margin or use cash and/or other eligible securities in exchange for the stocks being held two business days prior to the record date announced by the issuer to suspend title transfer.

13. What is the relationship between shares outstanding of a stock and its suspension and resumption of margin trade?

For a stock eligible for margin trade, its margin trade is suspended when shares bought on margin or short sold reaches 25% of the number of shares outstanding and margin trade may resume when shares bought on margin or short sold falls below 18% of the number of shares outstanding.

14. How is maintenance margin for margin trade calculated?

Maintenance margin = (market value of stock collateral for margin loan + initial collateral and deposit for stock loan) ¸ (initial margin loan + market value of shorted stock) x 100%.

15. When the outstanding balance of stock loan in the market exceeds the outstanding balance of margin loan, how does it affect margin trade?

When the outstanding balance of stock loan in the market exceeds the outstanding balance of margin loan, short sale is suspended and then restored when a balance is reached.

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