If a margin client is in arrears or the margin loan exceeds the market value of collateral, can the LC keep waiving margin calls and allow further purchases?
Answer
- If the outstanding margin loan balance exceeds the market value of underlying collateral, you must stop waiving margin calls (SMFA Guidelines 6.5) and stop further advances and further purchases (6.6).
- If the client has a poor history of settling margin calls, you must stop waiving margin calls (6.5).
- Set and document triggers for margin calls, stopping further advances/purchases, and forced liquidation (6.1–6.2).
- Deviations only after a prudent assessment, documentation and senior management approval (6.7) — not silent perpetual waivers.
- Enforcement news 25PR39 illustrates further purchases despite shortfalls and effective waivers without documented deviation.
In short: If the margin loan exceeds the market value of collateral, stop waiving margin calls and stop further purchases (SMFA Guidelines 6.5–6.6), unless a documented, senior-approved deviation applies.
The two mandatory stops when loan exceeds collateral value
The SFC’s Guidelines for Securities Margin Financing Activities set mandatory responses when a margin client’s exposure is no longer supported by collateral. If the outstanding margin loan balance exceeds the market value of the underlying collateral, a licensed corporation must stop waiving margin calls (paragraph 6.5(b)) and stop any further advance and further purchase of securities using the margin facility (paragraph 6.6).
Paragraph 6.5 also requires stopping waivers where the client has a poor history of settling margin calls (paragraph 6.5(a)). These are mandatory — not discretionary risk preferences.
Policies, triggers and documented deviation
Paragraphs 6.1–6.2 expect licensed corporations to set and document triggers for:
- issuing margin calls;
- stopping further advances and purchases; and
- forced liquidation of collateral.
Paragraph 6.7 permits deviation from strict application only where there is a justifiable reason, supported by a prudent assessment, documentation and senior management approval. Silent, perpetual waivers without that pathway are not compliant.
Enforcement illustration: 25PR39
Enforcement news 25PR39 (Enlighten Securities Limited) shows the failure mode: clients continued to make further purchases despite margin-loan shortfalls; margin calls were effectively waived without documented deviation under paragraph 6.7; and credit limits were increased despite outstanding margin calls. The statement cites the Code of Conduct Schedule 5 margin-financing standards alongside the SMFA Guidelines.
Practice boundaries
This Insight covers margin-call waivers and further purchases when loan > MV. It is distinct from:
- Repledge 140% cap (CSR s.8A) — repledged collateral quantum, not SMFA waiver policy.
- IPO subscription deposits (Circular 25EC18) — a separate financing lane.
- Disguised Type 8 securities margin financing (Circular 18EC58) — licensing perimeter, not SMFA call-waiver mechanics.
Scope of this answer
This Insight summarises SMFA Guidelines paragraphs 6.1–6.7 and the 25PR39 enforcement context. It is not a full margin-risk policy manual.
Discuss your SFC matter
If your firm is reviewing margin-call waiver policies, loan-to-collateral triggers, or enforcement news 25PR39 findings on further purchases despite shortfalls, contact Liva Law. At first contact, please give your name, a safe contact number and any deadline you face. Please do not send confidential documents until we have confirmed how they should be provided and whether we can act.
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This article provides general information only and does not constitute legal advice. The appropriate approach depends on the facts and applicable requirements.