Terms and Conditions of the Margin Trading Agreement
Whereas the Client has the desire for margin trading in the securities which are listed on a financial market licensed by the Authority through a finance by the Company for a proportion of the securities’ market value that the same desires for purchasing at the margin of the market within the permitted limits; whereas the Company is an entity licensed by the Authority for exercising the margin trading business and wishes for providing margin finance service to the Client;
Having acknowledged their legal capacity for entering into a contract, it is agreed by and between the Parties upon regulating their relation according to the following Clauses:
Clause 1: Definitions
In application of the provisions hereof the following words and expressions shall have the meanings, as set out next thereto, unless the context indicates otherwise:
Authority: Securities & Commodties Authority
Law: The Federal Law No 4 of 2000 Concerning the Emirates Securities & Commodities Authority, as amended
Regulations: The Margin Trading Regulations issued by the Decision No 25/T of 2005 of the SCA Board Concerning Margin Trading, as amended
Market: The Securities & Commodities Market licensed by the Authority in the state
Margin Trading: The finance by a brokerage company for a proportion of the market value of the margin-financed securities by the guarantee of the securities in the margin trading account or any other guarantees in the cases, as exclusively set out in the Margin Trading Regulations
Cash Trading Account: An account of the trading whose value is fully paid by the Client to the Company prior to carry out the purchase order of a specific security
Margin Trading Account: An account of the Client at the Securities Exchange by which the margin-financed securities are dealt with
Initial Margin: The amounts of money or securities which are deposited by the Client at the broker for the Margin Trading Account, according to the prescribed percentage of the market value of the securities which are to be marginally traded prior to carry out the purchase order
Maintenance Margin: The minimum prescribed by the Authority for the contribution of the Client to the market value of the securities in the Margin Trading Account at any time prior to the purchase date
Clause 2: The Margin Trading Conception
- Margin trading is the finance by a brokerage company for a proportion of the market value of the margin-financed securities by the guarantee of the securities in the Margin Trading Account or any other guarantees in the cases, as exclusively set out in the Regulations. The idea of margin trading is based upon a finance from the brokerage company to the Client in order to purchase listed securities which are to be identified by mutual agreement, provided that the finance shall be implemented in a certain percentage of the market value of such securities, the ownership percentage of the client shall remain within safe limits for the broker which are named (Maintenance Margin) and such percentage shall be calculated per diem, as per the market value of the securities. The real guarantee of the brokerage company in such finance shall be the securities in the Margin Trading Account which are mortgaged therefor as well as any other guarantees provided by the Client and permitted by the Authority, on condition that such guarantees shall be either listed securities or bank guarantees. The present Agreement shall regulate the Brokerage Company –Client relation as well as the applied laws and acts.
- The purchase or sale orders shall be issued according to the provisions in the SCA Law and the acts issued thereunder as well as the private sector regulations concerning the Cash Trading Account. For the confirmation thereof the same provisions in the Brokers Law shall be applied.
Clause 3: Margin Trading Risks
The Client shall recognize that a margin trading would bear serious risks, including:
- The Client is not the only one making margin trading; there are margin trading orders of other clients of the Company which may refrain from executing the margin trading orders, if their execution results in:
- a) The total funds, which are allocated by the brokerage company for margin trading, exceeding (300%) of the total Core capital (Tier 1) and the additional capital (Tier 2), as contained in the solvency standards which are approved by the Authority;
- b) The finance amount solely granted to the Client exceeding 10% of the total core capital (Tier 1) and the additional capital (Tier 2), as contained in the solvency standards which are approved by the Authority;
- The Client may, due to margin trading, incur great loss; since such kind of trading would allow one client to purchase securities in a value that may reach double of the amount deposited or available in the Margin Trading Account thereof; in the event that the ownership percentage of the client is less than the Maintenance Margin, the Client fails to cover the shortage in Margin Trading Account within 2 business days as of the date of being notified by the Company thereof or cannot provide additional guarantees in the exceptions, the Company shall sell all or some of the securities in the Margin Trading Account and the Client shall bear the resulting loss; if the Company is not able to sell the securities due to the market conditions, the Client’s loss may exceed the capital thereof; therefore, the Client must be fully familiar with the followed technical rules of the margin trading;
- The Client may not generate huge profits by margin trading; such kind of trading involves a great amount of risks, particularly upon market fluctuations; and
- Certain technical malfunctions can occur to the trading system in the market or the Company or any other failures or urgent incidents may obstacle the execution of the purchase and sale orders at large. This is one of the risks of trading in the market. The Company shall not bear any loss arising out thereof, unless the order is proved to be not executed because of a negligence or error of the Company.
Clause 4: The Determination of the Initial Margin and Maintenance Margin
The Parties agree as follows:
- The initial margin shall be determined by (50%) of the market value of the securities to be marginally traded(3); and
- The Maintenance Margin shall be determined by not less (25%) of the market value of the securities to be marginally traded at any time subsequent to the purchase date.(5)
Clause 5: The Determination of the Margin – Financed Securities
- The Parties shall agree that a margin trading, in implementation of the present Agreement, shall be executed on the attached list or signed by the Parties contained the names of the listed companies – the subject matter hereof.
- The Parties may agree upon amending the attached list by way of increase, decrease or change, and according to the agreement of the parties below and prescribed herein.
Clause 6: Commissions & Expenses
- Without prejudice to the prescribed commission under the Broker Law for the implementation of the trading operations and/or any commitments of the client in any other legal text including but not limited to the interests, fees, costs, fines and/or whatever relevant, the Client shall be bound by paying the commission of the margin finance (interest stated below) in an amount of (5%) Per annum) In accordance with the terms and conditions stipulated in the following paragraphs
- without derogation of client’s obligations and liabilities set out in this agreement and /or wherever it was stipulated, the client further agreed irrevocably and unconditionally that The percent of interest stipulated above shall be due and payable under this agreement, on the amounts used from or in the relevant accounts prescribed herein and pertaining to any list of selected stocks annexed with or list attached therein and/or whatever selected by the broker in relation to this agreement and its subject.
- The parties hereby agreed that the broker has the right to calculate and deduct the interests prescribed herein on a monthly basis, unless and until it decided otherwise.
- The client further agreed irrevocably and unconditionally that the broker, from time to time and subject to its discretion and absolute decision, has the right to change the interest rate, review and change the margin-financed securities list due to markets conditions or any other matters or reasons and without being or considering limitations mentioned hereto, including not limited to the right to modify any or all paragraphs (1, 2, 3, 5) listed in this article.
- The broker may notify the client in writing via FAX, Email, SMS or Recorded call in respect of any change in the interest rate (Interest Change Notice) before or during fifteen (15) days from the date of the change, And This notice shall not be considered under any circumstances as a restriction on the broker as well as acceptance of the client or refusal shall not affect the validity of any terms of this agreement or its paragraphs including this paragraph, whereby the client must be liable and bound toward the broker for all impacts related to or resulted from that change including without limitations to all costs, re-review the list of the financed securities, freezing, withheld, selling, set-off and/or forfeiting those securities, And the broker shall not be liable for any kind of compensation contractual or non-contractual may arise out of or related to any event occurs in respect of aforementioned matters Without prejudice to broker’s rights, benefits and its prerogatives mentioned hereto or stated in any applicable rules.
Clause 7: The Obligations of the Company
In the context hereof the Company shall be bound by:
- Verifying the solvency of the Client;
- Opening an independent account for the Client at the Company and the Securities Exchange named (Margin Trading Account) and separating it from the Cash Trading Account of the Client;
- Ensuring that the Client deposits the initial margin at the Margin Trading Account at the Company according to the set percentage in Clause 4 hereof;
- Reviewing the Margin Trading Account at the end of each business day and notifying the Client forthwith, when of the ownership percentage of the account is less than the Maintenance Margin by way of FAX , Email , SMS or Recorded call the burden of proving such notification and its effect shall rest with the Company;
- Providing the Client with a detailed monthly account statement showing the trading movement of the margin – financed securities and the ownership percentage of the Client, without prejudice to the right of the Client to request for being provided with a detailed account statement at any other time;
- Registering the margin – financed securities with the Securities Exchange;
- Adding the split shares or the stock option of the margin – financed securities to the Margin Trading Account of the Client at the Company;
- (Transferred to the Rights of the Company);
- Allowing the Client to dispose of the margin – financed securities throughout the duration of the Margin Trading Agreement, provided that such disposal shall be made according to the followed up procedures at the markets;
- Selling all or some of the securities in the Margin Trading Account, if the Client fails to cover the less ownership percentage than the Maintenance Margin to the extent that would restore the Client’s ownership percentage to the initial margin percentage according to the market value of such securities at the date of sale, provided that the sale order(s) shall be listed at the market price within a period not exceeding two days as of the expiration of the period granted to the Client to cover the shortage in the account; and the broker shall be entitled to choose the appropriate mechanism to implement the sales process and not limited to the following:
- Rates equivalent to the values of the stock portfolio
- Active stocks with available liquidity in the market
- the least purchased stocks
- Notifying the Client forthwith, where the license is suspended or cancelled.
Clause 8: The Rights of the Company
In the context hereof the Company shall be entitled to:
- Receive the commission, as set out in Clause 6 hereof;
- Claim for a coverage by the Client of the shortfall in the Margin Trading Account within 2 business days as of the date of notifying the same of the lower ownership percentage in the account than the Maintenance Margin;
- Add the shares of the capital increase, which are subscribed by the Client, to the Margin Trading Account, where the Brokerage Company finances the subscription with such shares according to the agreement of the Parties within the initial margin;
- Referring to the Client for the fulfillment of the rest of the consequent liabilities, according to the procedures which are guaranteed by the applicable laws of the state, in case that the proceeds of selling the margin – financed securities do not cover the debit cash balance of the Client;
- Close the Margin Trading Account, in the event that the Client breaches the provisions of the applicable laws and acts or the terms and conditions hereof or in case that the Client dies, subject to the procedures for the termination hereof according to Clause 13; and
- Accept additional guarantees to the Margin Trading Account, on condition that the Authority shall approve them and such guarantees shall be listed securities or bank guarantees, as well as the margin – financed securities in the event that:
- a) The market value of a security at the Margin Trading Account declines continuously due to exceptional circumstances; and
- b) The trading in the margin – financed securities is suspended or stopped for more than 7 business days.
Clause 9: The Obligations of the Client
Within the framework hereof the Client shall abide by:
- Depositing or providing the initial margin at the Margin Trading Account according to the agreed percentage in Clause 4 hereof prior to the execution of the purchase order;
- Feeding the Margin Trading Account, if the ownership percentage of the same is less than the Maintenance Margin, after being notified by the Company through the means herein agreed within 2 working days of such notice;
- Paying the resulting dues to the Company, in the event that the Company cannot liquidate the available securities in the Margin Trading Account of the Client due to the financial market conditions or inadequate value of the securities to repay the indebtedness; the Company shall be entitled to take all legal actions towards the Client;
- Paying all financial dues resulting from the Margin Trading Account at the Company due to the lack of an approval by the Company or the Authority for the guarantees provided by the Client to cover the value of the shortfall for the Maintenance Margin;
- Adding the shares, which are collected by the distribution of stock option or split shares by the listed company, to the Margin Trading Account;
- Adding the shares of the capital increase, which are subscribed by the Client, to the Margin Trading Account, where the Company finances the subscription with such shares according to the agreement of the Parties within the initial margin, provided however that the Client shall abide by paying or transferring the same initial margin percentage as herein agreed; and
- Mortgaging the securities in the Margin Trading Account for third parties only after the written approval of the Company.
Clause 10: The Rights of the Client
Within the framework hereof the Client shall be entitled to:
- Fulfill the rest of the margin – financed securities’ price at any time;
- Provide other guarantees, accepted by the Company and approved by the Authority, along with the credit balance thereof to cover the less value than the Maintenance Margin in the Margin Trading Account, on condition that such guarantees shall be listed securities or bank guarantees;
- Request for a statement of the Margin Trading Account at any time;
- Close the Margin Trading Account, whenever the same desires, subsequent to the payment of the financial dues resulting from the account thereof in the Company, subject to the procedures for the termination hereof, as per Clause 13; and
- Subscribe in the capital increase of the margin – financed shares from its own money without finance from the Company, in which event no subscribed shares of the capital increase shall be added to the Margin Trading Account.
Clause 11: Guarantees
- By the present Agreement, the Client agrees on mortgaging the securities in the Margin Trading Account for the Company to guarantee the fulfillment of the amounts due to the Company in the Margin Trading Account.
- The Client agrees to grant the Company the right of selling all or some securities in the Margin Trading Account, if the same fails to cover the lower ownership percentage than the Maintenance Margin within 2 business days to the extent that would restore the Client’s ownership percentage to the initial margin according to the market value of such securities at the date of sale, provided that the Company shall abide by observing paragraph 10 of Clause 7 hereof;
- The Company agrees to grant the Client the right to dispose of the margin – financed securities throughout the duration hereof according to the followed up procedures at the market, on condition that they would not be transferred to the Securities Exchange.
- The indebtedness of the Client to the Company at the Margin Trading Account shall be one integral debt, as per the margin – financed securities. Accordingly, all of the Client’s shares and guarantees, the subject matter hereof, shall ensure the full repayment of the debt.
Clause 12: Amendment & Addition
- If a Party, within the duration hereof, desires for any amendment or addition to the conditions and controls herein, the same must send a written request for the other Party, setting out the details of the requested amendment or addition, to the address, as defined in the enclosed data of the Parties. An amendment, change or addition hereto shall be regarded only by a written agreement jointly signed by the Parties, Unless otherwise hereto stipulated
- The Parties may not agree on any amendment to any provision hereof in violation of the provisions of the laws, acts and decisions issued thereunder.
Clause 13: Termination
The Agreement shall be terminated in the event that:
- The Parties agree in writing upon the termination of the Agreement; and
- A Party desires for terminating the Agreement. The desiring Party shall abide by notifying the other in writing 2 days prior to the date in which the same desires for terminating it, on condition that all rights and obligations arising out of the implementation of the Agreement shall be fulfilled.
In all events, the termination of the Agreement shall not prejudice to the rights and obligations of its Parties. They shall remain in effect till the settlement thereof.
Clause 14: Notifications
The Parties agree that each and every notification required by the present Agreement must be made by one of the notification means, as set out herein.
Clause 15: Interpretation & Disputes (7)
The present Agreement and the rights and obligations of its Parties shall be interpreted and construed according to the UAE applicable laws and acts. The disputes arising between the Parties shall be determined by amicable ways. In the event of failing to resolve them within 7 days, the UAE competent court shall decide thereon.
Clause 16: Execution & Signature
- The present Agreement shall be executed in Arabic duplicate, one for each Party for necessary action thereunder. (9)
- The Parties set their hands on the Agreement which thereby becomes completely effective and binding.