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Margin Calls & Risk
Every investment has risks, and although margin lending has the potential to magnify returns, it also has the potential to magnify losses.
Margin Calls Explained
A margin call occurs when the value of your security falls causing your current loan balance to exceed your borrowing limits plus your buffer. While we provide a buffer to accommodate market fluctuations above your borrowing limit, if the amount outstanding exceeds the borrowing limit by more than the buffer you will be in a margin call. If this occurs you must take action to rectify the margin call (normally by 2pm Sydney time on the next business day after your loan has moved into a margin call – sometimes you need to act sooner).
What do I need to do to rectify a margin call?
You will need to restore your amount outstanding to your borrowing limit or below in accordance with the terms of your facility. Unless your facility terms provide otherwise, it will not be acceptable to return the loan balance into the buffer.
You can rectify a margin call in 2 steps:
Step 1: Determine which of the following 3 options you wish to take to meet the margin call:
Option 1: Deposit cash to the value of the margin call into your loan account.
You can do this by electronic transfer to the St.George account, direct deposit to your Cash Management Account (CMA) or via BPAY.
Electronic Transfer
Bank: St.George Bank Limited
BSB: 332 –096
Account: 599000006
Account Name: St.George Margin Lending
Important: - Reference: You must include your Client Reference Number
If you have a linked CMA
Either a direct deposit into your CMA or:
Deposit cash into your CMA using BPAY:
Biller Code: 162008
Biller name: St.George Margin Lending
Reference: Your CMA Account Number
Option 2: Transfer additional approved securities to increase your security value.
You need to transfer enough security so that your maximum loan to value ratio is restored. This can be determined by dividing the margin call cash amount by the gearing ratio of the security you wish to transfer:
Value of security to transfer = margin call cash amount / gearing ratio of security to transfer
Option 3: Sell sufficient quantities of your portfolio and use the proceeds to reduce the loan balance to within the loan limit.
This can be determined by dividing the margin call amount by 1 minus the gearing ratio of the security you wish to sell:
Value of security to sell = margin call cash amount / (1 – gearing ratio of security to sell)
Step 2: Notify St.George Margin Lending that a margin call has been met
Please ensure that you notify us of any action in relation to a margin call prior to the time given to meet the margin call. You can do this by:
- Calling 1300 304 065 8am–6pm Monday to Friday and speaking with one of our Account Managers or;
- E-mailing us at marginlending@stgeorge.com.au including details of your account name and number and what action you have taken to restore your position
- Faxing us on 1300 179 540 (Within Australia) or +61 2 9995 8292 including details of your account name and number and what action you have taken to restore your position
Please note:
If you are unable to rectify a margin call St.George Margin Lending will sell enough security to restore your loan balance to your loan limit. We will be required to sell your security even if we were unable to contact you or your adviser or we were not notified that a margin call had been rectified. It is also important to note that once in margin call the margin call can only be rectified through the steps outlined above.
Margin Call Example
Example: John has a Margin call for $2,000. In order to rectify the margin call he can:
- Deposit $2,000 to the loan, or;
- Sell shares* at a rate of 1/(1-gearing ratio) multiplied by the Margin Call amount. For example, John can choose to sell his BHP shares, which have a gearing ratio of 75%. This means that he would need to sell 1/(1-.75) x 2000 = $8,000 worth of BHP shares, or;
- Transfer shares* equal to the value of the margin call amount divided by the gearing ratio of the shares. In John’s case he would need to transfer $2,000/.75 = $2,667 of BHP shares
For assistance in calculating how you can meet a margin call please refer to our online simulator available when you log into your online margin lending account.
* Shares must be included as part of the St.George Acceptable Securities List
Ways to Reduce your Margin Lending Risk
- It’s your responsibility to monitor your portfolio loan and its gearing ratio to avoid a margin call as this can change continually. Log on to Internet Account Access regularly to monitor your portfolio and loan
- Hold a diversified portfolio across a broad range of sectors
- Reinvest any investment income back into your loan and make regular interest payments
- Ensure your investment time frame is long-term, ideally greater than 5 years
- Get advice from a qualified adviser if you are not confident managing your own portfolio
- Take action when you are approaching buffer rather than wait for a margin call
Buffers
To help protect you from fluctuations in the share market that could result in a margin call the following buffers are currently 'built-in' to the value of your investment:
- 5% for shares with a gearing ratio of more than 75%
- 10% for shares with a gearing ratio of 75% or less
- 10% for managed funds
It is expected that whilst you are in buffer you take action to bring your account below the appropriate gearing ratio to help manage your risk of being in a margin call.
