We are currently in the process of making a number of important system, process and policy changes to the Colonial and CALIA+ Margin Loan products. These changes are the result of new margin loan regulations, unfair contract terms legislation and updated internal business rules and policies.
The changes will be released in a staggered approach over the course of the year, with the first set of changes taking place on 1 July 2010. A number of important updates are listed below.
Dealing with appropriately licensed advisers and dealer groups
From 1 July 2010, CGI will be unable to deal with dealer groups and associated advisers where the dealer groups have not applied to ASIC for an AFSL variation by 30 June 2010, or where they have applied and already been declined.
It will be the adviser and dealer group’s responsibility to ensure that they do not engage with a margin loan provider or provide clients with margin lending advice unless they have applied and not been declined. You can find out more about the margin loan licensing requirements on the ASIC website.
Updated Terms & Conditions
New margin loan terms & conditions (T&Cs) have been developed to comply with the new unfair contracts legislation. We have taken the opportunity to update the T&Cs with other changes related to the upcoming margin loan regulations and associated product enhancements.
Maximum Gearing Ratio
A new margin loan ratio called the ‘Maximum Gearing Ratio’ will be introduced. This ratio is the maximum permitted gearing ratio for all margin loans and will be set at 90%. This means that if the gearing level of a margin loan (ie the Current Loan-to-Security Ratio) exceeds the Maximum Gearing Ratio (90%), the loan will be in margin call. To illustrate how the Maximum Gearing Ratio works, below is an example scenario.
Margin Call timeframes
We will be changing existing margin call timeframes and adding a new timeframe specific to the breaching of the Maximum Gearing Ratio
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Margin Call trigger
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Margin loan security composition
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Due time and date of Margin Call
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Current LSR is greater than the Maximum Gearing Ratio of 90%.
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Not relevant in this scenario.
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2pm (Sydney time) on the next business day after the Margin Call is triggered.
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Current LSR is:
- less than the Maximum Gearing Ratio (90%), and
- greater than the Margin Call LSR.
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More than 5% of security is ASX listed securities.
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2pm (Sydney time) on the next business day after the Margin Call is triggered.
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95% or more of security is managed funds.
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5pm (Sydney time) on the third business day after the Margin Call is triggered.
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Margin Call notification process
We will begin notifying clients of their margin call by email. The current process of posting margin call notices to clients and advisers will remain. Advisers will also continue to receive notification of their clients’ margin calls by phone and/or email.
Updated application form
A new margin loan application form will be introduced and will include a suitability assessment. It will also capture information that is important to the new credit assessment and margin call notification process (among others). We are also making functional and structural changes that will improve the application process and make it simpler and more efficient.
More information
You can find out more about the margin loan regulatory changes and dates on the ASIC website.
Questions & Answers
To assist you, we have put together a number of frequently asked questions.