ASIC to improve margin lending disclosure
11 November 2010 Sydney
Image: Shutterstock
ASIC has released regulatory guidance that aims to improve protections for retail clients through better disclosure of non-standard margin lending facilities.
Non-standard margin lending facilities are margin lending arrangements that use a type of ‘securities lending’ agreement instead of a loan agreement. Until 2008, non-standard margin lending facilities were used by companies such as Opes Prime Stockbroking Limited and Tricom Equities Limited.
ASIC Deputy Chairman, Belinda Gibson, says the key difference between standard and non-standard margin lending facilities is that in a non-standard margin lending facility, ownership of the securities under the margin loan passes to the lender and may pass to the lender’s financiers. This can create significant risks for investors.
"Given the complexity and risk inherent in non-standard margin lending facilities, investors need to be in a position to assess whether these types of products are likely to be appropriate for their investment objectives, needs and risk profile," said Gibson.
RG 219 Non-standard margin lending facilities: Disclosure to investors outlines the information that ASIC expects a provider to include in a Product Disclosure Statement (PDS) for a non-standard margin lending facility. These requirements include:
how the product differs from a standard margin lending facility
an explanation of the transfer of securities from the client to the provider of the facility and the risks associated with that transfer
a clear warning to the client of their responsibility to monitor the margin under the facility, and
an explanation of the tax consequences of the transaction, together with a stark warning that the client should seek tax advice before entering into the transaction.
"While this guidance can’t prevent investments failing, improved disclosure will help retail clients make better risk–reward decisions," Gibson said.
Non-standard margin lending facilities are margin lending arrangements that use a type of ‘securities lending’ agreement instead of a loan agreement. Until 2008, non-standard margin lending facilities were used by companies such as Opes Prime Stockbroking Limited and Tricom Equities Limited.
ASIC Deputy Chairman, Belinda Gibson, says the key difference between standard and non-standard margin lending facilities is that in a non-standard margin lending facility, ownership of the securities under the margin loan passes to the lender and may pass to the lender’s financiers. This can create significant risks for investors.
"Given the complexity and risk inherent in non-standard margin lending facilities, investors need to be in a position to assess whether these types of products are likely to be appropriate for their investment objectives, needs and risk profile," said Gibson.
RG 219 Non-standard margin lending facilities: Disclosure to investors outlines the information that ASIC expects a provider to include in a Product Disclosure Statement (PDS) for a non-standard margin lending facility. These requirements include:
how the product differs from a standard margin lending facility
an explanation of the transfer of securities from the client to the provider of the facility and the risks associated with that transfer
a clear warning to the client of their responsibility to monitor the margin under the facility, and
an explanation of the tax consequences of the transaction, together with a stark warning that the client should seek tax advice before entering into the transaction.
"While this guidance can’t prevent investments failing, improved disclosure will help retail clients make better risk–reward decisions," Gibson said.
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