What are the authorities of Margin Trading Service Provider in case the Client violates his commitments?
The capital and stock market lawyers in RHR Law Firm respond to this question.
The executive regulations of the Capital Markets Authority and Regulating Securities Activity Act clarified in book eleven (Dealing in Securities) that there are procedures for monitoring the maintenance margin that the margin trading service provider must carry out at the end of each working day by calculating the market value of the margin trading account. Notify the client immediately if the maintenance margin falls below the minimum, and if the client is notified of a decrease in the maintenance margin below the minimum, the client is obligated to add cash or securities to the margin trading account to the extent required to return its ownership to the initial margin, during the agreed period within the agreed period as per margin trading agreement provided such period shall not exceed two working days as from the notice date.
But what if the client is unable to add enough cash or securities to the margin trading account to bring it back up to the initial margin?
The Margin Trading Service Provider shall have the right to mortgage the securities purchased by the client through margin trading and to apply for the fulfilment of his rights in those securities over other creditors of his client, even if they have a special or general lien.
If the client fails to meet his obligations, the margin trading service provider may sell the pledged securities in the margin trading account in accordance with the applicable rules, and the sale may not include only what is necessary to fulfil the margin right. Then, the margin trading service provider, upon selling the mortgaged securities, must do the due diligence to dispose the Client’s money.
The Margin Trading Service Provider may also close the Margin Trading Account and limit its rights to securities without referring to the client if the client is placed under liquidation and bankruptcy procedures under the Bankruptcy Law, or if the Margin Trading Account is seized, or if the client dies. Upon the occurrence of any of these cases, the client and the margin trading service provider must notify the Capital Markets Authority and the clearing agency with a statement that includes the client’s name, a description of the situation that necessitated closing the client’s account, the number and type of securities owned by his client, and the amount of the cash balance related to the financed securities within two working days as a maximum from the date of being informed with the status. Then, the margin trading service provider may sell his right to the related securities to the extent necessary to meet the balance owed to him, without the need for authorization.
The Margin Trading Service Provider is liable for any damages incurred by his client or third parties if he exercises the powers granted to him illegally or on the basis of incorrect data.
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