Trade Shares or Stocks in Bursa Malaysia|How to start Trading | Trade Stocks in Bursa Malaysia | How to Open Trading Account | How to Open CDS Account | What is Collateralised Trading | Discretionary Financing | Share Margin Financing | CDS Share Transfer | Securities Borrowing and Lending (SBL) | Regulated Short Selling (RSS) | Brokerage | Internet Trading Brokerage Discount | Cash Upfront Brokerage Discount | Clearing Fees | Contract Stamp Duties | Bursa Malaysia | Composite Index | Bursa News | Listed Companies News | Market News | Market Outlook

his is Part 7 of my HOW TO START TRADING STOCK IN BURSA MALAYSIA series of articles. We will discussed the Different Type of Collateralised Trading Accounts.

If you missed my earlier posting, you can read them from the link below:

PART 1: OPENING OF CDS AND TRADING ACCOUNT
PART 2 : BUY, SELL AND CONTRA
PART 3 : BURSA MALAYSIA STOCK TRADING FEES AND CHARGES
PART 4 : MARKET AND OFF MARKET TRADES IN BURSA MALAYSIA
PART 5 : TRADING LIMIT AND TEMPORARY LIMIT FOR TRADING STOCKS
PART 6 : COLLATERALISED TRADING ACCOUNT

There are generally two types of COLLATERLISED TRADING ACCOUNTS. I prefer not to include Share Margin (“Margin”) Account as a Collateralised Account because Margin Account is more complicated and functions differently from the basic Collateralised Account.

Brokers in Malaysia either have one or both or variation of both type of Collateralised Account.

As I have mentioned in Part 1 that every trading account need a CDS account. The two type of Collateralised Account differs by the type of CDS account that links to the Trading account.

(1) Client Personal’s CDS Account

This type of Collateralised Account only classify your personal trading account in the Brokers’ computer system as Collateralised Account. The shares are technically still in your name in your CDS account. However, you will need to sign a document or an agreement to allow Broker to sell your CDS shares if you don’t make payment for your contra losses.

TIPS : According to BURSA Depository Rules, the CDS account holder has the right to transfer out shares from his CDS account unless he has been declared a bankrupt or his assets has been frozen by the authorities or he has passed away (ie. died). There have been cases where Bursa Depository instructed Brokers to execute the transfer of shares out to another Broker eventhough the person has contra losses with the Broker. The Broker can only take legal action to recover the contra losses. Therefore Brokers has to take action early to sell client shares or face the consequences of loosing the collateral shares without recovery of contra losses.

It is because of the above reason, Broker will give lower multiple for these type of Collateralised Account. Some Broker don’t even want to give this type of Collateralised account. Too risky.

(2) Broker’s Nominees CDS Account

For this type of Collateralised Account, the Broker will open a CDS account under the Broker’s Nominees company name.

Note: All Brokers registered at least one Nominees company for the purpose of holding clients’ shares as custodian.

You will have to transfer or move your shares from your personal CDS account to the Broker’s Nominees CDS account as collateral. Once your shares are in the Broker’s Nominees CDS account, you can’t transfer out your shares yourself eventhough you are still the end beneficial owner of the shares. You will have to ask the Broker to transfer out the shares and the Broker, under this circumstances, has the right to refuse your request to transfer out your shares if you have unpaid contra losses with the Broker.

Since this type of Collateralised Account is less risky, Brokers will give higher trading multiple to the shares collateral.

For both type of accounts, you can still opt to deposit Cash as collateral but in the end the shares you buy will end up in the CDS until you sell them. Similar for shares collateral, Brokers will give higher trading multiple for Cash deposited as collateral for Collateralised Account Type (2).

There maybe more sophisticated type of Collateralised Account that I may not know about in the market. You will have to scout for them if you like. This end today posting. In my next posting I will introduce a product called ‘Discretionary Financing’. Interested? Subscribe to my Feed to be kept updated.

Related Posts:

• Are You a BURSA Defaulter?
• How Does Share Margin Financing (SMF) Works?

In my earlier posts on How to Open a Trading Account, I did not mentioned that your application to open a trading account could be rejected. We all assume no broker will reject a business.

Android Apps |
Indonesian Culture |
Android Stuff |
Flora Fauna |
Happynes |
Itechno News |
beauty places |
Healthy Tips |
Seo Tutorial |
Love Indonesia |
Around The World

However there are another condition other than being a bankrupt that will prevent a stockbroker from opening a trading account; its called Bursa Defaulter Lists.

Prior to Bursa Malaysia being listed, it was known as Kuala Lumpur Stock Exchange and its members were all the stockbrokers. After the financial crisis in 1997, it was found that there were customers that have multiple trading accounts with multiple stockbrokers. What these customers did were, they went to broker A and start to accumulate contra losses. After he is suspended in Broker A, he went to open an account in Broker B and did the same thing there while refusing to pay for the contra losses in the previous broker. As time went on, he would have contra losses in many brokers. If he had average contra losses of say, RM100,000 in each broker, he could accumulate a total contra losses of RM1,000,000 with 10 brokers.

Since the CDS account is not centralised, ie. a person can open 10 CDS accounts with 10 brokers, similarly a customer can open 10 trading accounts with 10 different stock brokers unlike Singapore where they have a centralised similar CDS account. With centralised CDS account, if a customer has unsettled losses in Broker A and if he continued to trade with Broker B, Broker A can take legal action to ‘force-sell’ customer shares in the CDS. Since in Malaysia a customer can have many separate CDS accounts, Broker A would not know customer CDS account with Broker B and under the MCD Act that governed CDS accounts, brokers are not allowed to divulge customer CDS information to any third party.

In order to prevent abuses by customer, the than KLSE members agreed on a rule to create a Defaulter Lists. A member or participating organisation of KLSE (now Bursa) can report to the Bursa on any of their customer with unpaid contra losses that exceed RM2,000. After Bursa has investigated (based on certain required documentations from the Broker), Bursa will list the customer in the Defaulter List (Name, Identification Card Number, Amount Owing) minus the name of the reporting Broker. This list is then circulated to all member Brokers and the name is uploaded in Bursa BFE. When the name is in the BFE, the customer with matching IC will not be able to make any further Purchases with any Brokers but the system allow the selling of shares. Member Brokers will upload the Defaulter List into their Back Office Computer System which will prevent the listed name to open a new trading account with member brokers.

So, are you a Defaulter ?

There have been cases of fraud, where a known or unknown party or parties used another person IC to open a trading account without the knowledge of the IC holder. These ‘syndicate’ will create many stolen identity trading accounts and used them to create trading volume for a particular stocks to inflate the price before they ‘Cash Out’ in their own nominees accounts while creating huge contra losses in the other accounts with the stolen IC. When the geninue IC holder wanted to open its first or new trading account, he found that his name is listed in the Bursa Defaulter Lists with hugh amount of contra losses.

A good advice will be for anyone to visit a broker just to check whether he is listed as a Defaulter.

Related Posts:

• Forgot where you open you CDS and Trading Account?
• How Does Share Margin Financing (SMF) Works?
• BURSA MALAYSIA Stock Trading Fees and Charges
• How to Open a CDS Account and a Trading Account ?
• New GN3 – BCT and Mobif