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COB 7.10 Margin requirements

Application

COB 7.10.1R

This section applies to a firm which executes a transaction in a contingent liability investment with or for a private customer, in the course of, or in connection with, its designated investment business.

Purpose

COB 7.10.2G

Principle 3 (Management and control) requires a firm to have adequate risk management systems, while Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. This section aims to ensure that a firm does not expose itself to unacceptable levels of credit risk while managing its marginrequirements. It also aims to ensure that a firm manages a private customer's exposure to contingent liabilities by diligently monitoring the firm's relevant provision of credit.

Provision of margin by a private customer

COB 7.10.3R
  1. (1)

    A firm must obtain from a private customer any margin payable, whether at the outset or subsequently, by or to the firm, for a transaction in a contingent liability investment.

  2. (2)

    The minimum margin to be obtained from a private customer in accordance with (1) for an on-exchange transaction in a contingent liability investment is an amount or value equal to the margin requirements of the relevant exchange or clearing house.

COB 7.10.4G

Before conducting a transaction with or for a private customer, a firm should notify the customer of:

  1. (1)

    the circumstances in which the customer may be required to provide any margin;

  2. (2)

    the form in which the margin may be provided;

  3. (3)

    the steps the firm may be required or entitled to take if the customer fails to provide the required margin, in accordance with COB 7.10.5 R, including:

    1. (a)

      the fact that the customer's failure to provide margin may lead to the firm closing out his position after a time limit specified by the firm;

    2. (b)

      the circumstances in which the firm will have the right or duty to close out the customer's position; and

  4. (4)

    the circumstances, other than failure to provide the required margin, that may lead to the firm closing out the customer's position without prior reference to him.

Failure to meet a margin call

COB 7.10.5R

A firm must close out a private customer's open position if that customer fails to meet a margin call made for that position for five business days following the date on which the obligation to meet the call accrues, unless:

  1. (1)
    1. (a)

      the firm has received confirmation from a relevant third party that the private customer has given instructions to pay in full; and

    2. (b)

      the firm has taken reasonable care to establish that the delay in its receipt is owing to circumstances beyond the private customer's control; or

  2. (2)

    the firm makes a loan or grants credit to the private customer to enable that customer to pay the full amount of the margin call in accordance with the requirements of COB 7.9.3 R (Restrictions on lending to private customers).

COB 7.10.6G

In COB 7.10.5 R (1)(a) a relevant? third party includes a party connected with the transaction such as a clearing firm.