QuestionsQuestions (SEC)
RSA Rule 24(a)-2 sets minimum requirements for subordinated loan agreements or secured demand note agreements to qualify as “satisfactory subordination” so that brokers/dealers may meet the more stringent capital requirements under the Net Capital Rule (RSA Rule 24(a)-1).
A broker/dealer may not extend credit exceeding 50% of the current market value of the security at the time of transaction.
In no event shall new or additional credit be extended in an account in which the equity is P50,000 or less.
No less than 25% of the current market value for “long” securities, and no less than 30% for “short” securities.
(1) Initial margin call: within five (5) business days from the date the insufficiency is created. (2) Maintenance margin call: within 24 hours after the call is issued.
The broker/dealer shall liquidate securities sufficient to meet the margin call or eliminate the margin deficiency existing on the day such liquidation is required, whichever is less, through the Exchange or the best available public market; but if the deficiency is less than P10,000, no action is needed.
Yes. It may be extended by seven (7) days upon written request delivered by hand or facsimile transmission to the PSE (for members) or SEC (for non-members). The Exchange/Commission considers good faith and exceptional circumstances; the request must be received and acted upon before expiration of the original or previous period.
Collateral Value is the market value of the securities after reducing market value by 30%, except for securities issued by the Republic of the Philippines where different deductions apply by reference to the Republic-of-the-Philippines deduction schedule.
The agreement must have a minimum term of one year (except temporary subordination agreements), and must be a valid and binding obligation enforceable against the broker/dealer and lender (subject to applicable bankruptcy/insolvency/reorganization/moratorium and similar laws).
No. It must be for a specific peso amount that shall not be reduced for the duration of the agreement except by installment provisions specifically provided for therein and except as otherwise provided in the rule.
It must subordinate the lender’s right to receive any payment (with accrued interest/compensation) to prior payment or provision for payment in full of all claims of all present and future creditors of the broker/dealer arising out of matters occurring prior to the maturity date, subject only to claims that are the subject of agreements ranking same priority or junior to the lender.
It may deposit cash proceeds and pledged cash/securities in its own name at a bank; pledge/repledge collateral without notice; and may lend to itself or others any or all securities and cash pledged as collateral.
Only fully paid cash and securities with a ready market that may be publicly offered/sold without registration and are not otherwise restricted may be pledged as collateral.
Broker/dealer must immediately transmit written notice to lender and regulators. Then, before noon of the next business day, the lender may pledge additional collateral to meet at least the unpaid principal amount; otherwise, unless additional collateral is pledged, the broker/dealer at noon the next business day must sell sufficient securities for the account of the lender to eliminate the unpaid principal amount (or as required by the rule), without allowing the broker/dealer to buy the securities for its own account.
No. The agreement is not subject to cancellation by either party, and no payment or termination/rescission/modification by mutual consent or otherwise is allowed if it would be inconsistent with RSA Rule 24(a)-1 and RSA Rule 24(a)-2.
For subordination agreements: PSE approves for brokers/dealers that are PSE members; SEC may require approval or inclusion of additional provisions for non-members. For margin initial call extensions: request goes to PSE for PSE members and to SEC for non-exchange members.
A broker/dealer may not accept such orders unless specific conditions are met: customer’s settlement agent details are on file; trades are identified as delivery or receipt against payment; confirmations are provided promptly; the customer commits to instruct its agent and ensure affirmation by no later than the second business day; and settlement/affirmation uses facilities of a registered clearing agency for depository eligible transactions.