Guide for Margin Finance

Contents Margin Finance What is margin finance? How does margin finance take place? Risks of margin finance Acknowledgement

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Margin Finance Investors should request copies from their financial brokers and familiarize themselves with the following:

The guide issued by the Jordan Securities Commission, Margin Finance Instructions, the list of securities allowed to be margin financed, and the margin finance agreement. Investors should also sign an acknowledgement that they have familiarized themselves with the above in order to protect their rights.

This guide aims to familiarize investors with the concept of margin finance and the risks related to it. It should be read thoroughly.

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What is margin finance? The term “Margin Finance” shall mean the financing by a Financial Broker of a part of the value of the securities in the margin finance account by guaranteeing the securities in that account.

How does margin finance take place? Say you are an investor and you buy shares worth JD 5,000 with your own money, then the value of these shares rises to JD 7,500, your profit would be 50%. But if you finance your purchase of these shares through margin finance the shares, you would pay JD 2,500 of your own money and your broker would pay JD 2,500, so your profit would be 100%. In other words, your profit is greater when you margin finance.

If, on the other hand, the value of the shares drops to JD 2,500 after you had bought them with your own money, your loss would be 50%; but if you had bought them from the margin finance account, your loss would be 100% plus any interest payments and fees. In other words, your loss is greater when you margin finance.

In short, margin finance trading may earn you higher profits or cause you higher losses compared to trading with your own money.

Before you decide to trade through margin finance you should know the following: 1. Your trading through margin finance with your broker who is licensed to perform margin finance operations is governed by the Margin Finance Instructions in force, which you must read and understand thoroughly. 2. Your relationship with your broker who is licensed to perform margin finance operations is governed by the agreement signed between you, which you must read carefully and discuss its terms with your broker before signing it because it is binding to you. 3. Do not margin finance all your securities.

When you take the decision to trade through margin finance, ask yourself the following questions: 1. Have you read the Margin Finance Instructions thoroughly and learned your duties and rights? 2. Have you read the margin finance agreement between you and your broker that you would sign? 3. Do you know the value of the interest that your broker will charge you in return for margin finance services?

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4. Do you know that it is not permissible to open a margin finance account for less than JD 5,000 whether in cash or securities allowed to be financed through margin finance? 5. Do you know that you cannot use your margin finance account to subscribe to new issuances? 6. Do you know how your broker will alert you if the maintenance margin drops below the minimum limit allowed? 7. Do you know that if the ratio of your contribution drops below the maintenance margin allowed, you would be bound to cover the deficit either in cash or by securities allowed to be margin financed within two days of the drop? 8. Do you know that, in case you fail to cover the deficit, your broker has the right to sell all or part of the securities in the margin finance account to restore the maintenance margin to the limit allowed? 9. Do you know that your broker has the right to choose which securities would be sold to cover the maintenance margin? 10. Have you chosen an appropriate broker with whom to open a margin finance account? 11. Have you ensured that your broker is licensed by the Jordan Securities Commission to perform margin finance operations? 12. Do you know that you cannot buy securities in the margin finance account unless these securities are in the Jordan Securities Commission list? 13. Do you know that you must regulate your affairs in accordance with the list of securities allowed to be margin financed issued by the Board of Commissioners of the Jordan Securities Commission? 14. Do you know that the financial broker is prohibited from trading in securities issued by him of by his affiliate or associate companies?

Risks of margin finance 1. Margin finance is a double-edged sword. It carries greater risks than trading in cash because it can augment your loss, just as it can augment your profit. 2. Securities that are financed through margin finance are considered a guarantee for the broker who finances your purchase through margin finance, He has the right to sell securities in the margin finance account if the maintenance margin drops below the minimum limit allowed, even at a major loss if the value of securities suffers a major drop in order to recover the facilities offered to the client. 3. You may need to feed your margin finance account by cash deposits or deposits of other securities that are allowed to be margin financed to raise the maintenance margin if it drops below the minimum limit allowed.

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4. You are not allowed to ask for an additional delay if your contribution to the margin finance account drops. 5. The broker has the right to select the securities to be sold in order to cover the maintenance margin.

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Acknowledgement Reference to the margin finance agreement between myself and Messers……….

Broker: ………………………………………… I, the undersigned: ………………………………………… hereby acknowledge that I have read the Margin Finance Instructions in force, the list of securities that are allowed to be financed through margin finance, the guide published by the Jordan Securities Commission on the risks of margin finance, and the margin finance agreement, before signing the agreement with the broker.

Client’s name: ………………………………… Client’s signature: ………………………………… Date: …………………………………

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