Understanding Your Credit Risks

Benefits

• A margin account is a brokerage account which allows you to borrow money against the investments in your account at a competitive interest rate. Please click here for more information.
• You can leverage the account by using excess margin to buy additional investments. 
• You can transfer excess margin out of the account for personal purposes; a readily available line of credit.
• You can pay down the outstanding balance at any time.

Risks

• The amount of money you can borrow is determined by securities you hold in the portfolio. Margin rates vary by security, and the minimum margin requirements are set by the Investment Industry Regulatory Organization of Canada(IIROC). HIDC reserves the right to impose more stringent margin requirements at any time without prior notice and it could often take effect immediately. You must ensure that you are aware of the margin rate of the securities in which you are borrowing funds. Please click here to view the margin rates.
• The fluctuations of the values of securities can affect your account’s available margin. Unfavorable market conditions may result in negative margin balances within your account (“margin deficiency”). You must closely monitor your account to maintain a positive margin balance. Please click here for more information on margin account deficiencies.
• If there is margin deficiency in your account, HSBC InvestDirect will attempt to notify you of the margin call on a best-effort basis. You are required to take action to cover the shortfall within the provided deadline - by deposit (cash or margin-eligible securities), by selling sufficient securities, or buy back sufficient short positions to avoid the forced sale or buy-back of those securities in your account. 
• In accordance with the Margin Account Terms and Conditions, HSBC InvestDirect reserves the right to take necessary actions it deems desirable for its protection, including (without the necessity of a margin call) the immediate sale or buy back of securities to cover the current margin deficiency without prior notice. Margin sales or buy-backs to correct a margin shortfall will be charged at full commission fees (Online commission fee does not apply) and handling fee of $15.

Securities on the Credit Watch List have higher margin requirements due to price volatility or liquidity and may have other trading restrictions. Please contact a HSBC InvestDirect representative for more information. 

Please click here for more information on the Maximum Loan Value (Concentration Limits). 

^**Please contact a HIDC Investment Representative for the list of marginable HISA^**

^*certificates issued by Canadian chartered banks and trust companies authorized to do business in Canada evidencing an interest in precious metals

Any commercial, corporate bonds, debentures, notes with market value of 50% or less of par value with a low credit rating will be margined at 50% subject to the minimum bond credit rating as below: 

• ^**All Bonds that are rated non-investment grade and are rated below the following agency ratings will have 100% margin requirement^**.

BBB(Low) ----------- DBRS 

B++(Low) ------------ CBRS 

Baa3    ---------------- Moody’s  

BBB-   ----------------- S& P

Notes:

• Convertible Bonds, when a credit rating for the debt issuer is not available, the margin requirement for the convertible bond will be the same as the underlying security’s margin requirement.

Please click here for the options margin requirement chart.

1. LONG OPTION POSITION

You buy to open 10 contracts of Stock A’s PUT, strike price $50, trading at $1.50.

100% of options premium

= # of contracts * options price * 100 shares 

= 10 * $1.50 * 100

= 1,500

2. DEBIT SPREAD

Stock A is trading at $44. 

Buy to open 10 contracts of Stock A’s CALL, strike price $50, trading at $1.50

Sell to open 10 contracts of Stock A’s CALL, strike price $55, trading at $0.50.

Both positions have the same expiry date. 

Premium paid for long CALL - Premium received for short CALL

= (10*$1.50*100) - (10*$0.50*100)

= 1,000

3. CREDIT SPREAD

Stock A is trading at $44. 

Buy to open 10 contracts of Stock A’s CALL, strike price $55, trading at $0.50

Sell to open 10 contracts of Stock A’s CALL, strike price $50, trading at $1.50.

Both positions have the same expiry date. 

Difference between strike price 

- Premium received for short CALL 

+ Premium paid for long CALL

= (55-50)*10*100 - (10*$1.50*100) + (10*$0.50*100)

= 4,000

4. NAKED CALL OPTIONS

Stock A is trading at $44. 

Sell to open 10 contracts of Stock A’s CALL, strike price $50, trading at $1.50.

(1) 100% options premium

+ (2) margin requirement of underlying security – any out of the money value (subject to minimum of 5% market value of underlying security)

= (10*$1.50*100) + (44*10*100*30%) - (50-44)*10*100

= 8,700

5. NAKED PUT OPTIONS

Stock A is trading at $62. 

Sell to open 30 contracts of Stock A’s PUT, strike price $50, trading at $0.20.

(1) 100% options premium

+ (2) margin requirement of underlying security – any out of the money value (subject to minimum of 5% aggregated exercise value of the option)

= (30*$0.20*100) + (62*30*100*30%) - (62-50)*30*100

= 20,400

In addition to the minimum margin requirements, HSBC InvestDirect Credit Policy has Concentration limits which is the maximum amount that can be borrowed against a security, or the maximum dollar value of a short position, or the maximum number of contracts you can write on CALL and PUT options. Each security has its own concentration limit and the limits are generally tied to the margin requirements of its corresponding security types. It is important to understand these limits to avoid margin or concentration calls. 

An increase to Maximum Loan value extended may be granted on an exceptional basis, but only within IIROC regulatory margin requirements. Please submit a request by email to investdirect@hsbc.ca, or contact us at 1.800.760.1180. 

Please include the following information on your request:

ACCOUNT #:

NAME:

EXTENDED LOAN REQUEST ON THE FOLLOWING STOCKS:

INCREASE DEBIT LIMIT (ACCOUNT DEFAULT LIMIT $750,000): 

You will receive a “Margin Call” message in your online account. You are required to take action to cover the shortfall within the provided deadline - by deposit (cash or margin-eligible securities), or sell sufficient securities, or buy back sufficient short positions to avoid the forced sale or buy-back of those securities in your account. HSBC InvestDirect reserves the right to take necessary actions to protect our financial interests including the immediate sale or buy back of securities to cover the current margin deficiency without prior notice.

In accordance with the Margin Account Terms and Conditions, HSBC InvestDirect reserves the right to take necessary actions it deems desirable for its protection, including (without the necessity of a margin call)  the immediate sale or buy back of securities to cover the current margin deficiency without prior notice. 

Margin sales or buy-backs to correct a margin shortfall will be charged at full commission fees (Online commission fee does not apply) and handling fee of $15.

Benefits

• A Registered account is a brokerage account which allows you to invest your retirement plan account money.
• You can have investment opportunities through a variety of investment vehicle, including stocks, bonds, mutual funds and more.
• You can invest and trade in 30 domestic and international markets.

Risks

• In accordance with the General Terms and Conditions, account delinquency or stock oversold are prohibited in Cash and Registered accounts.
• According to CRA, debit in registered plan is prohibited, including debit caused by RIF / LIF payments.
• Cash accounts can be restricted to “Cash up front” if marked 3 times as delinquent, meaning funds must be available in the account prior to placing a buy order.
• Incorrect trade settlement, or bank holds on funds may result in an account delinquency, please ensure the right settlement instructions are chosen at the time of trade, and ensure funds are available for settlement in a linked bank account.
• If your account goes in delinquency or stocks are oversold, we will attempt to notify you of the debit call or oversell on best-effort basis. You are required to take action to cover the shortfall within the provided deadline – by cash deposit or buy-back short position to avoid the forced sale of securities or forced buy-back in your account. HSBC InvestDirect reserves the right to take necessary actions to protect our financial interests including the immediate sale or buy back of securities to cover the current deficiency without prior notice.
• Missing booking an exchange rate through the Automatic HRSA Sweep & Redemption Service or insufficient USD High Interest Saving account / money market fund may result in a delinquency in a Registered account.
• We reserve the right to decide which security to sell or buy back in order to protect our financial interests. All forced sale or buy-back will be charged at full commission fees (Online commission fee does not apply) and handling fee of $15.

Cash account - The maximum trade size purchase equals to the total equity in the cash trading account excluding venture stock or non-marginable stock holdings. 

Cash account with Cash Up Front restriction - The maximum trade size purchase equals to your available funds and money market funds/HRSAs minus any open buy orders in the cash trading account, including cleared fund deposit from your linked up bank account. 

The maximum trade size purchase equals to your available funds and money market funds/HRSAs minus any open buy orders in the Registered trading account.

Lending in Cash / Registered Accounts are not allowed. Funds must be available for the settlement of trades in Cash and Registered Accounts.

In general, stocks settle in T+2, i.e. trade date plus two business days; options settle in T+1, i.e. trade date plus one business day. Settling trades by selling securities on the next day or later days to cover the offsetting debit are not allowed in Cash accounts or Registered accounts.

This service is intended for USD currency trades only in Registered accounts. Please ensure you have enrolled for this service and designated your HRSA and have sufficient HRSA for your USD currency trades.

Access the form here.