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Improve cash flow flexibility with Share Financing

Improve cash flow flexibility with Share Financing

  • 20 May 2021
  • By OCBC Securities
  • 10 minutes

In order to react to market news and seize opportunities, investors need to be able to access capital quickly. But what if your funds are tied up in other investments? Did you know that it’s possible to instantly unlock the value of your existing share portfolio and use it to buy new stocks? This is where OCBC Securities Share Financing comes in.

What is OCBC Securities Share Financing?

Share financing helps investors by utilising their existing shares to fund new investments, without having to sell any of their shares. With OCBC Securities Share Financing, investors can enhance their existing capital by pledging their marginable shares to OCBC Securities so as to maximise their purchasing power up to 2.5 times leverage to invest in the shares that they want, subject to prevailing terms and conditions.

What is OCBC Securities Share Financing?

How it works

Investors can improve their cash flow flexibility by simply transferring their marginable securities to free up their asset value and increase their share buying power. When investors sell off the shares, the borrowed amount plus interest is paid back to OCBC Securities, and the remaining profit is yours to keep.

For instance, Customer A with S$1,000 cash can buy up to S$2,500 worth of shares with share financing (instead of the only S$1,000 worth of shares). If the price goes up by 10%, Customer A gets a S$250 profit (instead of S$100 profit).

Below is an example of a leveraged dividend investment strategy using the Quality Priced Loan (QPL+) feature (For illustration purposes only).

Customer A, who provides a cash deposit of S$50,000, purchases up to S$175,000 worth of securities as shown in the table below.

MARKET COUNTER NAME GRADE INDICATIVE DIVIDEND YIELD ANNUALIZED (%) INDICATIVE DIVIDEND ANNUALIZED (S$) Purchase Amount1 (S$)
SG FRASERS LOGISTICS & COMMERCIAL TRUST 1 4.83% 1,691 35,000
US CANADIAN IMPERIAL BANK OF COMMERCE 3 4.54% 1,589 35,000
HK SINO-OCEAN GROUP HOLDING LTD 3 5.06% 1,771 35,000
AU RIO TINTO LTD 1 6.21% 2,174 35,000
MY TOP GLOVE CORP BHD 1 7.61% 2,664 35,000
TOTAL 9,888 175,000

1Actual marginable value might differ from the purchased amount. For illustrative purposes, the purchase amount is the same as marginable value.

Based on the above illustration, the blended interest rate on the financing amount of S$125,000 made available to Customer A is 3.08%. (The blended interest rate is computed based on the proportionate value of Customer A’s holdings of each grade of security which has been charged to OCBC Securities Pte Ltd (“OSPL”) in relation to the financing). The net interest payable would thus amount to S$3,850 (3.08% of the S$125,000 loaned to Customer A under the share financing facility).

The table below summarises the expected return Customer A would earn with and without the share financing facility. With the share financing facility, Customer A can expect to earn higher returns due to the lower initial outlay required for the investment.


Low interest rate and no break fund cost

Unlike other lending options such as a term loan, the OCBC Securities Share Financing account is a revolving credit facility. Investors have the freedom to borrow funds for 1 day to invest in their shares and pay back the loan the next day – only 1 day’s interest is charged, and there are no break fund costs (subject to terms and conditions).

Unlike unsecured financing products such as credit cards or personal loans, OCBC Securities Share Financing is a secured loan which allows it to be far more competitive, with our QPL+ rates starting from as low as 2.8%. What’s more, as long as you maintain the required amount of equity in your OCBC Securities Share Financing account, you won't be held to any repayment schedule – there is no loan tenure, no regular principal + interest payment required.

Low interest rate and no break fund cost

Understanding margin call and margin percentage

Share financing is a form of leveraged trading, which can increase the profits in relation to the initial capital that is being invested. However, we all know the opposite can happen too. When trading on leverage, you are required to maintain a certain amount of equity in your margin account so that you always have a margin of safety in the portfolio.

A margin call occurs when the value of the investor’s margin account drops and fails to meet the account's maintenance margin requirement. An investor will need to sell positions or deposit funds or securities to meet the margin call.

If the value of your collateral falls, your portfolio margin ratio (Margin Ratio = Total Collateral Value/Loan Amount) will fall. When the margin ratio falls below 140%, your portfolio will be in margin call. You will need to regularise the portfolio to 140% by either liquidating shares or top up additional collaterals such as cash deposits or shares transfer into the margin portfolio.

If Margin Ratio falls What happens
Between 130%-140% Margin call to restore the margin percentage to 140% within 2 market days
Below 130% Margin call to restore the margin percentage within the date of notice

Trade beyond Singapore

OCBC Securities offers the widest range of marginable securities across 5 major markets. We accept over 2,500 listed securities in Singapore, Hong Kong, USA, Australia and Malaysia. The marginable securities span across many different asset classes, such as Company Shares, Real Estate Investment Trusts (REITS), Bonds, Exchange-Traded Funds (ETFs) and American Depository Receipts (ADRs).

Save on foreign exchange conversion costs

Our multi-currency share financing feature allows you to finance your trades in 4 different currencies, namely SGD, USD, HKD and AUD. This gives you the advantage to take up a loan, execute and settle your trades in multiple currencies thus reducing unnecessary foreign exchange conversion costs.

For example, if an investor has multiple shares in US or HK Markets or when USD interest rates are low, he or she could easily perform a loan switch between their HKD and USD loan with no break fund costs, and no loan switch costs.

Save on foreign exchange conversion costs

Other benefits of OCBC Securities Share Financing

On top of buying listed shares, OCBC Securities Share Financing also allows you to utilise the loan facility for Initial Public Offerings (IPO) through IPO Financing.

For some of the corporate employees who have share options as part of their compensation package, OCBC Securities Share Financing also allows you to utilise the loan facility through Employee Share Option Financing (subject to terms and conditions). This is so that you do not have to come up with the full share options premium to subscribe for your Employee Share Option shares. Talk to your Trading Representative or contact us for more information.

Another benefit is our Quality-Priced Loan (QPL+) feature, which gives you greater control over your share financing interest rates. QPL+ allows the rates to vary according to the quality of the collateral in your investment portfolio. If you have high quality shares in your portfolio, you will enjoy a lower charge on your loan - with rates as low as 2.8%, one of the lowest in the market.

Quality of Marginable Securities Description SGD, USD, HKD and AUD Lending Rates
Grade 1 Major Gobal Index Component Securities 2.80%
Grade 2 Large Cap Securities with Market Capitalisation of more than $1 billion 2.80%
Grade 3 Mid/Small Cap Securities 3.50%
Grade 4 All other Marginable Securities 7.50%

Check out our latest share financing collateral grading list.

Lower online commission rates and credit interest with QPL+

As an added benefit, you get to enjoy lower online commission rates across the 5 main markets. In addition, if you make deposits into the share financing account in HKD, the unused balance in your share financing account earns you interest, calculated on a daily rest basis and credited by the next calendar day.

For example, you deposit HK$100,000 into your account in preparation for a future HK trading transaction. You will stand to earn 0.10% p.a. interest on your HK$100,000 deposit, as long as the funds stay inside the share financing account.

Lower Online Brokerage Rates and Credit Interest for HKD. Product Education | OCBC Securities

Promotions are valid till 31 December 2021. Terms and conditions apply.
Contact your Trading Representative or write to us to find out more.

Risk warning for Share Financing

Borrowing to finance the trading of securities (leveraging/gearing) carries a high degree of risk. If the value of the collaterals declines substantially, falling below the maintenance margin requirement, you may be called upon to deposit substantial additional funds on short notice in order to maintain your position. If you fail to comply with a request for additional funds or reduce your loan within the specified time, your position may be liquidated at a loss and you will be liable for any resulting deficit in your account.

Customers should note that there are limitations and difficulties in using examples, tables or illustrations to provide a full explanation or depiction. All information, statements, figures, content, explanations, examples, and details (collectively, the “Information”) contained above is intended for illustrative and/or information purposes only and should not be relied upon for any purpose whatsoever. Customers should, in the event of any doubt as to how to read or understand the examples, tables, illustration or information, contact OCBC Securities Private Limited for a fuller explanation, depiction or further details.


HOW TO APPLY

Open a Share Financing account today