Iraqi Securities Commission Regulations on Margin Financing Activities 2022

Iraqi Securities Commission Regulatory Instructions 2022

Unless the context indicates otherwise, the terms and expressions used in these Regulations have the following meanings:

The Law: The Securities Commission Law No. (74) of 2004 or any law replacing it. The Commission: The Iraqi Securities Commission. The Market: The Iraq Stock Exchange, and any other securities market licensed by the Commission. The Center: The Depository Center. Cash Trading Account: The account dedicated to cash transactions where the client pays the full value of the security before the brokerage firm executes the order. Initial Margin for Margin Financing Account: The amount deposited by the trader in accordance with the prescribed percentage of the market value of the securities on the date of establishment. Margin Financing: The brokerage firm licensed to finance a portion of the market value of securities for its clients, secured by the securities in the client's margin financing account or any other financial guarantees. Margin Financing Account: A special account for the client with the licensed brokerage firm through which trading in margin-financed securities takes place. Maintenance Margin: The minimum amount of the market value of the securities in the margin financing account after the date of establishment. Margin Financing Ceiling: The total amount of margin financing granted to clients of the licensed brokerage firm. Financial Solvency: The ability of the brokerage firm to meet its financial obligations when due. Person: Natural or legal person. Client: The person who wishes to trade securities and is eligible for margin financing services from the brokerage firm. Margin Trading is not permitted for: The Market, and shares of joint-stock companies listed on the Market cannot be traded on margin.

Iraqi Securities Commission Regulatory Instructions 2022

First - The brokerage firm must obtain a license from the Market, subject to the Commission's approval, to conduct margin financing activities.

Second - The conditions for the brokerage firm to conduct margin financing activities are as follows:

a. The brokerage firm applying for the license must be operating in the Market and continuing to be a member. b. The brokerage firm must have the necessary technical and administrative capabilities to conduct margin financing activities and manage the related accounts. c. The capital of the brokerage firm required to conduct this activity must not be less than (200,000,000) two hundred million Iraqi Dinars. d. The brokerage firm must provide a performance guarantee to the Market in the amount of (50,000,000) fifty million Iraqi Dinars, which is non-refundable and can be increased based on the volume of activity. e. The brokerage firm must have the necessary financial solvency to conduct margin financing activities, in accordance with the Financial Solvency Regulations issued by the Commission. f. The brokerage firm must not have committed disciplinary violations or violations of the Financial Solvency Regulations during the two years preceding the date of submitting the license application. g. The brokerage firm must use its capital in a manner that avoids any conflict of interest that may arise from its activities and providing services to traders as a result of its operations. h. The brokerage firm must have a mechanism to separate clients' accounts, with the commitment not to interfere with the balances of traders (account holders) or their legal representatives.

Third - The margin financing agreement is subject to Market approval and Commission endorsement, and must include at least the following information and data:

a. Defining the concept of margin financing service and the risks the trader may face, including the possibility of losing part or all of the funds deposited in the margin financing account, and that the securities in the margin financing account are considered collateral for margin financing. b. Defining the initial margin and maintenance margin according to the percentages prescribed by the Commission in the Regulations. c. Determining the value of commissions, fees, and costs charged to the client for this service. d. Specifying the rights and obligations of both the trader and the brokerage firm. e. Detailing the rights of the licensed brokerage firm to sell the client's margin-financed shares in the event of failure to cover the maintenance margin or any other obligations. f. The client's commitment to replenish the margin financing account if their ownership percentage falls below the maintenance margin after being notified by the brokerage firm, and specifying the methods of notification when the ownership percentage falls below the maintenance margin. g. The client's commitment not to pledge the securities subject to the margin financing contract to any other party. h. The client's explicit consent granting the brokerage firm the right to sell all or part of the margin-financed securities in case of default on repayment. i. The brokerage firm's rights regarding margin financing operations according to the priority order established by law.

First - The license application for conducting margin financing activities is submitted to the Market according to the prescribed form, including all information, data, and supporting documents, specifically:

a. Financial data audited by an external auditor for the previous fiscal year preceding the date of application. b. A report explaining the system for processing information related to margin financing accounts at the licensed brokerage firm. c. A report explaining the internal control basis at the licensed brokerage firm. d. A report explaining the document retention system for margin financing activities at the licensed brokerage firm. e. The margin financing agreement model containing all information and data mentioned in these Regulations. f. Any clarifications, information, or documents requested by the Market and Commission if deemed necessary.

Second - The Market submits the application for Commission endorsement or rejection within (30) thirty days from the date of submitting a complete application meeting the conditions and requirements of these Regulations, in addition to the technical and technical requirements set by the Market to conduct margin financing activities.

Iraqi Securities Commission Regulatory Instructions 2022

The licensed brokerage firm conducting margin financing activities must comply with the following obligations towards the client:

First - Signing the margin financing agreement model approved by the Market with clients wishing to obtain this service. Second - The Depository Center account is the same as the margin financing account. Third - Separating the cash trading account from the margin financing account for the same trader. Fourth - Ensuring the legal capacity and financial solvency of each trader. Fifth - Ensuring the client deposits the initial margin in their account according to the specified percentage before establishing any margin-financed securities. Sixth - Providing the client with a detailed monthly account statement showing the trading movements of margin-financed securities and their ownership percentage at the end of each working day, and notifying the client. Seventh - Reviewing the margin financing account for each client at the end of each working day to check for maintenance margin deficiency, and if the ownership percentage falls, the client must cover the deficiency immediately within a period not exceeding five working days from the date of notification. Eighth - Selling all or part of the margin-financed securities if the client fails to cover the deficiency (refer to Clause Seventh), to the extent that restores the trader's percentage to the initial margin percentage according to the market value of those securities on the date of sale.

The licensed brokerage firm conducting margin financing activities must comply with the following obligations towards the Market and Commission:

First - Maintaining the Financial Solvency Regulations issued by the Commission. Second - The total amount of funds allocated for margin financing by the licensed brokerage firm must not exceed 200% of the net equity of the brokerage firm, calculated according to the Financial Solvency Regulations issued by the Commission. Third - The total amount of funds allocated for margin financing by the licensed brokerage firm for a single security in its margin financing accounts must not exceed 75% of the net equity of the brokerage firm, calculated according to the Financial Solvency Regulations issued by the Commission. Fourth - The total amount of funds allocated for margin financing by the licensed brokerage firm for a single trader must not exceed 10% of the net equity of the brokerage firm, calculated according to the Financial Solvency Regulations issued by the Commission.

Iraqi Securities Commission Regulatory Instructions 2022

Fifth - The maintenance margin must not be less than (25%) of the market value of the securities in the margin financing account at any time after establishment. The maintenance margin percentage is calculated by subtracting the total value of facilities granted to the trader in the margin financing account from the total market value of the securities in the margin financing account, then dividing the result by the total market value of the securities in the margin financing account, with the brokerage firm calculating it in a way that clarifies it. Sixth - The Commission and Market are empowered to access all data and documents related to margin financing orders at any time. Seventh - Keeping independent records related to providing margin trading services, matching the outputs of the electronic broker system. Eighth - Providing the Commission and Market with all facility agreements associated with the licensed brokerage firm and fees. Ninth - Prohibiting the use of any investor's funds to provide margin trading facilities to another investor. Tenth - The brokerage firm opens only one account for the investor/client for margin trading, and the brokerage firm has the right to transfer this account to another brokerage firm under conditions specified by the Regulations. Eleventh - Providing the Commission and Market with reports, data, and documents related to the margin financing service for inspection and supervision purposes.

The licensed brokerage firm must submit periodic reports to the Commission and Market as follows:

First - A weekly report submitted on the first working day of each week containing the following information and data: a. The value of margin financing operations executed. b. The value of available margin financing funds and their sources. c. The total amounts due from traders for margin financing. d. The total market value of collateral provided by traders for margin financing. e. The ratio of the total amounts due from traders to the total market value of collateral provided by them.

Second - A monthly report submitted on the first working day of each month containing the following information and data: a. The type and quantity of margin-financed securities and the financing percentage provided by the licensed brokerage firm, the value of those sold during the month, and the total indebtedness of traders who have margin financing accounts. b. The amount of commissions and fees collected from traders for this service.

Iraqi Securities Commission Regulatory Instructions 2022

First - The Market, with Commission approval, determines the securities allowed for margin financing according to the following criteria and initial margin: a. The trading value of the company's shares. b. The turnover rate of the company's share. c. The percentage of free shares available for trading out of the total issued shares of the company. d. The ratio of the total trading value on the company to the total market value of the company. e. The company's operational results and financial status. f. The number of trading sessions in which the company's share is traded.

Second - The Market reviews the list of securities allowed for margin financing every six months according to the criteria and controls approved by the Commission, and makes necessary amendments by a decision of the Market's Board of Governors, specifying the deadline for brokerage firms to amend the margin financing accounts of traders in accordance with the amendments to the list of securities allowed for margin financing.

First - Collateral accepted in the margin financing account excludes the securities financed on margin in that account.

Second - Based on Clause First of this Article, and with the Commission's approval, the brokerage firm may accept additional collateral in the margin financing account, consisting of pledged securities or other listed securities, in addition to the margin-financed securities, in the following cases: a. A continuous decline in the market value of the security in the margin financing account due to exceptional circumstances. b. Suspension or cessation of trading of the margin-financed security for more than seven working days.

The license fees for conducting margin financing activities are as follows:

First - Initial license fee of (2,000,000) two million Dinars, split equally between the Market and the Commission, paid within five working days from the date of Commission endorsement of the license application. Second - Annual renewal fee of (250,000) two hundred and fifty thousand Dinars for the Market and Commission, paid during the month of January of each year.

First - The Market and Commission may suspend the licensed brokerage firm from conducting margin financing activities, including stopping the granting of any new margin financing or opening new margin financing accounts for traders, in any of the following cases: a. If the percentages specified in these Regulations are exceeded. b. If violations of the Financial Solvency Regulations issued by the Commission are committed. c. If any of the licensing conditions or requirements for margin financing mentioned in the Regulations are violated. d. If it becomes apparent to the Commission that the licensed brokerage firm is unable to conduct margin financing activities properly.

Second - Violators of these Regulations are punished in accordance with the Law, Regulations, and rules issued under it, and any law replacing it.