Instructions for Dealing in Major Foreign Currencies and Precious Metals on a Margin Basis for Clients No. 16/2018

In the name of Allah, the Most Gracious, the Most Merciful

Central Bank of Jordan

Number: 10/2/9475
Date: 10/11/1439 AH
Corresponding to: 18/7/2018 AD

Instructions for Dealing in Major Foreign Currencies and Precious Metals on a Margin Basis for the Benefit of Clients No. (16/2018)

Issued pursuant to the decision of the Board of Directors of the Central Bank of Jordan No. (123/2018) dated 5/7/2018 Based on the provisions of Article (5) of the Law Regulating Dealing in Foreign Exchanges No. (1) of 2017 And the provisions of Article (99) of the Banks Law No. (28) of 2000 and its amendments

The controls that banks must adhere to when providing the service of dealing in major foreign currencies and precious metals on a margin basis for the benefit of their clients, whether based on clients' instructions (orders) or by the bank based on authorization from clients, are listed below, as follows:

1. The bank's Board of Directors must adopt a detailed written policy and work procedures that define the basis of dealing between the bank and its clients in convertible foreign currencies and major precious metals (where the types of foreign currencies and precious metals desired for dealing are specified within the policy) on a margin basis.

2. Banks are prohibited from granting clients (or related parties) credit facilities or utilizing credit facilities to finance the margin, with clients signing an undertaking to that effect.

3. Banks shall obtain from their clients an initial margin in major convertible foreign currencies of no less than (15%) of the value of open positions in foreign currencies and precious metals.

4. The initial margin shall be calculated based on the sum of short or long positions, whichever is greater.

5. For margin monitoring purposes, the margin value shall be adjusted by realized and unrealized profits/losses immediately, and the bank shall adhere to the following:
   a. If the margin ratio falls at any time below (10%) and up to (5%), the client shall be requested to increase the margin to reach the ratio specified in item (3) within a maximum of two business days. b. If the margin ratio falls at any time below (5%), a partial (or full) liquidation of the client's position shall be carried out immediately to ensure, at a minimum, the preservation of this ratio.
   c. Ensuring initially and continuously that the margin ratios (initial, adjustment, and liquidation) exceed the ratios required for the bank to maintain with the external bank through which operations are covered.

6. The necessity of having automated systems for calculating margin ratios that enable the bank to monitor these ratios and carry out partial or full liquidation of positions, as well as obtain details of transactions individually and in aggregate, in addition to the ability to extract daily statements for clients upon request.

7. Subjecting the trading system adopted by the bank to examination and testing in a manner that ensures the availability of regulatory requirements such as user permissions, segregation of duties, provision of necessary regulatory reports, and establishing appropriate controls to ensure the examination of software and infrastructure before operation to verify their adequacy, and that internal control systems ensure the effectiveness and integrity of information and associated technology management at the bank, in accordance with what is specified in the Internal Control Systems Instructions No. (35/2007) dated 10/6/2007 and any instructions that amend or replace it, and Circular No. (10/1/3444) dated 21/3/2005 related to the principles of electronic banking risk management and any circulars issued in this regard.

8. Commitment to providing clients with detailed and clear reports on their accounts periodically, at most monthly, or upon request.

9. The management of these services shall be entrusted to qualified technicians working based on clear instructions approved by the bank's management.

10. The presence of an independent Back Office department responsible for settling executed operations, in addition to another independent Middle Office department responsible for monitoring client account statuses, especially adherence to prescribed margin ratios.

11. Adoption of a legal agreement model that clearly and understandably regulates the relationship between the bank and the client, explicitly including all risks the client may be exposed to, terms of dealing including fees, commissions, and other expenses, as well as the responsibility for managing margin accounts.

12. The bank's Risk Management Department shall review the agreements referred to in the above item in a documented and continuous manner, to ensure the transfer of risks arising from agreements concluded with correspondents to agreements signed with clients, to ensure that the bank does not bear any contractual risks, and the necessity of subjecting these dealings to internal audit to ensure compliance with approved policies and procedures.

13. The bank may not act as a counterparty in transactions it conducts for clients; the bank's role in providing these services is limited to that of an intermediary.

14. Retention of all documents supporting all accounting entries made in margin-based dealings, in a manner that facilitates their retrieval upon request.

15. Cash collateral (margin) shall be shown as a separate item within cash collateral, while client positions dealing on margin must appear under off-balance sheet accounts.

16. Retention of client orders, whether written, by fax, internet, or recorded phone calls, for a period consistent with the provisions of applicable legislation in this regard, and in a manner that facilitates their retrieval when needed.

17. The provisions of these instructions apply to banks operating within the Kingdom, and the foreign branches of these banks are not subject to these provisions.

18. These instructions shall be effective from their date of issue, and the provisions of the Instructions for Dealing in Major Foreign Currencies and Precious Metals on a Margin Basis for the Benefit of Clients No. (31/2006) dated 18/10/2006 shall be repealed.

Governor
Dr. Ziad Fariz