FSC Focuses on Cross-Broker Margin Trading; Yuanta Financial Proposes Tiered Margin Calls

The Financial Supervisory Commission (FSC) held its 5th Financial Development and Asia Asset Management Center Strategy Meeting today to discuss risk management regarding investors' recent use of cross-border margin trading (sub-brokerage margin financing). During the meeting, Yuanta Financial Holding took the lead in proposing a "tiered management mechanism for sub-brokerage margin calls." The proposal advocates that when an investor's maintenance margin ratio hits the 160% red line within T+2 settlement days, brokerages should be allowed to sell collateral in advance to mitigate credit risk. The core of this suggestion lies in stratifying the timing and magnitude of margin calls according to risk levels, thereby preventing massive funding gaps caused by rapid market fluctuations.

Sub-brokerage refers to an arrangement where investors open an account with a securities firm and subsequently commission other brokerages to execute trades or margin financing, involving cross-brokerage flows of funds and securities. With the growing demand for foreign currency financing in recent years, investors often hold margins in multiple currencies simultaneously. If exchange rates fluctuate drastically, the maintenance margin ratio easily falls below the safety threshold, thereby triggering margin calls. The FSC pointed out that current margin call mechanisms are mostly based on a single red line, lacking flexibility. Furthermore, under cross-border sub-brokerage arrangements, information transmission and execution speeds are often constrained, increasing systemic risk during market volatility.

However, the FSC also cautioned that this issue involves adjustments to investors' trading habits and market structures. If the threshold for selling collateral in advance is set too low, it may force investors into liquidation, further exacerbating price volatility. Conversely, if the threshold is too high, it will fail to curb credit risk in a timely manner. The FSC stated that the relevant regulations are still in the pre-announcement stage and have not yet officially taken effect. Specific operational details of tiered management—including red line settings, margin call schedules, and cross-brokerage information-sharing mechanisms—must be deliberated prudently under the premise of balancing investor protection and market liquidity.

At the international level, many major financial regulatory authorities have begun reviewing risk management for foreign currency financing and cross-market margins. For example, the U.S. Securities and Exchange Commission (SEC) and the European Securities and Markets Authority (ESMA) have both proposed strengthening margin call mechanisms. If Taiwan can incorporate the concept of tiered management on this basis, it will help enhance the resilience of the domestic market and reduce systemic risks caused by external shocks. Meanwhile, for brokerages, clearly defined authority to sell collateral in advance can also reduce uncertainties in capital allocation and enhance risk-bearing capacity.

Overall, the FSC will still need to balance investors' demand for flexible financing with the fundamental principle of market stability in the future. In addition to the draft regulations, it is also necessary to establish a real-time cross-brokerage information platform to ensure real-time monitoring of maintenance margin ratios and the execution of margin calls. If the relevant measures are properly implemented, they will help boost investor confidence in sub-brokerage margin financing while safeguarding the overall health of the financial market.