Margin is a good faith deposit or performance bond to guarantee the performance of obligations under a futures contract. Margin is required to be deposited by a customer with his broker, or deposited by a broker with a clearing member, or by a clearing member with the clearing house.
Initial margin is the minimum margin requirement to open a futures position. Maintenance margin is the minimum equity that must be maintained in a customer’s account subsequent to deposit of the initial margin. If the equity balance drops below this level, a deposit must be made to bring the account back to the initial margin level. For this purpose, a margin call is issued to the customer by the broker. In some circumstances where there are considerable market volatilities, an intra-day margin call may be issued to take account of the intra-day futures price movements to a customer’s positions.
Margin may be in the form of cash or non-cash collateral as determined by the exchange and clearing house.
Once a trade is matched on the exchange, the clearing house will act as the counterparty to each side of the transaction, assuming the counterparty risk involved when two parties (or members) trade. This central counterparty function minimizes counterparty risks to clearing members and market participants. The Hong Kong Mercantile Exchange has designated LCH.Clearnet as its Clearing House.
The Hong Kong Mercantile Exchange is regulated by the Securities and Futures Commission (SFC) in Hong Kong. The SFC is an independent statutory body responsible for regulating the securities and futures markets in Hong Kong. To learn more about the SFC, please visit www.sfc.hk.