Margin account

How does borrowing (gearing) work?

Securities financing is a loan where you use securities as collateral.

You start with equity in the form of an existing portfolio of securities, or cash, which you pledge as collateral in order to borrow money to invest more.

Borrowing with collateral in securities is called ‘gearing’. You gear to afford to expand your portfolio.

How gearing works when you buy shares:

How much you can gear depends on the securities you have borrowed, and which securities you wish to buy.

The liquid markets (where it is easy to sell) are where you can gear most, e.g. the share market.

Let’s say you want to gear by a multiple of five. You then make an investment of NOK 250 000 with only NOK 50 000 in equity. You can then borrow NOK 200 000 with the NOK 50 000 as collateral against a potential loss.

If the price of the shares you’ve bought then increases by 10 per cent, you’ll have made a profit of NOK 25 000 before tax and interest. That’s five times more than you would have made with the original amount.

Unfortunately, the gearing also involves that potential losses will be five-fold. If the shares drop by 10 per cent in value (by NOK 25 000), you will suddenly loose half of your capital, in addition to the interest you had to pay for the loan.

Should the shares fall by 30 per cent (NOK -75 000), you’ll have lost more than you had. Now you owe the bank money.

When you’ve lost the whole amount you placed as security, you are then ‘in breach’. Read more about this under ‘What does it cost to be in breach?’

What does it cost to apply for securities financing?

Applying for a margin account does not cost anything* Holding the margin account is also free. Interest is only charged on the amount used. The margin account currently has a variable interest rate It is therefore important for the investor to keep track of any changes in interest rates. Changes to interest rates are announced in the traditional way in accordance with the applicable notification period rules.*In addition, fees and charges will be applied by the Norwegian Central Securities Depository per Norwegian Central Securities Depository account. This means that for Securities Financing with a share savings account, where there are two Norwegian Central Securities Depository accounts, two pledges will be established and thereby two fees will be charged.

See the securities financing price list.

*In addition, fees and charges will be applied by Euronext Securities Oslo (VPS) per VPS account.
See the securities account price list.

How can I apply for a higher margin account?

If you are already a customer of our online equity trading service you can submit an application for Securities Financing when you are logged in. You will find the application form under the ‘My profile’ tab.

Alternatively, you can obtain the application form by contacting your client manager (broker/customer consultant) in DNB and send the pre-filled application directly to Customer Administration in DNB, DNB Carnegie, Customer Administration, PO Box 7100, 5020 Bergen.

DNB Carnegie will forward your application to the relevant credit department.

When is interest charged to my trading account?

If you have a normal equity trading account the loan interest (debit interest) will be charged to the “Brukskonto aksje” on the last day of each month.

Within ASK the interest will not be charged to your account, but will be added to your loan balance. This happens the first working day of the month.

Debiting the debit interest will affect your balance and also available funds and available margin. You must therefore ensure that you have enough money in your account when this debit is taken, so that your account does not become overdrawn. Should the account be overdrawn as a result of debit interest, you normally have 14 days to cover the overdraft.

What do you need to do if you are in breach?

When you are about to lose more than you have pledged in collateral, you become in breach. You will then receive a so-called ‘margin call’ from the lender.

If you get a margin call, you must immediately adjust your portfolio to balance out the loan so it is equal to or less than you portfolio’s loan-to-value ratio. This can be done in doing the following:

• depositing cash into your trading account to reduce the amount of margin you are using;
• placing extra collateral in the form of securities to increase your portfolio’s financing value;
• selling parts of your portfolio to use the money from the sale to reduce the amount of margin you are using.

How do you find the amount you need to sell?

Here is the formula you can use to calculate:

Required sales amount = Breach / (1-loan-to-value ratio)

We reserve the right to forcibly liquidate

If we are the lender, we reserve the right to liquidate all or parts of your portfolio in order to reduce the amount of margin you are using, if you have not taken any action by the issued deadline (normally three trading days after notification of the margin breach).

DNB also reserves the right to be able to react earlier than the specified three trading days if we think the market conditions warrant it.

Which securities can be geared?

You can finance between 10 per cent and 85 per cent of the market value of every listed security that DNB Carnegie places a loan-to-value ratio on. This percentage (the loan-to-value ratio) can vary over time. The loan-to-value ratio is calculated, among other things, based on volatility (price fluctuations) and liquidity (volume of turnover) of the security.

You will find an updated list of securities and their loan-to-value ratios on the ‘Securities financing’ page.

How can I apply for securities financing?

If you only wish to trade via a broker, you can get an application form by asking your broker/client manager in DNB. Your Client Manager will forward your application to the relevant credit department.

To get access to Securities Financing online, you must be an online equity trading customer. When you are logged in, you will find an application form on ‘My profile’.

If you are not already a customer in DNB, you can become one here.

When will interest be credited to my trading account?

Credit interest is credited to your trading account on an annual basis, as of 31/12.

When can I end up in breach (no longer have enough collateral)?

If the market drops significantly, the collateral in your portfolio (the borrowed value) can become lower than the gearing.

We recommend that you always have collateral of at least 20 per cent of the mortgaged securities’ financing value. This is to ensure you have a savings buffer against changes in the market value and/or loan-to-value ratio and capitalised interest rates.

You can also be in breach if the loan-to-value ratio of a security decreases, reducing your portfolio’s financing value to a level lower than the credit amount drawn.

Our Custody services are designed to give our customers robust and effective solutions with a high degree of automatic and machine-to-machine communication. In addition, we have excellent online solutions that give our customers easy access to money and securities accounts, transactions and holdings, and a very good solution for handling corporate actions.

For institutional investors and financial institutions

Custody is a collection of services in the post-trade area of the value chain. The products are aimed at institutional investors and financial institutions, and among other things, we offer excellent solutions for:

• securities settlement and custody for both Norwegian and international securities;
• handling dividends and corporate actions;
• newsletters and market information;
• help with tax rebates in reclaim markets;
• custodian services for asset managers who are subject to the UCITS and AIFM rules and legislation;
• securities lending through both Principal and Agent programmes;
• electronic subscription and redemption of Norwegian and international mutual funds.

More information about account management and Custody services

For more information you can also contact us at custody@dnb.no