About buffer limits and margin calls

What is a buffer?

If your outstanding margin loan balance exceeds the security value of your investments beyond a pre-determined limit (see below), your margin loan Facility will be in a buffer.

While your Facility is in buffer, you will not be able to withdraw funds or make further purchases, and the chance of a margin call increases. You are not obliged to take any action to restore the security value of your investments to more than the outstanding loan amount, though you may choose to do so to minimise the risk of a margin call.

What is a margin call?

If your outstanding margin loan balance exceeds the security value beyond the buffer limit (see above), you will be in margin call.

If NAB Equity Lending makes a margin call, you should undertake one or more of the following steps to restore the security value of your portfolio to more than your outstanding loan amount:

  • Reduce your outstanding loan amount (if you have a variable rate loan)
  • Deposit cash into your Cash Management Account (if you have a fixed rate loan)
  • Sell some investments and apply the net sale proceeds against your NAB Equity Lending Facility
  • Provide additional approved investments as security

How is the buffer limit calculated?

The buffer is a percentage calculated as the aggregate of:

  • the value of each share in your portfolio divided by the total value of your portfolio and multiplied by 5%; and
  • the value of each managed fund in your portfolio divided by the total value of your portfolio and multiplied by 10%.

This percentage is then multiplied by the total market value of your portfolio to give a buffer amount in dollar terms.

How can you minimise the risk of a margin call?

It is important that you closely monitor your Facility on a regular basis and promptly take action if you are in a margin call position. While we will attempt to contact you if you are in a margin call position, if we are unable to do so we may sell shares or redeem managed fund units to restore your Facility position without further reference to you.

If you intend to go away or will not be contactable for some time, we recommend you consider the following:

  • deposit additional funds (either to the credit of your variable interest rate loan account or to your Cash Management Account);
  • provide additional approved investments as security;
  • nominate an authorised representative to act on your behalf (including responding to margin calls);

Other ways to minimise the risk of a margin call are:

  • for variable interest rate loans, pay the interest monthly instead of having the interest added (capitalised) to your loan balance;
  • arrange for dividends and distributions to be credited directly to your variable rate loan or Cash Management Account;
  • do not borrow up to the maximum allowed. For example only borrowing up to 60% against an investment with a security value of 70% provides you with additional protection;
  • diversify your portfolio across a number of investments and industry sectors to lessen the impact of poorly performing investments.

For any queries, contact NAB Equity Lending on 1300 135 145 (Monday to Friday, 8.30am - 5.30pm AEST) or email equity.lending@nab.com.au