Part IV – Margin Trading Rules
A. Compliance with Margin Trading Rules
1. VASPs may only provide Margin Trading services if explicitly authorised to do so by VARA and such authorisation is expressly stipulated in their Licence. 2. VASPs that are authorised to provide Margin Trading services, must comply with this Part IV of this Exchange Services Rulebook at all times when providing Margin Trading services. 3. Margin Trading services may only be offered or provided to Qualified Investors and Institutional Investors. 4. VASPs must not offer or provide Margin Trading services to a Retail Investor. 5. VASPs must at all times ensure that they have sufficient Virtual Assets to provide Margin Trading services and can satisfy client obligations.
B. VARA Approval and Powers
1. VARA may approve an application for the provision of Margin Trading services, provided that the VASP can demonstrate, to VARA’s satisfaction, compliance with the following requirements—
a. the VASP has submitted for VARA’s approval details of the terms and conditions upon which it proposes to offer Margin Trading services to clients, including a copy of the template Margin Trading Agreement to be used by the VASP, together with information relating to the VASP’s financial condition and compliance with all Capital and Prudential Requirements applicable to the VASP; b. the VASP has established, and is able to demonstrate to VARA upon request, appropriate policies and procedures as well as systems and controls with regards to Margin Trading services, which shall include but not be limited to—
i. the Margin which may be called, the applicable Margin rates and the method of calculating the Margin; ii. the acceptable methods of Margin payment and forms of collateral; iii. the circumstances under which a client or counterparty may be required to provide Margin and additional Margin, and the consequences of a failure to meet a Margin call, including the actions which the VASP may be entitled to take; and iv. applicable escalation procedures where a client or counterparty fails to meet Margin calls; and
c. the VASP ensures, and is able to demonstrate to VARA upon request, that Virtual Assets collected as collateral for Initial Margin and Maintenance Margin purposes are liquid and can be liquidated within a reasonable timeframe.
2. VARA may request to inspect the Margin Trading system of the VASP used to calculate clients’ Margin Trading positions and Margin and, prior to granting approval, request any other clarifications, information or documents it deems necessary. 3. Notwithstanding a VASP having approval from VARA for the provision of Margin Trading, VARA shall have the power to instruct VASPs to take any of the following actions, in its sole and absolute discretion from time to time, and VASPs must comply with such instructions—
a. suspend Margin Trading services for specified Virtual Assets or clients; b. close existing client positions; and c. increase Initial Margin and/or Maintenance Margin requirements.
C. Margin Trading Obligations
1. Without prejudice to any other obligations, VASPs providing Margin Trading services shall—
a. obtain information from each client prior to opening a Margin Trading Account to determine whether the Margin Trading service is suitable for a particular client, including but not limited to such information on the client’s financial position [including financial solvency], investment objectives, risk appetite, knowledge and experience in trading in Virtual Asset markets as may be relevant and practical; b. ensure that each client’s Margin Trading Account is segregated from all other trading accounts; c. only use all Virtual Assets and/or cash balance in the Margin Trading Account as collateral for Margin Trading in accordance with the terms of the Margin Trading Agreement; d. not to utilise the funds of any client to provide the facilities of Margin Trading to another client even if the client’s consent has been obtained by the VASP; e. ensure that each client has deposited the Initial Margin in the Margin Trading Account, in accordance with the agreed value, prior to the purchase of any Virtual Assets financed on Margin; f. ensure that, if a client has more than one [1] Margin Trading Account with the VASP, that all risk limits are monitored and maintained at the client level; g. provide each client with a written statement of account at least monthly showing the trading movement of the Virtual Assets financed on Margin and the percentage of their ownership in the Margin Trading Account relative to any Virtual Assets, cash or other assets held as Maintenance Margin; h. monitor on an ongoing basis the Margin Trading Account of each client and provide at least one [1] early warning notification to a client that the percentage of the client’s ownership in that account has fallen to a specified percentage and is at risk of falling below the required level of Maintenance Margin specified in the Margin Trading Agreement. The specified percentage at which such early warning notification must be given may be determined by the VASP acting in the best interests of its clients. Such notification must include a full re-statement of the risks required to be stated in the Margin Trading Agreement in Rule IV.E.1.d of this Exchange Services Rulebook below; i. in addition to Rule IV.C.1.h of this Exchange Services Rulebook above, monitor on an ongoing basis the Margin Trading Account of each client and notify the client promptly when the percentage of the client's ownership in that account falls below the required level of Maintenance Margin specified in the Margin Trading Agreement, so that they can cover the shortfall in the account, subject to Rule IV.C.1.j of this Exchange Services Rulebook below; j. in the event that the client is not themselves able to remedy the shortfall within a reasonable timeframe, sell all or some of the Virtual Assets available in the Margin Trading Account to the extent required to restore the client’s percentage of ownership to the Maintenance Margin [or such higher level as may be set out in the Margin Trading Agreement] as per the market value of such Virtual Assets on the date of sale; k. obtain the prior approval of VARA on any subsequent amendment to the Margin Trading system described in Rule IV.B.2 of this Exchange Services Rulebook above, and provide a technical report confirming that the amended system is able to fulfil the requirements of the Margin Trading service on an ongoing basis, including during times of high volatility; and l. ensure that orderly records are kept for the Margin Trading services undertaken for a period of at least eight [8] years.
D. Prudential Requirements, Initial Margin and Maintenance Margin
1. VASPs authorised by VARA to provide Margin Trading services shall—
a. ensure that the aggregate funds allocated for Margin Trading services by the VASP are included in the VASPs calculation of its Operational Exposure; and b. ensure that the amount of credit extended to a single client for Margin Trading does not exceed one tenth of the total funds directly or indirectly attributable to Margin Trading by the VASP in its Operational Exposure, in accordance with Rule IV.D.1.a of this Exchange Services Rulebook above.
2. VASPs may only accept the following types of collateral in a Margin Trading Account—
a. the Virtual Asset financed on Margin in that account; b. fiat currency; and c. Fiat-Referenced Virtual Asset referencing USD [or AED, as approved by VARA] and where such Fiat-Referenced Virtual Asset, in all events, is backed by cash or cash equivalent [as defined in internationally recognised accounting standards] reserves denominated in the fiat currency referenced of not less than the market value of the Fiat-Referenced Virtual Asset in public circulation, or not yet redeemed.
3. Notwithstanding Rule IV.D.2 of this Exchange Services Rulebook, VASPs may accept the following types of collateral in a Margin Trading Account in the following circumstances—
a. other Virtual Assets where there is a continuing fall in the market value of the Virtual Asset financed on Margin; and b. other Virtual Assets where trading in the Virtual Asset financed on Margin is suspended or discontinued for more than seven [7] Working Days or such other period prescribed by VARA.
E. Margin Trading Agreement
1. The Margin Trading Agreement must include the following information—
a. an explanation of the VASP’s responsibilities and the respective obligations of the VASP and the client including, but not limited to, termination rights, the effect of termination, applicable dispute resolution mechanisms and the VASP’s obligation to provide an early warning notification under Rule IV.C.1.h of this Exchange Services Rulebook including when such notifications will be provided; b. whether the client has the right to withdraw cash from the Margin Trading Account, transfer amounts from the Margin Trading Account to the other account, or use such funds for new Margin financing if these amounts are higher than the Maintenance Margin; c. how all financing is calculated, including but not limited to how and when it is paid or payable, the applicable rate, or in the case of a variable rate, how it is calculated and how it may vary and how such variations will be communicated by the VASP to the client; d. an explanation of the following risks the client may be exposed to when undertaking Margin Trading, including but not limited to—
i. the risk that the client may lose all or part of the funds deposited in the Margin Trading Account; ii. the fact that the VASP may request that the client add Virtual Assets and/or funds in the Margin Trading Account if the Maintenance Margin falls below the prescribed levels or if the VASP increases Maintenance Margin requirements; iii. the right of the VASP to sell all or part of the Virtual Assets in the Margin Trading Account if the Maintenance Margin falls below the percentage specified in the Margin Trading Agreement; and iv. when and how the VASP may sell all or part of the Virtual Assets in the Margin Trading Account;
e. express consent from the client that they understand, acknowledge and accept each of the risks listed in Rule IV.E.1.d of this Exchange Services Rulebook above; f. the applicable levels of Initial Margin and Maintenance Margin and circumstances in which Initial Margin and Maintenance Margin can be amended by the VASP; g. a breakdown of the commissions, charges and fees charged by the VASP relating to Margin Trading and when they are payable; and h. a confirmation of the client's right to pay the cash balance of the price of the remaining Virtual Assets in the Margin Trading Account at any time.
2. VARA may require any amendments to the Margin Trading Agreement or other forms relating to Margin Trading conducted by a VASP as it deems appropriate.