What is the deficit procedure at Saxo Bank? – SaxoConnect

It is possible that your end-customer’s account with Saxo Bank may register negative available margin. This means that there is a deficit because the liabilities on your end-customer's account are larger than Saxo Bank allows. Liabilities arise from, for example, a debit balance on your cash account (if your end-customers use margin lending), short option positions and/or future positions.

It is not allowed to have a deficit in your end-customer's spending power with Saxo Bank and you must at all times aim to prevent this. If a deficit nevertheless arises, you must settle this as soon as possible.

Depending on the products your end-customer invests in or the services that your end-customer has activated, your end-customer will end up in one of Saxo Bank's two deficit procedures if they have negative spending power. In the description of each deficit procedure, we explain what your end-customer's obligations are and what measures we can take to settle the deficit on your client’s account.

In the table below you can see which deficit procedure may apply to your end-customer and how Saxo Bank may close your end-customer's positions to settle a deficit.

The use of a deficit procedure is in accordance with the legal regulations and the basic terms and conditions and other conditions that Saxo Bank applies.

1. Standard deficit procedure

If your end-customer uses the standard margin method (Strategy Based Margin, SBM), invests in derivatives that require margin (uncovered written options and all futures), but does not use margin lending, your end-customer's account will have negative spending power if their margin utilization is more than 100%. In the SaxoConnect dashboard you can see the margin utilisation information for your entire book of business. Also, you will receive information regarding your end-customer's margin via EOD files. Read more about EOD day files here.

Saxo Bank strongly advises you to prevent your end-customer's margin utilization from exceeding 100% by maintaining sufficient margin in your spending power and taking timely measures yourself in the event of an impending deficit. If your end-customer's margin utilization is greater than 100%, you must make up for this deficit as soon as possible. From the moment your end-customer exceeds 100%, a maximum term of 5 x 24 hours during trading days applies to undo the deficit. Please note that we use the trading days of the international currency market, which opens on Sunday evening. Please also take care round local holidays as if the foreign exchange market is open, it will count as a normal trading day.

If your end-customer's margin utilization rises above 125%, Saxo Bank will immediately close positions in your end-customer's portfolio to settle the deficit. This is an automated process that does not allow manual intervention by our employees. It is therefore important to keep a close eye on your end-customer's margin utilization and to clear a deficit as quickly as possible to prevent your end-customer from entering the (automated) deficit procedure.

When the margin utilization exceeds 90 percent, asset managers will receive a separate warning email and notification pop-up in SaxoConnect per individual client.

In the event of a deficit procedure with a margin utilization between 100 and 125 percent, asset managers will receive a separate email and notification pop-up in SaxoConnect per individual client on a daily basis.

In the event of a stop out procedure that results in the (partial) closure of a position in your end-customer's portfolio by Saxo Bank, asset managers will receive a separate email and notification pop-up in SaxoConnect per individual client.

The period of 5x24 hours during trading days is, as mentioned, calculated based on the trading times of the international currency market. The counter runs on each day that the foreign exchange markets are open. Please note that trading on the currency markets starts on Sunday evening (Dutch time) and that these markets may also be open on days when, for example, the Euronext exchanges are closed.

1.1 How does the standard deficit procedure work?

Saxo Bank continuously calculates the margin utilization of your end-customer's account based on real-time quotes. If your end-customer's account uses more than 100% margin, there is a deficit in spending power.

It is therefore very important that you proactively monitor the available margin utilization-related data in SaxoConnect and SaxoPortfolio. We will also provide you with an EOD file on a daily basis with all necessary margin-related data for your entire customer base. It is very important to act as quickly as possible on the basis of this data and to take timely measures in response to deficits in order to avoid closing all positions in your end-customer's portfolios.

If a deficit is still detected within the specified period of maximum 5 x 24 hours, Saxo Bank will first close any open futures and options positions in the portfolio in order to settle the current deficit. In addition, Saxo Bank will cancel all open orders in these products.

In the event of margin breach, Saxo Bank may eventually also close any positions in cash products (shares, bonds, ETFs, mutual funds, turbos) if this is necessary to close the deficit. Please note that the closing of cash positions takes place at a later time than the stipulated term of 5 x 24 hours during trading days.

If your end-customer's margin utilization rises above 125%, Saxo Bank will immediately close any open futures and options positions in your end-customer's portfolio to settle the deficit. If Saxo Bank detects a positive spending power during the deficit procedure (your end-customer's margin utilization falls below 100%), the deficit procedure will be cancelled.

To warn you of an impending deficit, we have created a dashboard section which indicates the number of end-customers with a margin utilization of more than 70% in SaxoConnect. You’ll also find a section with information about the number of margin call and stop-out events applicable for your book of business. This gives you the opportunity to take timely measures to avoid the deficit procedure.

Saxo Bank advises you to regularly monitor your end-customer's margin utilization so that you can act in time if there is a threat of a negative balance. Your end-customer has the following options to reduce margin consumption below 100%:

A money transfer from an external bank. This transfer may only come from an account under the same name.
An internal money transfer. This is possible if your end-customer holds several Saxo accounts and they are linked.
Place a (margin-reducing) buy or sell order.

If your end-customer transfers money, we advise that they take into account the time the transfer will take. It is therefore advisable to take immediate action to ensure that the account is funded on time.

It is your responsibility to proactively monitor your end-customers’ margin utilization and to avoid entering the deficit procedure. For this reason, we recommend that you log in to the platform regularly.

When the margin utilization exceeds 90 percent, asset managers will receive a separate warning email and notification pop-up in SaxoConnect per individual client.

1.2 Closing positions on a pro rata basis (SBM)

If your end-customer does not invest using margin lending. If you choose this option, any index options and futures positions in the portfolio that are necessary to close the deficit will be closed first. If a deficit still exists after closing the index option positions, then the stock option positions will be closed pro rata. This prevents Saxo Bank from closing more positions than necessary to bring your end-customer's margin utilization back below 100%.

In the event of a deficit after closing the option positions, Saxo Bank may eventually close all positions in the portfolio if this is necessary to balance the deficit. Please note that the closing of cash positions takes place at a later time than the stipulated term of 5 x 24 hours during trading days.

1.3 Standard deficit procedure for margin lending

The deficit procedure for margin lending applies if you use margin lending (with or without margin-requiring options and/or futures). This deficit procedure differs on the following points:

When investing with margin lending, a deficit is not determined using the margin utilization. Instead the margin and loan utilization calculation will determine a deficit. You can monitor your end-customer's margin and loan utilization in real time in SaxoConnect. Your end-customer is in deficit if the margin and loan utilization exceeds 100%.
If Saxo Bank liquidates the portfolio to clear a deficit, all positions in the portfolio will be closed, including any cash products (shares, bonds, ETFs, investment funds, turbos).

2. Exceptions

Saxo Bank reserves the right to close positions in the portfolio early in the event of a deficit – contrary to the procedures described above. For example, Saxo Bank may close positions in your end-customer's portfolio early in the following situations:

If, according to Saxo Bank, the tradability of a particular security is so limited that waiting for the final liquidation date, in Saxo Bank's judgment, creates unacceptable risks for your end-customer and for Saxo Bank.
In any other situation that Saxo Bank estimates that waiting for the closing date will create unacceptable risks for your end-customer and for Saxo Bank.

3. Margin and loan utilization examples

Saxo Bank uses two types of margin for futures. The first margin is required to enter into a position; this is the initial margin. Once the (margin-requiring) future position has been taken, the maintenance margin applies. The maintenance margin is used to determine margin utilization and is slightly lower than the initial margin. For options, only maintenance margin applies.

Example:

Below are three more examples where we explain how the margin utilization and the margin and loan utilization are calculated. These examples are for illustrative purposes only and do not reflect real values.