COL Securities (HK) Limited ("COLHK") imposes a daily "Exposure Fee" on a small minority of COLHK customer accounts that have a very high worst-case loss risk exposure. This is to protect COLHK and its customers from those accounts that have very risky positions that currently satisfy exchange margin requirements, but nonetheless could suffer excessive losses in the event of a significant market move (for example, accounts with high exposure to short option positions).
Exposure Fees only apply to a small minority of COLHK customer accounts with unusually risky positions. Most COLHK accounts are not subject to the fees. The fee is not a higher margin requirement. It is a fee to be deducted from affected accounts to compensate COLHK for the risk in servicing such accounts.
Each day, as part of its risk management policy, COLHK simulates profit-loss scenarios for client portfolios based on hypothetical market movements of certain magnitudes ("Exposure Analysis"). The scenarios examined may exceed the parameters used by various exchanges for determination of minimum margin requirements.
As part of this daily process, COLHK will calculate an Exposure Fee to be charged to high-risk accounts based on the potential exposure the account represents to COLHK in the event of a major loss. Under the Exposure Analysis conducted by COLHK, if an account would lose so much value that its equity would be eliminated and it would then additionally have an unsecured debt to COLHK (i.e., negative equity), this would represent an Exposure to the firm (since COLHK is legally obligated to guarantee its customers’ performance to the clearinghouse even if the customer has no remaining equity).
The Exposure Fee will be calculated for each weekday and charged to the account at the end of the following day. The results of the Exposure Analysis relating to the Exposure Fee will be made available for each account via the Account Management section of COLHK's website.
Please note the following:
- COLHK will calculate the Exposure Fee in its own discretion and using its own proprietary algorithms (which are subject to change without notice) to determine the exposure that an account poses to the firm.
- The Exposure Fee may change each day based on market movements, changes in the account’s portfolio, or changes in the formulas and algorithms COLHK utilizes to determine the riskiness of the account.
- The Exposure Fee will be deducted from affected accounts on a daily basis. You should keep excess capital in your account to cover the fee if your account will be affected. If deduction of the fee causes a margin deficiency, the account will be subject to liquidation of positions as specified in the COLHK Client Agreement.
- The Exposure Fee is judged separately account by account. If you have multiple accounts with offsetting risk exposures, you should combine them in order to reduce or avoid the Exposure Fee.
- Accounts that are subject to both the overnight position fee and the exposure fee will be charged the greater of the two fees.
If you wish to avoid being charged an Exposure Fee, please consider the following:
- Adding additional capital will improve the risk profile of your account and may reduce or eliminate the Exposure Fee;
- Reducing the exposure in your account by repurchasing short positions in options may also reduce or eliminate the Exposure Fee. COLHK has found that short positions in low-priced options generate the largest exposures relative to capital. You can use the COLHK Risk Navigator to simulate the effects of changes in your portfolio.