Attracting additional financing from the available resources of NORVIK BANKA, the client has the opportunity to acquire securities for an amount that is several times greater than the sum directly invested by him. The investment profitability potential also increases proportionally since the whole investment profit belongs to the client, while he pays the bank a moderate interest for the utilization of the bank’s resources.
Types of additional financing:
- Repo transactions
- Margin trading
Additional financing is attracted by means of REPO transactions. A REPO transaction can be conducted within one business day and is a very effective method of quickly attracting credit resources. The possibility to conduct REPO transactions is included in our package of brokerage services. Margin trading is available to clients using the services of Internet Trading.
REPO transactions have long been a popular way to borrow monetary funds against a pledge of securities. Securities belonging to the client can not only bring in income but can also be used as collateral for the obtaining of credit. A REPO transaction is an operation where the client sells a certain quantity of his securities to NORVIK BANKA at a specified price (Selling Price) for a specified period of time with the liability to repurchase them at a designated future date (Redemption Date) at a previously specified price (Redemption Price).
Features of REPO transactions
The economic nature of REPO transactions is the crediting of the client against pledging of his securities during a previously agreed period of time. At the end of this period the client repays the loan in exchange for securities involved in the REPO transaction.
Throughout the period of the REPO transaction the client reaps all benefits from securities (interest income, dividends etc.) therein involved. This allows the gaining of profit from the whole investment portfolio while only a small part of resources was invested therein and the remaining part will be provided by the bank in the form of a loan.
The client pays the previously agreed interest for utilization of the credit granted by the bank within the framework of the REPO transaction. Thus, the use of crediting is advantageous in all cases when this interest is lower than the expected profitability of the investment portfolio.
When conducting REPO transactions and if necessary, the client has the opportunity to be quickly credited and use the resources in other operations (payments etc.) but later repay the credit without withdrawing the resources from his investment portfolio.
|The deal on the client's investment||REPO deal|
|Issuer||Bond A||Issuer||Bond A|
|Coupon rate||7.88%||Coupon rate||7.88%|
|Bank credit||0%||Bank credit||70%|
|Trade volume, USD||300 000||Trade volume, USD||1 000 000|
|Fee for trade 0.08%||-240||Fee for trade 0.08%||-800|
|Bank Loan||-||Bank Loan||700 000|
|Client's Investment||300 000||Client's Investment||300 000|
|Credit rate, %||Credit rate, %||3.50%|
|Credit fee per year, USD||-||Credit fee per year, USD||(24 500)|
|Coupon per year USD||23 640||Coupon per year USD||78 800|
|Client's Profit, USD||23 640||Client's Profit, USD||53 500|
|Client's Yield, % *||7.80%||Client's Yield, % *||17.83%|
The bonds fee for keeping 0.02% per month is not considered in the calculation.
Margin trading (leverage)
Clients have an opportunity to use leverage for different stocks by making trades through electronic trading systems provided by Norvik Banka. Leverage proportion and list of stocks for margin trading is set and provided by counterparty. Additional commission will be debited from client’s account for making margin trades (trades with leverage).