Managing Collateral
The Basics
When an investment account is pledged as collateral for a securities-backed line of credit the account operates under specific restrictions that dictate when assets can be traded, when transfers can be made, and when collateral can be released.
Permitted activities:
Trading within the account: So long as the quality and risk profile of the collateral remain consistent, you may continue to buy and sell securities within the pledged account, allowing the client's investment strategy to remain active.
Distribution of dividends and interest: Payments generated by the securities held in the account can be distributed to the client without requiring lender approval.
Authorized asset transfers: You can request certain assets be “released” from the collateral account as long as the remaining assets can support the outstanding balance of the SBLOC. More details are below.
Prohibited activities:
Unauthorized asset transfers: You cannot transfer any assets out of the pledged collateral account without receiving explicit, written authorization from Measured. This rule is in place to prevent the client from removing collateral that secures the loan.
Margin and options trading: Pledged accounts are restricted from margin and options trading. SBLOCs are non-purpose loans, meaning the funds cannot be used to purchase or trade securities.
Automated cash management: Features such as check-writing, bill pay, and electronic funds transfers may be restricted or disabled on the pledged account after a draw from the line of credit. Check with your custodian to confirm their restrictions of these activities.
Requesting A Release of Collateral
To request a release or removal of positions from a pledged collateral account you can use the collateral management tool within the Measured system. Below is a step-by-step guide.
IMPORTANT: Even though a release of collateral may be eligible at the time of request, bear in mind that market movements may put the loan into a maintenance call shortly after the release.
Access your profile by clicking on Advisor Log In at MeasuredHQ.com
Select the loan account you would like to manage
In the upper right you will see a “Collateral management” button
This will take you to the Collateral Release History page where you can create a new release request by clicking on the button in the top right hand side of the page.
Select the position(s) you would like to release along with the quantity to release and hit “Calculate release”
Note: The lendable value is listed for each position. Removing collateral with a lower lendable value will have less of an impact to the health of the loan versus releasing collateral with higher lendable values.
Review the results of the release (either eligible or ineligible)
If the release is ineligible, it means there won’t be enough remaining assets to support the loan and the release cannot be authorized; either change your security selection or adjust the amount you are requesting to be released
If the release is eligible, you can select “Generate authorization” which will download a signed authorization letter from Measured
Include the downloaded authorization letter with your journal or transfer request to your custodian
Terms and Definitions
Advance Release: The lendable value of collateral dictated by Measured’s credit policy. Different asset types have different advance release rates based on certain factors such as the asset’s liquidity and volatility. For example, if an asset has a market value of $100 and an advance release rate of 70%, the advance release value will be $70. The sum of all advance release amounts within a collateral account dictates the maximum credit limit that can be offered.
Maintenance Release: The lendable value of collateral plus a buffer. If the advance release rate is 70%, the maintenance release rate could be 75%. In this example, the buffer of 5% allows the collateral market value to drop slightly before a maintenance call is triggered.
Equity Maintenance Release: The minimum market value of the collateral needed to support the outstanding balance. To calculate equity maintenance release, the outstanding loan balance is divided by the maintenance release rate. For a loan with a balance of $1,000 and a 75% maintenance release rate, the collateral’s market value must equal or exceed $1,000 / 75% = $1,333.33.
Equity Maintenance Excess: The market value of collateral minus the equity maintenance release. This is a helpful figure to understand how much, if any, collateral value can be removed from the pledged account before triggering a maintenance call.