Information for SIPP Trustees
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Who are CMC Markets?
Established in 1989, CMC Markets has evolved into a world leader in real-time internet trading. Since then, our commitment to offering a comprehensive Contracts for Difference (CFD) trading service has helped us become one of the world's leading players in online trading, with 20 global offices providing services to customers from over 100 countries and globally transacting in excess of $1 trillion USD over two years, winning many awards along the way.
CMC Markets UK Plc own the investment research provider, Digital Look and in December 2007 Goldman Sachs acquired a 10% strategic stake in CMC Markets Plc.
CMC Markets UK Plc are authorised and regulated by the FSA.
What's a CFD?
Originally used by large institutions to cost effectively cover their equity exposures, CFDs are now a common place trading tool used by investors around the world.
Contracts for Difference, or CFDs, are instruments linked to the performance of the price of an underlying financial instrument, such as shares, indices and FX. CMC offers CFDs only on financial instruments. Unlike conventional financial instruments, such as shares, CFDs do not confer ownership of the underlying instrument. Rather, a CFD is an agreement between two parties to exchange the difference in value between the opening and closing value of the contract, generally determined on the basis of the price at which the underlying instrument is traded at the time of opening and closing the contract, respectively.
The popularity of CFDs can be attributed to the three main principal advantages:
Leverage
Leverage allows clients to invest only a small percentage of a position's value whilst still maintaining full market exposure. The ability to leverage an investment allows investors to:
- reduce the initial capital outlay required to deliver a market exposure similar to that obtained by investing directly in the underlying financial instrument;
- pursue risk diversification strategies, by using the "excess" capital to invest in other CFDs and obtain market exposure to a wide variety of underlying financial instruments irrespective of the location of the underlying exchange; and
- magnify potential investment returns.
However, leverage means that potential losses are also magnified. As CFDs only require the investor to pay a percentage of the whole transaction value to open the position, if the market moves against the client, they will be required to deposit further funds into their CFD account in order to maintain the position
Flexibility
As well as going long to benefit from rising markets, traders can take short positions and potentially profit from falling markets. Traditionally, a retail investor did not have the opportunity to take a short position or could not do so without incurring significant transaction costs. As there is no transfer of the underlying financial instrument, the investor in a CFD is able to take a short position without the need to involve a financial intermediary and can therefore do so at an all-in deal value lower than that required to go long.
In addition, CFDs also allow investors to trade fractional units of the underlying financial instrument.
Transparency
Clients can easily compare prices with those in the physical market, as they are derived from the underlying cash market. This transparency makes understanding the pricing of a trade as simple as it would be for a physical instrument.
What is a Margin Call?
Margin is the deposit required to maintain or open a position. At the time of each trade, the client will require funds on the account at least equivalent to the total margin requirement. It is therefore the client's responsibility from the time of the transaction and throughout the term of the position to maintain funds on the account at least equivalent to the total margin requirement. If market movements cause a situation to occur whereby there are insufficient funds on the account to cover the margin requirement, this is known as a margin call. CMC Markets will endeavour to send the client margin call emails but the responsibility ultimately rests with the client to maintain the margin requirement at all times. If the margin call is not met, CMC Markets reserve the right to close out (liquidate) the position(s).
As all payments into the Trader SIPP account must come from the SIPP Operator, you may be requested from time to time to send money on behalf of the client in order to meet a margin call.
Why trade CFDs within a SIPP?
The attraction to investors of trading CFDs within a SIPP, apart from the leverage, is the tax benefits, in particular tax relief on contributions which traders can use to provide additional leverage within the account.
This, coupled with the tax free* trading environment, provides an opportunity for traders to boost their pension funds, although of course, there is a high degree of risk to capital. CFDs also enable you to take 'short' positions.
Information about the Trader SIPP Account
Historically, one of the concerns about CFDs being invested within a SIPP has been losses, which in some cases, can exceed the investment made, hence potentially creating extra liability on the trustees and the possibility of unauthorised borrowing.
To address this, CMC Markets have now launched the Trader SIPP Account on a 'No Deficit' basis - this means that the account cannot go 'overdrawn' and the SIPP cannot lose more than has been invested. Consequently liability is restricted to the investment made.
The Application Process
The CMC Trader SIPP Account application comprises two parts:
- Scheme member application form - this captures the individual's details and trading history, plus authorisation to the SIPP Operator/Trustees to make the required payment transfer to CMC Markets;
- Trustee/Operator application form - this captures the required scheme details as well as delegating authority to trade CFDs on the Account to the scheme member;
Both sections require signatures from the scheme member and Trustees/Operator respectively.
The scheme member generally initiates the process by completing their form either online at www.cmcmarkets.co.uk and then printing to sign. Once signed, the scheme member returns the application form to CMC Markets who then forward an application pack to the SIPP Trustees/Operator for completion; once completed the SIPP Trustees/Operator returns the form to CMC Markets, at the same time remitting the funds to open the trading account.
Once opened, ongoing communication will be sent direct to the scheme member, unless otherwise requested. Trading activities will be undertaken by the scheme member, authority to trade having been delegated to the scheme member by the Trustees/Operator.
Closure of the account will require a signature from the scheme member.
If you would like more information please contact sipps@cmcmarkets.co.uk
Trustee Information Pack
Please download the Trustee Information Pack below:
Trustee/Operator Application Form(PDF) Information Notes for SIPP Trustees and Operators(PDF) Regulatory Exemption Declaration(PDF)