SEC to ease margin rules in cost-cut move By Jeremy Grant in Washington Updated: 12:40 a.m. ET Oct. 16, 2006 The US is set to relax margin rules in force since after the Wall Street crash of 1929 with the approval of a system that will cut securities trading costs and pave the way for "multi-asset" trading across equities, options and futures. The move removes a key barrier to the competitiveness of the US capital markets as similar margin rules already exist in Europe, attracting increasing numbers of hedge funds to London. Story continues below ↓ advertisement It comes as many US exchanges are trying to expand the mix of their businesses towards a combination of equities, options and futures. This is in response to demand from hedge funds and other traders who increasingly prefer to trade such assets simultaneously. The Securities and Exchange Commission's staff has approved an application by the New York Stock Exchange for a new type of "portfolio margining" account that calculates margin based on the types of assets held in the account and the interplay between them. It will provide an alternative to the "Reg T" margining system, under which the Federal Reserve and NYSE set margins for stock trading at up to 50 per cent. Hedge funds complain that this needlessly ties up funds in margin, limiting the funds' leverage. They also say it arbitrarily sets margin levels regardless of the types of assets and trading strategies being used, as electronic, algorithmic trading makes such trading more complex. Grace Vogel, executive vice-president of member firm regulation at the NYSE, said the new account would use a margining system developed by the Options Clearing Corporation, a clearing house for the six US options exchanges. It would take into account when an investor's exposure to one asset, such as an IBM stock, was already being offset by a position in another, such as an option on IBM stock. "The current rule does not recognise enough hedging strategies between options and stocks," Ms Vogel said. "[Reg T] has served us well over the years but I think we're ready to take a step in the direction of having more risk-based margining." She said that in some cases margin could be reduced to 15 per cent. Bob Colby, deputy director of the SEC's division of market regulation, said the staff's recommendation would be put to the agency's five commissioners "in weeks". "It's a big change, and that's why we'd like the commission to consider it," he told the Financial Times. The move is expected to be approved by a majority of commissioners. Gary de Waal, general counsel at broker Fimat, said: "If portfolio margining is approved for the US it is as significant an event as when prime brokerage first became available. It is a major milestone." Copyright The Financial Times Ltd. All rights reserved.
http://msnbc.msn.com/id/15280129/ Anyone have more specific details about the actual proposal? Does it only include stock-option combos or does it also include stock-stock combos (eg long X-short Y)
a stretch of your imagination. they conferred with don bright and are going to allow paired trading on reduced margin.
Not a moment too soon. Only a government could come up with something as Dumb as reg T. I have tried to explain it too people in the grain business and then reply with a very basic explanation of the options market "so actually your risk is the same as....." they say.
This May 2006 article says that portfolio margining will include Listed equity securities futures contracts Listed equity options All margin-eligible securities OTC derivaties on equity securities So i guess that would include stock-stock hedging, like if i had $100,000 long stocks and $100,000 short stocks in my account, my margin requirement would be lower under the proposed rules than now. If that's the case I guess more "semi-capitalized" traders who currently look to prop firms for capital will be able to go retail http://www.deloitte.com/dtt/cda/doc/content/us_fsi_securities_issue_briefing_05_2006.pdf
Well, I don't know if it will still be 2:1, but yes, what I'm suggesting, is that after the new rules are set, if you hold long and short, you will be able to take on "more positions" than before. That's my limited understanding and I could be wrong.
It looks like it might go from 50% margin to something like 15% margin for stocks based on TIMS etc. Don't quote me on that!
Except for accounts of registered broker- dealers and members of a national futures exchange, the pilot program requires that each portfolio margin account contain at least $5 million of minimum equity. If the account becomes in deficit for any reason, all margin calls must be met by the next business day