Domestic, I have no personal interest in what happens to JBO's except that I prefer to trade out of them vs portfolio margin accounts. My firm is an IB to many firms that offer PMA so it makes no difference to us. I , like many others, am curious how this will play out. Quite frankly most traders do not want to trade in a pattern day trader account. Large funds won't have this problem as they have the 5 million minimum for the exemption. Also another problem I see with the PMA is the margin call scenario. I have said this before and I will say it again, most retail investors do not understand that risk based haircuts (PMA) does not help with your leverage if you hold positions, only if you actively adjust them. The reason for this is because your haircut will converge to REG T as you approach expiration. That's the catch 22. The nice thing about a JBO is no margin calls. Traders do not have to panic out of their positions on sharp market moves or as time winds out of their option positions. I find that invaluable. But for large funds (5 million plus), I think the PMA will be extremely beneficial as they will not have to go through all the regulatory BS associated with a JBO. For the little guy, PMA is a non event.
you know i like to bust your balls..... if PMA unfolds differently for "the little guy"; will you acknowledge this? i clearly understand the overall advantage will still be with the jbo. the differences must be quite an edge. i for one have been trading future options and have enjoyed their "margin edge" over standard fare. i just believe the truth about PMA is somewhere in the middle. we will see.
Well, it's not a matter of what the truth is. It is what it is. Now that is not to say in the future, the rules for PMA can't change. I'm sure there will be adjustments and I'm sure some brokers will offer more then others. All I'm saying is I don't have a dog in this fight. I really could care less. My interest in this is just that I think I have a better grasp of the complexities of risk based haircuts then 98% of the people out there. And there seems to be a huge gap with the retail community on exactly what it is. Even professionals I deal with every day don't completely understand it. To me this will be fun to watch how the small retail trader behaves in this type of environment. One thing is for certain, volatility should increase as should liquidity. And that should be a positive for all traders. I just find it funny how many on this board think that this will be the end of prop firms. A good friend of mine that runs one of the largest prop firms in the Chicago area (mostly options) does so out of a RETAIL account, not JBO! In fact there are quite a few prop firms that operate in this capacity.
Maverick74, could you take one of the examples from the fimat link above and walk through the change in margin from pm to reg t as expiry nears?
Response from IB asking if PM will be introduced on April2nd:- We are currently looking into offering this to traders, but we do not have a definitive time or how this will actually work. When this gets squared away we will let our traders know. We will generally do this via a communique sent be email and trouble ticket.
I can think of many scenarios where the PM haircut does not converge to Reg-T. Are you suggesting it always does?
As I have said many times - according to my sources - the little guy (account > 100K) will receive the benefit of Portfolio Margin if his positions are hedged. It appears that retail brokers will be able to split your account into two different Margin accounts (PMA and Day Trader). They would separate your spec positions and use day trading rules (25% requirement - which is better than the current 50% for Reg-T) while the remaining hedged positions could use PM. Now this is what I have been told by a reliable source. Time will tell. The point is - if this is the case then it will virtually treat all retail customers the same whether or not you have $5 million in equity. The only difference being - traders with greater than $5 million would have their spec positions require 15% margin while accounts < $5 million would require 25%. I have also been told that spec positions would only fall under day trading rules on the day they are transacted. The next day they would fall under PM (for accounts with $100 K - $5 million) Brokers can choose an account minimum for PM - my broker has chosen $100 K as their minimum - so accounts with capital under $100 K would not receive any PM benefit. However, they would no longer have to put up 50% (Reg-T) on a closing basis. Now - I have said this 3/4 times on this thread - so I will not say any more until I hear something different.
From CBOE : " For equities, equity options, narrow-based indices and security futures products, the amendments require assumed up/down moves of +/-15% as the end points." Does that means that stock with volatility of 70 will get the same margins as stock with vols of 12 ?
I believe you are incorrect about that mksl. Think about this for a second. What point would it serve for a trader to open a PMA account, say with Fimat, and then open a separate account under the same name, with the same broker that is not PMA where he can daytrade? From a regulatory perspective and compliance perspective, what exactly does this solve? Use some common sense here, the SEC would laugh that out of the park. LOL. Now, what you could do, is say open a PMA account with Fimat and open a separate account with IB and do all your daytrades with IB and your PMA trades with Fimat. Two different brokers, two different accounts. Now again, the problem we have here is the cross margin aspect of it, or lack there of. The whole idea of trading in a JBO is to be able to offset risk in as many ways as possible. I think this will be more of an issue for index traders then stock traders. If I trade IBM, there really is no effective way to offset that risk in a JBO other then options on IBM. However, if I trade any index, which I do, I want to be able to daytrade around them, hedge them with options, futures, ETF's whatever and cross trade them against other indices. I seriously cannot imagine a trader who trades indices that would go without this. And there is no way I would want to lay out the full capital for these trades at IB when I know they are offsetting the risk on my positions at Fimat. Look, I know the braintrust behind this PMA. I have talked to them. They are very angry about the pattern day trader rule, very angry. They have petitioned letters to the SEC and CFTC. If all they had to do was create a 2nd account within their own firm, there is no way they would be making this much fuss. Btw, I posted one of those letters on this site. So like you said mksl, we'll wait and see. Time will tell. And lastly, like I mentioned in a previous post, I still do not believe the average ETer understands what PM and risk based haircuts are. They are not real, they are a facade. In other words, they are like Cinderella. At midnight, she turns into a pumpkin. Well, as you approach expiration, your PMA account turns into Reg T. This will pose many challenges to ET traders and retail traders alike. Especially if you are heavily leverage (why else would you be using a PMA account). You could be forced to liquidate your position at the worst time. On average my haircut quadruples going into expiration. In other words, it turns into Reg T. If I'm running a 25k haircut initially on a position 5 weeks out, it will be 100k going into the final week. I stand by my statement that very few if anyone on this board truly understands this. Look, I run an office in Chicago and I deal with former floor traders, professional traders and other prop traders who by definition, should understand haircuts. But very few of them actually do. I actually have to go over it with them again and again and again. I seriously doubt the average ETer here has a firm grasp on what this actually means for them. It would be very disappointing for them to scrounge up every penny they have to get into a PMA account only to watch them blow out their account in months and come back here and say, wtf, why did I want a PMA account?