I have a very large buy & hold portfolio that's fully paid for on regular Reg-T margin account. 99% the time I don't have a debit balance or have any margin requirements. However, I want to start borrowing on it for liquidity needs at time without incurring capital gains, such as say a down payment on a new home or for a new investment in a syndication that a great friend is also going in and they close in a week/etc. I'd be borrowing for a really small percentage, say 10%, say $100k on $1 million. Of course my current broker has really bad margin interest rates. I'm wanting to sign up for portfolio margin so I can re-finance any margin loan I do with shorting long dated SPX box spreads. Obviously in a Reg-T account these have too much margin requirements to be effective. Portfolio margining of short box spreads have much better margin requirements. I'm not interested in moving assets over to a PAL/Pledged Asset Line. I'd rather have long and lower fixed rates with long duration Box Spreads than variable rates that the benchmark rate could change at any time and be able to do these loans on demand - not waiting days/possibly weeks to sign a PAL agreement and ACAT shares over. I could move to IBKR for their excellent Reg-T margin rates but I'd greatly prefer to stay with my current broker. Plus, for small liquidity needs I'm sure SPX box spreads are probably cheaper still than IBKR. I was reading the risk disclosures and ran across these statements I'd be agreeing to: When a broker-dealer carries a standard cash account or margin account for a client, the broker-dealer is limited by the rules of the SEC and Options Clearing Corporation (“OCC”) to the extent to which the broker-dealer may permit the OCC to have a lien against long options positions in those accounts. In contrast, the OCC will have a lien against all long options positions that are carried by a broker-dealer in a portfolio margin account, and this could under certain circumstances, result in greater losses to a client having long options positions in such an account in the event of the insolvency of the client’s broker. Broker has a lien on all long positions in a portfolio margin account, including margin equity securities, even if fully paid. Accordingly, to the extent that a client does not borrow against long options and margin equity positions in a portfolio margin account or have margin requirements in the account against which the long options or margin equity securities can be credited, there is no advantage to carrying the long options and margin equity securities in a portfolio margin account and the client should consider carrying them in an account other than a portfolio margin account. Rule 15c3-3 under the Securities Exchange Act of 1934 requires that a broker or dealer promptly obtain and maintain physical possession or control of all fully paid securities and excess margin securities and maintain a special reserve account for the benefit of their clients. Fully paid securities are securities carried in a cash account and margin equity securities carried in a margin or special account (other than a cash account) that have been fully paid for. Excess margin securities are a client’s margin securities having a market value in excess of 140% of the total of the debit balances in the client’s non-cash accounts. For the purposes of Rule 15c3-3, securities held subject to a lien to secure obligations of the broker-dealer are not within the broker-dealer’s physical possession or control. The Securities and Exchange Commission (“SEC”) staff has taken the position that all long options positions in a client’s portfolio margin account may be subject to such a lien by the Options Clearing Corporation (“OCC”) and will not be deemed fully paid or excess margin securities under Rule 15c3-3. The hypothecation rules under the Securities Exchange Act of 1934 (Rules 8c-1 and 15c2-1) prohibit broker-dealers from permitting the hypothecation of client securities in a manner that allows those securities to be subject to any lien or liens in an amount that exceeds the client’s aggregate indebtedness. However, all long options positions in a portfolio margin account will be subject to the OCC’s lien, including any positions that exceed the client’s aggregate indebtedness. Furthermore, all long positions, including margin equity securities, in a portfolio margin account are held subject to a lien by Broker. and its clearing firm Broker's Clearing Firm., even if fully paid for. The SEC staff has taken a position that would allow clients to carry positions in the portfolio margin accounts even when those positions exceed the client’s aggregate indebtedness. Accordingly, within a portfolio margin account, to the extent that you have long options and/or margin equity securities positions that do not operate to offset your aggregate indebtedness and thereby reduce your margin requirement, you receive no benefit from carrying those positions in your portfolio margin account and incur the additional risk of the OCC’s lien on your long options position(s) and Broker and its clearing firm Broker's Clearing Firm, lien on all of your long positions. For the reasons noted above, a client who carries long eligible positions in a portfolio margin account could, under certain circumstances, be less likely to recover the full value of those positions in the event of the insolvency of Broker, or Broker's Clearing Firm. I fully understand PM risks if you're utilizing it for trading/etc. My question is, what exactly are the additional risks I'm agreeing to if I'm 100% long, cash balance > 0, no margin requirements? Does this mean in the rare 0.0001% chance the broker becomes insolvent, since I waived my rights for them to actually secure my fully paid securities/set aside and maintain that special reserve account mean I may not get my securities back at all, or even be paid at all? Obviously if the broker goes insolvent while I'm utilizing PM that could be very very bad - ie if their risk testing software gets taken off line, or I can't log in to adjust positions or hedge more/etc. Right now I'm merely just concerned about the risks of an account that would otherwise be considered "fully paid." Since the broker has a lien on the securities, does that mean they could use my securities to pay off their other losses not related to losses in my account? Does this mean the broker can lend out all my shares and I'd possibly would get dividends in-lieu at ordinary income rates instead of qualified dividends? I know in a margin Reg-T account they can only lend out the percentage that doesn't represent excess margin securities. I understand the OCC's lien on long options, as obviously they have no knowledge of the contents of my portfolio and possibly offsetting/covered positions. I'm mostly concerned as to what rights I'm waiving with my broker and how it could harm me. Obviously I'm way over SPIC insurance limits too, lol, so there's certainly risks in a RegT margin/cash account for going over those limits. Basically, I'm trying to understand exactly what risks I'm agreeing to with PM for when I'm not using it at all. I totally understand if I'm using PM with daily risk testing ranges/etc and actually using the margin, the broker needs to be able to sell any security/etc to de-risk the account on a moment's notice. I also understand PM can possibly let you do crazy trades like buy $1 million of google shares with some married puts for $100k of margin too, but you'd have a $1+ million debit balance of the cost of the shares + premiums of the puts, so I understand that this sort of example technically means the broker has debts that exceed my account's liquidation value, even though the software calculates the risk of the trade is no more than a loss of $100k, and likewise, all portfolio margin clients in aggregate could have more debts than the broker can cover with. Am I accurate about these additional risks? Or am I way overthinking things? Just how much riskier is Portfolio Margin for those that don't utilize it at all? I guess I'm just surprised that I am waiving the excess margin rights for this special account that I'd have under a Reg-T account. Thanks!
Pretty sure these brokers only offer margin on equities/options etc bought within your account. You can't extract that margin to use for a home purchase?! Or do you mean you plan to withdraw funds for a down payment and then use margin to cover the existing assets?