Portfolio Margin

Discussion in 'Options' started by momoneythansens, Oct 16, 2006.

  1. As per:


    Some of you may know about the upcoming implementation of Porfolio Margin to replace the current rule/strategy based margin requirements under regulation T under certain circumstances.

    What is this going to mean for the average retail trader? Probably nothing IMO, at least not for a while.

    Having read through the NYSE and CBOE filings, it seems apparent that the piloting of Porfolio Margining is aimed mainly at repatriating larger funds from offshore locations where there are not the same restrictions on margining i.e. this initiative is not for the benefit of the mass retail trader.

    However, the ultimate long term goal seems promising: single account for trading listed and OTC instruments with cross-margining, risk-based haircut etc. a la prime brokerage.

    In the filings, it seems that accounts eligible for portfolio margin must have a $5 million equity minimum. The same minimum applies for OTC derivative positions. Whether this equity minimum will be sustained outside of the pilot program remains to be seen.

    There are some truly bizarre rules outlined in both the NYSE and CBOE proposals.

    The SIA comment letter was the voice of reason.

    Unfortunately, some of the more progressive suggestions made by the SIA have not been taken up by NYSE and CBOE as per their response letters. They are adopting a wait and see approach.

    It seems that as per the CBOE proposal, a separate account designated for portfolio margin will be required. Also, a .375 per contract (* multiplier) minimum will still stand initially. There also seems to be legal and regulatory barriers that need to be resolved between the SEC and CFTC for cross-margining between certain products e.g. SPX -> SP etc.

    My understanding is that margin will be calcluated in a similar manner to market maker haircut. Different ranges for different instruments e.g. for broad-based indexes, 10 (or 5) different points up and down (up 6%, down 8%). At each of the points the risk of the position is looked at and the point with the most risk will be used for determining margin. My understanding is that volatility shocking will not be used and so will not incorporate that aspect unlike SPAN.

    Initially, the range of products eligible for portfolio margin accounts was quite narrow and included broad based indexes and ETFs etc. but I believe the scope has now been widened considerably with further expansion obviously planned.

    In short, a step in the right direction but seems like a long way off for access to the masses. However, Interactive Brokers have posted some comments on their website pertaining to portfolio margining being implemented in November :confused:

    I'm waiting to hear back from them on what exactly this means.

    Food for thought.

    Anyone with up to date information or speculation to add, please feel free post here.

  2. Thanks for sharing your insight..

    Can you please post a link to the IB comments about portfolio margin implementation in November?

    Also, do the new rules cover stock-stock hedging, like if i had $100,000 long stocks and $100,000 short stocks in my account, would my margin requirement be lower under the proposed rules than now?

    According to this May 2006 article (which may be obsolete),

    "The $5 million minimum equity required of all portfolio margined accounts would only be required of accounts containing over-the-counter derivatives"

  3. If you have a look at some of the comments from IB on their feature poll e.g. number 1046:


    Not that I'm aware. I only saw references to stock + option combined positions.

    That could well be right! Let's hope so.
  4. Also from same article:

    "portfolio margining would include:

    Listed equity securities futures contracts
    Listed equity options
    All margin-eligible securities
    OTC derivaties on equity securities"
  5. Yes, that article seems to incorporate the "post-pilot" proposals and some of the resultant decisions i.e. it is probably more up to date than my assessment that I built from trawling through the different documents on the SEC site.
  6. FWIW, IB are remaining tight-lipped on this matter and simply say a bulletin will be issued when appropriate.
  7. Yea theyre just saying November, but what i dont understand is, if the regulators haven't approved the new rules yet, how could IB implement them as early as November?
  8. I hear TIMS for all Starting Jan 1, 2007. I still have yet to grasp how they intend to regulate the OTC positions in the >$5mm accounts.