Portfolio Margining
James Barry, Executive Director
Collateral and Margin Services
Regulatory Issues
Guidelines
Reg T margin requirements will not apply to
Portfolio Margin account; maintenance
margin requirements only; will not eliminate
other provisions of Reg T

Regulation T

Customer Eligibility
Minimum equity requirements will be $100k
for Registered Investment Advisors and
$500k for all others

Day Trading
NYSE Rule 431 guidelines apply

Re-hypothecation
Re-hypothecation Rule 15c3-3 will apply;
allows 140% of debit balance to be rehypothecated

Short vs the Box
No requirement for hedged portion of
position
Guidelines (continued)
Equity Calculation
Total Liquidating Equity, including option
market value, will be applicable

Risk/ Valuation Model
Variations
Each B/D will be allowed to determine own
schedule or model based margin policies;
customers still required to meet regulatory
margin minimum requirements

Foreign Currency
Currency exposure will be addressed in the
Portfolio Margin model

Customer Account Options

Portfolio Margin Account
only
All securities may be held in the Portfolio
Margin account; NYSE Rule 431 will apply
to all positions held not covered by the
Portfolio Margin model

Portfolio Margin Account
and Regulation T Account
Customers may opt to have both a Portfolio
Margin and a Reg T account within a single
Broker Dealer or multiple Broker Dealers
Clients will be responsible for designating
which account the positions will be held
Opting In/ Out of Portfolio Margin

No limit on number of security transfers
between accounts, provided both accounts
have sufficient excess after position is
moved; movements to alleviate a deficit in
one account from an account with excess
are permitted
Customer Account Options (continued)

Guaranteed Accounts
Minimum equity requirements as stipulated
in NYSE Rule 431 will apply based on the
sum of the equity in both the guarantor and
guaranteed accounts.
Margin Calls

Failure to Meet Margin
Calls
If a client fails to meet a margin call within
the 5 business day timeframe:

B/D will have option of forcing liquidation
or hedging positions to alleviate the margin
call

B/D will not be allowed to take capital
charges in lieu of customer’s obligation to
meet margin call

B/D will be required to apply for additional
time from the NYSE; request should give a
detailed explanation of why additional time
is necessary
Margin Calls (continued)

Timing of Margin Calls
Allowable time period for clients to meet
portfolio margin call will be 5 days

Meeting Margin Calls
Federal calls will require physical cash
movements for Guaranteed Accounts and
customers with both a Portfolio Margin and
Reg T account
Maintenance margin calls may be met via
adjustment to cash available
Cross margining with futures will not be
allowed. As Security Futures are securities,
they will be included in the Portfolio Margin
account.
Default treatment for securities held in a
Portfolio Margin account but not calculated
using portfolio margin schema will be
governed by NYSE Rule 431
Pending Items

Foreign Currency Margin
Treatment
Currency exposure will be addressed in the
Portfolio Margin model developed by the
Risk Working Group

Control and Restricted
Securities
Determine whether Portfolio Margin model
will accommodate securities with selling
constraints

Stocks without Historical
Data
Determine whether Portfolio Margin model
will include below types of securities:

Newly Issued Securities
 Foreign Stocks
 Smaller US Stocks
Margin Model
Models

Sampled various risk-based margin calculation approaches
that consider risk parameters such as price, volatility, liquidity,
etc.

Considering one of the following methods:




VaR based method relying on historical data
Stress Test method based on predefined scenarios
Proprietary Models requiring Regulatory approval
Each method has advantages over the current regime
particularly with regard to risk reducing positions
Models

VaR



Stress Test



Advantage: Consistent across multiple asset classes
Disadvantage: Difficult to translate to a margin requirement
Advantage: Easy to translate to a margin requirement
Disadvantage: Assumptions about assets classes must be initially
defined
Proprietary Models


Advantage: B/D can tailor margin requirements to specific
businesses
Disadvantage: Added complexity to Regulatory oversight
Models

Elements of a Stress Test Model






Set a benchmark margin requirement on a one sided, diversified
portfolio (e.g. 25%)
Set a benchmark margin requirement on a balanced long/short,
diversified portfolio (e.g. 12.5% a side)
Reprice options using standard models for each scenario
Higher requirements on concentrated, illiquid portfolios
Lower requirements on long/short unbalanced portfolios
Add higher stress tests for

Volatile stocks
 Lower rated convertible bonds
 Less developed countries