Fimat appears to be the first mover in what should be a torrent of brokers taking advantage of futures style portfolio margining for broad-based index options and related exchange traded fund options.
Douglas Engmann, managing director of equities in North America for Fimat and CEO of Fimat Preferred, says they are the first firm to open a Portfolio Margining Clearing Account at the Options Clearing Corporation (OCC).
The pilot program approved by the SEC last year allows clients with accounts larger than $5 million to use a risk-based method to calculate margin. The New York Stock Exchange and Chicago Board Options Exchange have asked the SEC to expand the pilot program to include broad-based index futures and options as well as expanding it beyond the $5 million minimum account.
Rules to permit risk-based margining across futures and securities are still awaiting approval by the CFTC and SEC.
Engmann says moving to portfolio margining from the old Reg. T rules will have a dramatic affect on margin requirements and volume. He says the margin from a typical 100 lot straddle position will be reduced to $7,500 from $50,000. Engmann noted that a hedge fund customer’s margin requirement has been reduced to $80 million from $500 million based on the new margin rules.
The OCC, in a letter to the SEC said the expansion of the pilot program, ”will encourage the repatriation of a very large volume in financial transactions involving U.S. securities that is currently done in London and elsewhere by non-U.S. firms and by U.S. firms through their foreign affiliates.”
By Daniel P. Collins
