Margin Regulation: FINRA Proposes Amendments to its Rule on Margin Requirements

Sullivan & Cromwell LLP - June 25, 2012

On May 31, 2012, the SEC published for comment a proposal by FINRA to amend Rule 4210, which establishes margin requirements. The proposed amendments would

  • replace the current margin requirements for specific option spread strategies with broad requirements for all “spreads” utilizing similar methodologies;
  • eliminate the ability to count the current market value of non-margin eligible equity securities towards the maintenance margin requirements for all securities held “long” and clarify certain other requirements for non-margin eligible equity securities;
  • clarify the maintenance margin requirements for non-equity securities;
  • eliminate the current exemption from the free-riding prohibition for “designated accounts”;
  • eliminate the special definition of “exempt account” used in the context of maintenance margin requirements for OTC put and call options on U.S. Government and agency debt securities; and
  • eliminate the requirement to stress test portfolio margin accounts in the aggregate.