Interpretations of Rule 4210
The Guide to the changes from the version dated October 27, 2021 is available here.
Publication Date: August 9, 2024
Interpretations are marked in blue background beneath the rule text to which they relate.
4210(a)/01 Terms Defined in the Exchange Act or Rules Thereunder
Unless otherwise specified in this Rule or other FINRA Rules, terms defined in the Exchange Act or rules thereunder (including Regulation T) shall have the meanings given them in the Exchange Act or in such rules.
4210(a)/011 Good Faith
Good faith with respect to:
- Margin means the amount of margin which a creditor would require in exercising sound credit judgment;
- Making a determination or accepting a statement concerning a borrower means that the creditor is alert to the circumstances surrounding the credit, and if in possession of information that would cause a prudent person not to make the determination or accept the notice or certification without inquiry, investigates and is satisfied that it is correct.
(Regulation T Section 220.2 Definitions)
(Regulatory Notice 24-11)
4210(a)(2)/01 Accrued Interest
Members may only use accrued interest to reduce or eliminate a maintenance call that has been created pursuant to this Rule. Accrued interest may not be considered as part of the price of a bond nor used in determining or computing equity in an account.
4210(a)(2)/02 Accrued Interest – Alternate Method
In computing the current market value of a debt security, the maintenance margin requirement on the debt security, and equity in an account containing the debt security, a member may use a reasonable estimate of the amount that would be realized upon sale of the debt security, including amounts reasonably estimated to be received by a seller in respect of accrued interest, provided that (i) interest paid by the issuer on such debt security will be paid to the member rather than to the customer, and (ii) withdrawals of such interest are subjected to the limitations on withdrawals from the account under Rule 4210(b). Such reasonable estimates must be consistently applied—a member may not exclude interest from the current market value of a debt security for purposes computing the maintenance margin requirement on the debt security while including it in the current market value for purposes of computing the equity in the customer’s account.
When an issuer is in default or a debt security is otherwise trading “flat,” purchasers are generally not expected to include accrued interest in the amount paid for the purchase of the security; accordingly, accrued interest generally may not be included in the current market value of such securities.
4210(a)(3)/01 Customer Includes
The term “customer” includes a broker or dealer, member and their partners, officers or associated persons whenever the carrying member extends, arranges or maintains any credit on their behalf.
4210(a)(3)/02 Reverse Repurchase Counterparty
The term “customer” includes a counterparty (other than an exempted borrower) to a reverse repurchase transaction with the member. For purposes of Rule 4210, a reverse repurchase transaction is treated as a margin loan in the amount (the “purchase price”) the member pays or credits the counterparty for the securities subject to the transaction (the “purchased securities”), against a long position in the purchased securities. When calculating required margin and equity, the member shall use the current market value of the purchased securities.
If the purchased securities include any equity securities, the reverse repurchase transaction must be recorded in a Regulation T margin account. If purchased securities do not include any equity securities, then the transaction may be recorded in a Regulation T good faith account or a Regulation T margin account.
4210(a)(4)/01 Foreign Institutions
Foreign institutions (including without limitation foreign banks, brokers, dealers, insurance companies and government agencies) generally do not qualify as “designated accounts” as they are not regulated under the laws of the United States or of a state or political subdivision thereof. United States branches of foreign banks, however, may qualify as “banks” (and therefore “designated accounts”) under clause (C) of the definition of “bank” in Exchange Act Section 3(a)(6). See Interpretation Rule 4210(a)(4)(A)/011.
4210(a)(4)(A)/01 Bank — (Rescinded)
4210(a)(4)(A)/011 Bank
As amended in 2010, Section 3(a)(6) of the Exchange Act says:
4210(a)(4)(A)/02 Savings and Loan Associations — (Rescinded)
4210(a)(4)(D)/01 Investment Trust — (Rescinded)
4210(a)(4)(F)/01 Foreign Institutions — (Rescinded)
See Interpretation Rule 4210(a)(4)/01.
4210(a)(6)/01 STRIPS and Similar Securities
STRIPS (Separate Trading of Registered Interest and Principal Securities) and similar securities may be treated as “exempted securities” subject to the same requirements as any other U.S. government security.
4210(a)(6)/02 Government-Sponsored Enterprise Equity Securities
All securities issued by certain government sponsored enterprises are categorized as “government securities” under Exchange Act section 3(a)(42), and therefore as “exempted securities” under Exchange Act section 3(a)(12); however, equity securities issued by these GSEs (“GSE Equities”) are not treated as exempted securities for purposes of this rule. The initial margin required on transactions in GSE Equities are the same as that required by Rule 4210(b) for transactions in margin equity securities that are not exempted securities. The maintenance margin requirement on positions in GSE Equities are the same as that required by Rule 4210(c) for positions in margin equity securities. Rule 4210(e)(2)(B) does not apply to GSE Equities.
4210(a)(12)/01 Mortgage Related Securities
For the purpose of this Rule, positions and transactions (including reverse repurchase transactions) in mortgage related securities may be afforded the same treatment as exempted securities under Rule 4210(e)(2)(A) or (B).
See Rule 4210(e)(2)(F) for positions and transactions in mortgage related securities made for or with an exempt account as defined in Rule 4210(a)(13).
4210(a)(13)(B)(ii)e./01 Comparable Financial Reports
In appropriate circumstances, “comparable financial reports” may be unaudited statements of financial condition, income or changes in owners’ equity.
4210(b)(4)/01 Compliance with Regulation T
Members must adhere to the requirements of this Rule or Regulation T, whichever is greater. Where Regulation T requires “good faith” margin or has no requirements (e.g., exempted securities or portfolio margin accounts), then the equity required by this Rule will govern.
4210(b)(4)/02 Minimum Equity — (Rescinded)
4210(b)(4)/021 Minimum Equity
- Each new transaction in a customer margin account, including those instances where more than one margin account is permitted under Regulation T, is subject to the $2,000 minimum equity requirement except that:
- Full cash payment for any security purchased will satisfy this requirement with respect to such purchase, even if the resulting equity is less than $2,000;
- Full cash payment for any option purchased will satisfy this requirement with respect to such purchase, even if the resulting equity is less than $2,000 (the purchase or sale of securities upon the exercise of an option, however, will constitute a new commitment for purposes of this requirement);
- The purchase of exempted securities;
- Securities transactions resulting in positions covered by Rule 4210(e)(2)(F), (G) or (H) or other provisions of Rule 4210 that allow the member to take a capital charge in lieu of collecting margin are not subject to this requirement;
- Even if the resulting equity is less than $2,000, the minimum equity requirement with respect to the sale of an option in the account would be satisfied by the deposit into the account or under an escrow agreement (as defined in Rule 4210(f)(2)(A)(xiv)) of:
- cash sufficient to satisfy the customer’s payment obligation upon the assignment of the options if it is a put; or
- fully paid securities sufficient to satisfy the customer’s delivery obligation upon the assignment of the option if it is a call;
- Except for transactions described in a.4 and a.5 above, every short sale is subject to the $2,000 minimum equity requirement regardless of the amount involved.
4210(b)(4)/022 Effect of Market Value Decline Below $2,000
If the equity in a margin account falls below $2,000 because of a decline in the market value of the security positions in the account and no new commitments are made, no deposit or liquidation is necessary. For the purpose of this Rule, a same-day substitution constitutes a new commitment.
4210(b)(4)/023 Withdrawals Below $2,000 Equity
No withdrawal may be made from a margin account that would leave less than $2,000 equity in the account after the withdrawal if the account has a debit balance, short position or other commitment. Withdrawals of cash or securities may be made from any account, even if after such withdrawal the equity in the account is less than $2,000, provided that:
- The account does not have a debit balance, short position or commitment after giving effect to the withdrawal;
- The withdrawal is in compliance with Regulation T and Rules 400 through 406 of SEC Customer Margin Requirements for Security Futures and Rules 41.42 through 41.49 under the CEA; and
- The account is not a pattern day trader (in which case the $25,000 minimum applies).
4210(b)(4)/024 Minimum Equity – Cash Account
The $2,000 minimum equity requirement of Rule 4210(b)(4) does not apply to transactions in a cash account, including transactions in when issued or when distributed securities in a cash account, even though Rule 4210(f)(3)(B) generally subjects cash account positions in such securities to the same maintenance margin requirements as in a margin account.
4210(b)(4)/025 Minimum Equity – Pattern Day Trader
Pattern day traders are subject to a $25,000 minimum equity requirement under Rule 4210(f)(8)(B)(iv)a.
4210(b)(4)/03 Accounts Subject to Minimum Equity — (Rescinded)
4210(b)(4)/031 Minimum Equity – Good Faith Account
A good faith account is generally subject to the $2,000 minimum equity requirement; however, that requirement does not apply to:
- An account maintained in accordance with Rule 4210(e)(2)(F) and (G) exclusively for an exempt account customer’s transactions in exempted securities, highly rated foreign sovereign debt securities or investment grade debt securities;
- A non-securities credit account in which nonpurpose credit is extended in compliance with Rule 4210(e)(7); or
- An account in which an executing broker effects transactions for a prime brokerage customer of another broker (the “prime broker”) as part of a prime broker arrangement in conformity with SEC guidelines; however, if the prime broker disaffirms or DKs a transaction and such transaction is not cancelled by the executing broker, then the executing broker must move the transaction to a margin account maintained for the customer, where it will be subject to the $2,000 minimum equity requirement.
4210(b)(4)/032 Minimum Equity – Prime Brokerage Customer Account
Under the SEC no-action letter to the Prime Brokerage Committee (dated January 25, 1994), a prime broker generally may not settle prime broker trades on behalf of a customer, unless the customer keeps a minimum net equity with the prime broker of at least $500,000 in cash or securities with a ready market. If, as a result of fluctuations in the value of securities kept with the prime broker, the customer’s net equity falls below the required minimum amount, the customer shall have until 12:00 noon of the fifth business day after the date when the net equity level fell below the required minimum amount to restore it to the $500,000 level.
A prime broker may settle prime broker trades on behalf of customer accounts managed by a registered investment adviser if each account has a minimum net equity of at least $100,000 in cash or securities with a ready market.
A prime broker may settle prime broker transactions on behalf of a customer who keeps a minimum net equity with the prime broker of at least $100,000 in cash or securities with a ready market, if said account is subject to a binding, written contract providing for a cross-guarantee by another customer of the prime broker. Pursuant to this provision, a customer may cross-guarantee another customer’s account only if it keeps net equity with the prime broker of at least $500,000 in cash or securities with a ready market. Cross-guarantees of other customers would require additional net equity of $400,000 for each individual account that is cross-guaranteed.
4210(b)(4)/033 Minimum Equity – Certain Broker-Dealer Credit Accounts
Omnibus Credit Account: An omnibus credit account described in Section 220.7(f) of Regulation T is a margin account for purposes of Rule 4210 and subject to the $2,000 minimum equity requirement, except for an omnibus credit account that is maintained as a portfolio margin account as permitted under Interpretation Rule 4210(g)(4)(A) /01. An omnibus credit account that is a portfolio margin account is subject to the minimum equity requirements set by the member in accordance with the procedures and guidelines contained in the member’s comprehensive written risk analysis methodology filed with FINRA under Rule 4210(g)(1). See Interpretation /034 below.
Specialists’ and Market Makers’ Accounts: Specialists’ and market makers’ accounts maintained in accordance with Rule 4210(e)(5) are not subject to a minimum equity requirement. See Rule 4210(e)(5) for further requirements for such accounts.
Broker-Dealer Accounts: Proprietary accounts of another broker-dealer carried in accordance with Rule 4210(e)(6)(A) are not required to have positive equity but may not be carried in a negative equity condition. See Rule 4210(e)(6)(A) for further requirements for such accounts.
Joint Back Office (JBO) Arrangement: Rule 4210(e)(6)(B)(ii)c. sets a minimum liquidating equity requirement of $1 million for a broker-dealer participating in a joint back office (JBO) arrangement. See Rule 4210(e)(6) for further requirements for JBO arrangements.
4210(b)(4)/034 Minimum Equity – Portfolio Margin Account
The minimum equity requirements applicable to portfolio margin accounts are set by the member carrying the accounts in accordance with the procedures and guidelines (the member’s “Portfolio Margin Policies”) contained in the member’s comprehensive written risk analysis methodology filed with FINRA under Rule 4210(g)(1). A member’s Portfolio Margin Policies may not set a minimum equity requirement for a portfolio margin account that is less than:
- $100,000, if the member has “full, real-time, intra-day monitoring capability” – i.e., the member:
- obtains real-time information about all transactions and positions in the portfolio margin account (e.g., because all transactions are executed at the member or the member receives real-time drop files of all transactions executed for the account);
- has the ability to calculate the customer’s maintenance margin excess using real-time pricing and position information at the time an order is entered (or otherwise prior to its execution);
- has the ability to reject (or otherwise prevent the execution of) an order that would cause the account to have (or increase) a maintenance margin deficiency above a risk limit set for that account; and
- has implemented policies and procedures reasonably designed to prevent the execution of transactions that would cause the account to have (or increase) a maintenance margin deficiency above a risk limit set for that account;
- an amount from $150,000 to $500,000, depending on how close the member is to having full, real-time, intra-day monitoring capability, if the member has “partial, real-time intra-day monitoring capability” – i.e., the member:
- $100,000, if the member has “full, real-time, intra-day monitoring capability” – i.e., the member:
- obtains real-time information about all transactions and positions in the portfolio margin account (e.g., because all transactions are executed at the member or the member receives real-time drop files of all transactions executed for the account);
- has the ability to calculate the customer’s maintenance margin excess using real-time pricing and position information at the time an order is entered (or otherwise prior to its execution);
- has the ability to reject (or otherwise prevent the execution of) an order that would cause the account to have (or increase) a maintenance margin deficiency above a risk limit set for that account; and
- has implemented policies and procedures reasonably designed to prevent the execution of transactions that would cause the account to have (or increase) a maintenance margin deficiency above a risk limit set for that account;
- an amount from $150,000 to $500,000, depending on how close the member is to having full, real-time, intra-day monitoring capability, if the member has “partial, real-time intra-day monitoring capability” – i.e., the member:
- obtains real-time information about transactions and positions in the portfolio margin account (e.g., because all transactions are executed at the member or the member receives real-time drop files of all transactions executed for the account); but
- does not have full, real-time intra-day monitoring capability as described in a above with respect to the portfolio margin account;
- $500,000, if the member does not have partial or full real-time intra-day monitoring capability with respect to the portfolio margin account;
- $5 million, if the portfolio margin account is permitted to establish or maintain positions in unlisted derivatives and is not (1) maintained for a registered broker-dealer or (2) maintained for a member of a national futures exchange in accordance with Rule 4210(g)(4)(C); or
- $5 million for a portfolio margin account that engages in day trading without the member applying the day trading restrictions of Rule 4210(f)(8)(B) to the portfolio margin account (other than positions traded as part of a “hedge strategy” as defined in Rule 4210(g)(13)).
- $100,000, if the member has “full, real-time, intra-day monitoring capability” – i.e., the member:
4210(b)(4)/04 Additional Minimum Equity
Pursuant to FINRA Rule 2360(b)(16)(E)(iv), members are required to establish minimum net equity requirements for customer accounts that establish and maintain uncovered short option positions. Due to the inherent risks associated with uncovered option positions, members should consider establishing account minimum net equity requirements that are higher than what is required under this Rule.
4210(b)(4)/05 In-the-Money Options
A customer that has a long position in an in-the-money option may either sell it or exercise it and simultaneously liquidate the resulting security position without meeting the initial margin requirement of this paragraph of the Rule.
4210(b)(4)/051 Spreads
If a customer account contains a spread (as defined in Rule 4210(f)(2)(A)(xxxii)) and an exercise of short option component of that spread is assigned to the customer, then the customer may on the same day exercise a long option component of the spread to close out the security position created by the assignment without meeting the initial margin requirement of Rule 4210(b) on such security position.
4210(b)(4)/06 Federal National Mortgage Association (FNMA) — (Rescinded)
4210(b)(4)/061 Government-Sponsored Enterprise Equity Securities
See Interpretation Rule 4210(a)(6)/02
4210(c)(6)/01 Profitable Options — (Rescinded)
4210(c)(6)/02 Partners’ Accounts
Partners of a member organized as a partnership should be guided by the following principles in determining margin requirements of partners’ accounts:
- The net combined deficit, if any, in a partners’ capital account, drawing account, other personal accounts and his or her share of the partnership’s undistributed profits and losses, must be deducted in determining the equity in his or her individual securities account(s).
- Any securities carried in capital accounts must be fully paid for after considering any deficits in individual accounts as described above.
- Any purchase in partners’ individual accounts must meet Regulation T initial margin requirements.
4210(c)(6)/03 Stockholders’ Accounts
The requirements described in Rule 4210(c)/02 above could apply to a member organized as a corporation carrying its stockholder accounts. For maintenance margin purposes, when a stockholder has a securities account and is indebted to the member corporation as a result of some other transaction, such indebtedness should be offset against the stockholder’s securities account to determine the value of securities that may be carried in the securities account.
4210(c)(6)/04 Securities Value
Listed and unlisted securities, other than options with less than 9 months to expiration, may be given value in the computation of maintenance margin requirements.
4210(c)(6)/05 Sales of Stock Covered by Due Bills
When a customer sells stock, in any type of account, which carries a due bill representing additional shares of the same stock or another stock, and the certificate covering the sale is not registered in the name of a member or its nominee, the carrying member shall retain out of the proceeds of the sale a sum at least equal to the market value of the shares represented by the due bill until the shares covered thereby are received. If the market value of the shares represented by the due bill increases, the member must obtain from the customer additional funds or securities to satisfy the mark to market.
Only excess funds or securities held against these due bill requirements are to be given consideration in determining the status of a customer’s account as it relates to maintenance margin for other purposes.
4210(c)(6)/06 Sinking Fund Transactions
Certain sinking fund transactions fail to qualify for non-purpose credit and credit under an employee stock ownership plan under Interpretations of Regulation T (see Section 220.6/02) because:
- Retirement of the security is deferred;
- Delivery is delayed beyond the next sinking fund retirement date; or
- The transaction is made with an affiliate of the issuer rather than directly with the issuer.
When a sinking fund transaction that may not be non-purpose credit and credit under an employee stock ownership plan for one or more of the above reasons, it qualifies for the margin account under Regulation T, Section 220.4. The margin treatment afforded such transaction may be as follows:
- If 30 calendar days or less to delivery, the transaction may be exempt from margin requirements, but any marked to the market loss which is not obtained must be deducted in computing net capital (See SEA Rule 15c3-1(c)(2)(xii)); or
- If over 30 calendar days to delivery, the transaction may be exempt from the margin requirements of this Rule, and instead treated as an open proprietary contractual commitment subject to the requirements of SEA Rule 15c3-1 subparagraphs (c)(2)(vi) and (c)(2)(viii). Such treatment, however, should not result in a duplication of deductions under the capital rule (SEA Rule 15c3-1). See also Rule 4210(e)(7)/01 and Interpretations of Regulation T, Section 220.06/02.
4210(c)(6)/07 Option Premiums — (Rescinded)
4210(c)(6)/08 Marginable Foreign Securities — (Rescinded)
4210(c)(6)/09 Money Market Mutual Fund Shares — Carrying
Shares in a money market mutual fund (as defined in section 220.2 of Regulation T) may be carried long in a customer’s account for purposes of Rule 4210 provided that:
- the customer waives any right to redeem shares without the member's consent;
- the member obtains the right to redeem shares in cash upon request;
- the fund agrees to satisfy any conditions necessary or appropriate to ensure that the shares may be redeemed in cash, promptly upon request; and
- the member complies with the requirements of Section 11(d)(1) of the Exchange Act and SEA Rule 1d1-2
4210(c)(6)/10 Money Market Mutual Fund Shares — Margin Requirements
- In General: Except as provided in b. below: (i) the margin to be maintained on shares of a money market mutual fund long in a customer’s account, other than a cash account, is 1 percent of their current market value; and (ii) a member may presume the current market value of a money market mutual fund share is $1.00.
- Exception: If the net asset value (NAV) of a money market mutual fund falls below $1.00 per share (the fund “breaks the buck”) or customer redemptions of shares of the fund have been suspended (“frozen”), then a. above shall not apply and: (i) the maintenance margin requirement on shares in that fund is increased to 50% of their current market value; and (ii) a member may presume that the current market value of such shares is the fund’s current NAV per share.
(Regulatory Notice 08-60)
(Regulatory Notice 10-53)
(Regulatory Notice 24-11)
4210(c)(6)/11 Exempted Securities Mutual Funds and Exchange Traded Funds
The margin to be maintained on shares of exempted securities mutual funds (as defined in section 220.2 of Regulation T) carried long in a customer’s account, is 7 percent of their current market value. Exchange traded funds (ETFs) that qualify as exempted securities mutual funds under the definition in Section 220.2 of Regulation T are also subject to this 7 percent margin requirement, subject to the higher requirements applicable to leveraged ETFs under interpretation /13 below.
Section 220.2 of Regulation T defines an “exempted securities mutual fund” as “any security issued by an investment company registered under section 8 of the Investment Company Act of 1940, provided the company has at least 95 percent of its assets continuously invested in exempted securities (as defined in section 3(a)(12) of the [Securities Exchange] Act).”
4210(c)(6)/12 Exchange Traded Notes Linked to a Reference Instrument, Index or Benchmark
Exchange traded notes (ETNs) that pay principal based on the performance of a reference instrument, index or benchmark are excluded from the exceptions provided by Rule 4210(e)(2)(C) and (G). Accordingly, the margin to be maintained on such ETNs carried long in a customer’s account, is 25% of their current market value, and the margin to be maintained on such ETNs carried short in a customer’s account is 30% of their current market, subject to the higher requirements applicable to leveraged ETNs under Interpretation Rule 4210(c)(6)/13.
4210(c)(6)/13 Leveraged Exchange Traded Products
The initial and maintenance margin requirement leveraged exchange trade products, including exchange traded funds (ETFs) and exchange traded notes (ETNs) designed to generate multiples (e.g., two times (2x), three times (3x), etc.) of the performance of a reference instrument, index or benchmark (leveraged ETPs) carried long or short in a customer’s account is increased by an amount commensurate with its leverage, subject to a cap of 100% of the current market value on a long position (but without a cap on the margin on a short position). For example, an ETP designed to provide twice the performance of the S&P 500 index is subject to margin requirement that is twice the margin requirement applicable to an unleveraged ETP on such index, so the margin required on a long position in such an ETP is 50% (2x 25%) of its current market value and the margin required on a short position in such an ETP is 60% (2x 30%) of its current market value.
Example of maintenance requirements for various leverage factors of non-exempted securities ETPs:
| ETP Multiplier | Maintenance requirement | |
|---|---|---|
| Long Position | Short Position | |
| 1.5x | 37.5% | 45% |
| 2x | 50% | 60% |
| 3x | 75% | 90% |
| 4x | 100% | 120% |
| 5x | 100% | 150% |
(Regulatory Notice 09-53)
(Regulatory Notice 19-21)
(Regulatory Notice 24-11)
4210(c)(6)/14 Non-Margin Eligible Equity Security
A “non-margin eligible equity security” is any equity security that is not a “margin security,” as defined in Section 220.2 of Regulation T.
4210(c)(6)/15 Use of Foreign Currency for Margin Purposes
Members may use credit balances in freely convertible foreign currencies in computing the customer’s margin requirements and equity provided their value in U.S. dollars is calculated daily using current foreign exchange rates. Members must recognize the possibility that fluctuations between foreign currencies and the U.S. dollar may have an adverse effect on the total equity in a margin account. Additional margin should generally be required to compensate for potential losses in equity that may occur due to such currency fluctuations.
4210(d)(3)/01 Credit Extended
This Rule requires that members determine the total dollar amount of credit to be extended to any one customer or on any one security to limit the potential loss or exposure to the member. It is important that specific limits be established to prevent any one customer or group of customers from endangering the member’s capital.
4210(d)(3)/02 Credit Committee
It is suggested that members appoint a credit committee with full authority to formulate credit policies and set limits as to the amount of credit that may be extended. It is recommended that the committee include the finance officer, credit officer and/or margin manager.
4210(e)/01 Exceptions
The exceptions referred to in this paragraph apply only to the Special Initial Margin Requirements (Rule 4210(f)(8)) and the Maintenance Margin Requirements (Rule 4210(c)). They do not apply to the $2,000 minimum equity requirement of Rule 4210(b)(4).
On net "long" or net "short" positions in obligations (including zero coupon bonds, i.e., bonds with coupons detached or non-interest bearing bonds) issued or guaranteed as to principal or interest by the United States Government or by corporations in which the United States has a direct or indirect interest as shall be designated for exemption by the Secretary of the Treasury, or in obligations that are highly rated foreign sovereign debt securities, the margin to be maintained shall be the percentage of the current market value of such obligations as specified in the applicable category below:
| (i) | Less than one year to maturity | 1 percent |
| (ii) | One year but less than three years to maturity | 2 percent |
| (iii) | Three years but less than five years to maturity | 3 percent |
| (iv) | Five years but less than ten years to maturity | 4 percent |
| (v) | Ten years but less than twenty years to maturity | 5 percent |
| (vi) | Twenty years or more to maturity | 6 percent |
4210(e)(2)(A)/01 Highly Rated Foreign Sovereign Debt Securities
The use of a maturing obligation, other than United States Treasury bills, to reduce the margin requirement of a new obligation also applies to highly rated foreign sovereign debt securities.
4210(e)(2)(A)/02 Net Positions
The terms net “long” or net “short” positions mean positions in the same issue of the same security.
4210(e)(2)(A)/03 Time to Maturity
Requirements under Rule 4210(e)(2)(A) are based on the remaining life of the bond until maturity, not on the bond’s nominal life from issuance date to maturity date. Thus, a thirty year bond with only eight (8) years remaining to maturity would require margin of 4%.
4210(e)(2)(A)/04 International Bank for Reconstruction and Development
Obligations of the International Bank for Reconstruction and Development are deemed to be major foreign sovereign debt.
4210(e)(2)(A)/05 Federal National Mortgage Association (FNMA) — (Rescinded)
See Interpretation Rule 4210(a)(6)/02
4210(e)(2)(A)/06 Primary Dealers
Primary dealers designated by the Federal Reserve Bank of New York may extend credit, under this Rule, to any customer on a mutually agreed upon basis on debt securities that are U.S. Government securities (as defined in SEA section 3(a)(42)), provided that, if the margin requirements are lower than the proprietary haircut deductions under the uniform net capital rule (SEA Rule 15c3-1, paragraph (c)(2)(vi)(A), Securities Haircuts, Government Securities) a deduction in computing net capital will be made to the extent that the equity in a customer’s account is less than such haircuts.
4210(e)(2)(B)/01 Reverse Repurchase Agreements
Reverse repurchase agreements in exempted securities shall be maintained in a good faith account subject to the provisions of paragraphs (e)(2)(A) and (e)(2)(B) of this Rule.
4210(e)(2)(B)/02 Mortgage-Related Securities — (Rescinded)
See Interpretation Rule 4210(a)(12)/01
4210(e)(2)(B)/03 Exempted Securities Mutual Funds and Exempted Securities Exchange Traded Funds
See Interpretation Rule 4210(c)(6)/11
4210(e)(2)(B)/04 Government Sponsored Enterprise Equity
See Interpretation Rule 4210(a)(6)/02
4210(e)(2)(C)(ii)/01 Other Debt Securities
Non-convertible corporate debt securities that are not investment grade, are not listed or traded on a registered national securities exchange, and do not qualify as other margin eligible non-equity securities as defined in Rule 4210(a)(16) are not eligible for the lower margin requirements permitted in this paragraph of the Rule. These debt securities must be margined in accordance with Rule 4210(c).
4210(e)(2)(C)(ii)/02 Exchange Traded Notes Linked to a Reference Instrument, Index or Benchmark
Rule 4210(e)(2)(C) does not apply to exchange traded notes (ETNs) linked to a reference instrument, index or benchmark. See Interpretations Rule 4210(c)(6)/12 and /13 for the requirements applicable to these ETNs.
4210(e)(2)(E)(ii)/01 Accrued Interest
See interpretations Rule 4210(a)(2)/01 and /02
4210(e)(2)(F)/01 Government National Mortgage Association (GNMA) (Rescinded)
See Rule 4210(e)(2)(H)
4210(e)(2)(F)/02 Exempt Accounts for GNMAs (Rescinded)
See Rule 4210(e)(2)(H)
4210(e)(2)(F)/03 Establishing Risk Limits for GNMAs (Rescinded)
See Rule 4210(e)(2)(H)
4210(e)(2)(F)/04 Exempt Account Requirements for GNMA Transactions (Rescinded)
See Rule 4210(e)(2)(H)
4210(e)(2)(F)/05 GNMAs --- Non-Exempt Accounts Other Than Mortgage Bankers (Rescinded)
See Rule 4210(e)(2)(H)
4210(e)(2)(F)/06 GNMAs --- Non Exempt Mortgage Bankers’ Accounts (Rescinded)
See Rule 4210(e)(2)(H)
4210(e)(2)(F)/07 GNMAs --- Concentration Risk Provision (Rescinded)
See Rule 4210(e)(2)(H)
4210(e)(2)(F)/08 GNMAs --- Conversion or Exercise of Standbys (Rescinded)
See Rule 4210(e)(2)(H)
4210(e)(2)(H)(ii)
Margin Requirements for Covered Agency Transactions
4210(e)(3)(F)/01 Associated Person Participation
Sharing in Profits
If any associated person as part of his or her compensation is participating in only the profits in a member account, such an account would be deemed a proprietary account. FINRA has no objection to such arrangements, provided the associated person’s participation is recorded as a salary or bonus incentive or in another similar manner. FINRA permission is not required for such arrangements.
Sharing in Losses
FINRA does not prohibit an associated person from sharing in the losses of member accounts. However, it should be understood that in such instances the member is extending or maintaining credit on the associated person’s behalf. Thus, such an account would represent a “joint venture” between the associated person and the member. Therefore, the percentage of the account in which the associated person is a participant is considered a customer account and shall be margined accordingly under this Rule. This also applies to general partners' personal accounts. The remaining percentage of the account will still be considered a proprietary account.
Compliance with Rule 2150
A member should be aware of its obligations under Rule 2150 when sharing in accounts with associated persons of the member who are also customers of the member.
4210(e)(5)/01 Underwritings – Overallotments
Short sale transactions made by an approved specialist or approved market maker in accordance with a guaranteed over-allotment from an underwriting may be treated as a specialist or market making transaction.
4210(e)(5)/02 Haircut Requirements
For purposes of Rule 4210, “haircut requirements pursuant to SEA Rule 15c3-1” include any net capital deductions required by SEA Rule 15c3-1(c)(2)(vi) (including deductions required by subparagraphs (K) and (M) thereof) or SEA Rule 15c3-1(c)(2)(vii). Note that in certain cases the haircut requirement under Rule 15c3-1 may be greater than the maintenance margin requirement under this Rule.
4210(e)(6)(A)/01 Margin Basis — (Rescinded)
4210(e)(6)(A)/02 Haircut Requirements
See interpretation Rule 4210(e)(5)/02 when deducting from net capital any deficiency between the equity in an account and the haircut requirements pursuant to SEA Rule 15c3-1.
4210(e)(6)(B)(ii)c./01 Other Assets Used to Meet JBO Minimum Equity
A carrying and clearing member may consider a broker-dealer’s assets held in a futures account held at the carrying and clearing member in order to satisfy the $1 million minimum equity requirement.
4210(e)(7)
4210(e)(7)/01 Sinking Fund Transactions
When a member purchases a security for its own account and sells it on a delayed delivery basis to the issuer for sinking fund requirement purposes and such transaction qualifies under Regulation T for non-purpose credit and credit under an employee stock ownership plan, the margin treatment afforded such sinking fund transaction may be as follows:
- If 30 calendar days or less to delivery, the transaction may be exempt from margin requirements but any marked to the market loss which is not obtained must be deducted in computing net capital. (See SEA Rule 15c3-1(c)(2)(xii)).
- If over 30 calendar days to delivery, the transaction may be exempt from margin requirements of this Rule and instead treated as an open proprietary contractual commitment subject to the requirements of SEA Rule 15c3-1 subparagraphs (c)(2)(vi) and (c)(2)(viii). Such treatment, however, should not result in a duplication of deductions under the capital requirements rule.
For sinking fund transactions that do not qualify for this type of treatment, see Rule 4210(c)/06.
4210(e)(7)/02 Unsecured Loans
Unsecured loans are to be charged to net capital in their entirety. (See SEA Rule 15c3-1(c)(2)(iv)(B))
4210(e)(7)/03 Nonpurpose Loans Collateralized by Certificates of Deposit
Nonpurpose loans collateralized by negotiable certificates of deposit need not be charged to net capital in their entirety if certain conditions are satisfied. (See Interpretation SEA Rule 15c3-1(c)(2)(iv)(B)/10).
4210(e)(7)/04 Non-Margin Eligible Equity Security as Collateral for Nonpurpose Credit
Any fully-paid non-margin eligible equity security deposited in a good faith account as collateral for nonpurpose credit is treated as having a maintenance margin requirement of 25% of its current market value for purposes of determining the capital charge required by Rule 4210(c)(7)(C). This treatment is only available for a number of shares (or other units) of a non-margin eligible equity security that do not exceed 20 times the security’s median trading volume over the preceding 20 trading days; any shares (or other units) over this limit are treated as having a 100% maintenance requirement for this purpose.
4210(e)(7)/05 Offshore Mutual Fund Shares as Collateral for Nonpurpose Credit
Any fully-paid eligible offshore mutual fund shares deposited in a good faith account as collateral for nonpurpose credit are treated as having a maintenance margin requirement of 25% of their current market value for purposes of determining the capital charge required by Rule 4210(c)(7)(C). For this purpose, “eligible offshore mutual fund shares” are shares that (i) are issued by a non-U.S. investment company that is affiliated with an investment company registered under the Investment Company Act of 1940, and (ii) can be liquidated or redeemed daily.
4210(e)(8)/01 Adherence to Securities Act Rules 144 and 145(d) (Rescinded)
4210(e)(8)/02 Securities Act Rule 144 (Rescinded)
4210(e)(8)/03 Securities Act Rule 145 (Rescinded)
4210(e)(8)/04 Securities Act Rule 145 (Continued) (Rescinded)
4210(e)(8)/05 Application of Securities Act Rule 144 (Rescinded)
4210(e)(8)/06 Rule 144A Debt
Debt securities eligible for resale under Securities Act Rule 144A are deemed “saleable” for purposes of Rule 4210(e)(8).
4210(e)(8)/07 Mortgage Related Securities
Mortgage related securities may be margined as described in Interpretation Rule 4210(a)(12)/01. Therefore, Rule 4210(e)(8) does not apply to mortgage related securities.
4210(e)(8)(A)/01 Shelf-Registered Securities
Shelf-registered securities are securities registered for continuous or delayed offering pursuant to Securities Act Rule 415.
4210(e)(8)(A)/02 Mortgage Related Securities (Rescinded)
See Interpretation Rule 4210(e)(8)/07
4210(e)(8)(A)/03 Net Capital Charges for Shelf-Registered Securities
Shelf-registered securities that meet all of the conditions prescribed in Rule 4210(e)(8)(A) need not be included in the calculation of excess net capital and net capital deductions required by paragraphs (e)(8)(C) and (D).
4210(e)(8)(A)/04 Example — Net Capital Charge (Rescinded)
4210(e)(8)(B)(i)/01 “Saleable” — (Rescinded)
4210(e)(8)(B)(i)/011 “Saleable”
The term “saleable,” as used in Rule 4210(e)(8)(B)(i) and in Rule 4210(e)(8)(D)(i) and (ii), refers to those specified and quantifiable securities where all the terms and conditions of Securities Act Rule 144 have been completely satisfied, including any applicable holding period, and thus are immediately saleable pursuant to Securities Act Rules 144 and 145(d) by the member without restriction in the event the customer fails to meet a margin call or otherwise defaults.
4210(e)(8)(B)(ii)/01 Reduction of Marginable Shares for Margin and Capital Charge Computations — (Rescinded)
4210(e)(8)(B)(ii)/011 Securities Held Away of the Same Class as Control or Restricted Securities in Customer’s Account
If the amount of control or restricted securities in a customer’s account that are then saleable is potentially affected by transactions in securities of the same class not held in the customer’s account at the member, then the member shall either:
- obtain and accept in good faith the customer’s written statement that it has deposited with the member all securities of such class that would be relevant to determining the amount then saleable; or
- obtain and accept in good faith a written statement from the customer of the total amount of securities of such class that would be relevant to determining the amount then saleable, and compute the amount of securities in the customer’s account that are then saleable based on an assumption that all other relevant securities were sold immediately prior to any sales of securities from the customer’s account.
If the member does not obtain the agreement or statement described above, or is unable to accept such agreement or statement in good faith, then the member must assume that none of the control or restricted securities are then saleable.
4210(e)(8)(B)(ii)/02 Example of Computations
A customer deposits shares of a restricted margin security with a broker-dealer with a current market value of $1,000,000 and, in accordance with Regulation T (50% loan value), makes a $500,000 withdrawal. If the saleable amount of such securities, under Securities Act Rule 144, has a current market value of $600,000 and no concentration exists pursuant to Rule 4210(e)(8)(C)(iv), the “customer margin computation” and “capital charge computation” would be as follows:
Customer margin computation
| Long market value | $1,000,000 |
| Debit balance | 500,000 |
| Equity | 500,000 |
| 40% maintenance requirements ($1,000,000 x .40) | 400,000 |
| Maintenance excess | 100,000 |
This account is in compliance with Rule 4210(e)(8)(B).
Capital charge computation
| Saleable market value | $600,000 |
| Debit balance | 500,000 |
| Equity based on saleable market value | 100,000 |
| 25% requirement for net capital purposes (600,000 x .25, the margin requirement under Rule 4210(e)(8)(C)(iv)) | 150,000 |
| Amount to be deducted in computing the member’s net capital under SEA Rule 15c3-1 and, if applicable, Rule 4110(a), pursuant to Rule 4210(e)(8)(B)(i) | $50,000 |
If at a future date, the current market value of the restricted security decreased to $800,000, then:
Customer margin computation
| Long market value | $800,000 |
| Debit balance | 500,000 |
| Equity | 300,000 |
| 40% maintenance requirements ($800,000 x .40) | 320,000 |
| Margin deficiency | $20,000 |
In addition, if on that date the saleable amount of such security under Securities Act Rule 144 had a current market value of only $480,000, the “capital charge computation” would be as follows:
Capital charge computation
| Saleable market value | $480,000 |
| Debit balance | 500,000 |
| Equity based on saleable market value | (20,000) |
| 25% requirement for net capital purposes (480,000 x .25) | 120,000 |
| Margin deficiency based on saleable market value | 140,000 |
| Current margin call outstanding less than five business days | 20,000 |
| Amount to be deducted in computing the member’s net capital under SEA Rule 15c3-1 and, if applicable, Rule 4110(a), pursuant to Rule 4210(e)(8)(B)(i) | $120,000 |
4210(e)(8)(B)(ii)/03 Mortgage Related Securities — (Rescinded)
See Interpretation Rule 4210(e)(8)/07.
4210(e)(8)(C)(i)/01 Reporting Requirements
Members are required to report on the monthly FOCUS report when the credit extended on shelf-registered, and other control and restricted securities, exceeds 10% of excess net capital.
4210(e)(8)(C)(ii)/01 Limit on Credit Extended
There is no limit to the total amount of credit which may be extended to all customers on control and restricted securities of any one issue. However, if the total credit actually extended or agreed to be extended on any one issue exceeds 10% of excess net capital, then the amount in excess of 10% shall be deducted from net capital in determining the member’s status under Rule 4120.
4210(e)(8)(C)(ii)/02 Time of Calculation — (Rescinded)
4210(e)(8)(C)(ii)/03 Example of Deduction from Net Capital
A member’s excess net capital is $10,000,000. A customer deposits $3,000,000 (current market value) of XYZ margin securities on which the member agrees to lend $1,500,000 (Regulation T 50%). The customer withdraws only $1,000,000. The member must deduct $500,000 from net capital to determine its status under Rule 4120, computed as follows:
| Excess net Capital | $10,000,000 |
| 10% of excess | $1,000,000 |
| Amount agreed to be extended | $1,500,000 |
| Rule 4120 deduction pursuant to Rule 4210(e)(8)(C)(ii) | $500,000 |
4210(e)(8)(C)(iii)b./01 Aggregate Credit Extended
The aggregate credit extended to each customer for purposes of Rule 4210(e)(8)(C)(iii) only, shall be determined by the adjusted debit balance, if any, in the customer’s account. The adjusted debit balance is determined by subtracting all of the long security positions in the customer’s account, other than long control or restricted securities, at their current market values (debit balance minus market value of long securities), and any credit balance, and adding all of the short security positions, at their current market values (debit balance plus market value of short securities), except that no long option positions carried for the customer shall be considered to have any value and the short cover value of any short option positions traded in the over-the-counter market shall be considered as an increase (debit) to the adjusted debit balance for their in-the-money amounts, if any. The short cover value of any short listed option positions shall be their market value. In addition, such adjusted debit balance shall include any marked to the market losses on positions in “when issued” and “when distributed” securities.
Example of Computations – Aggregate Credit Extended
A customer deposits 5,000 shares of XYZ, a restricted margin security, with a market value of $100,000 ($20 per share). On the same day, in accordance with Regulation T (50% loan value) the customer sells short 1,000 shares of ABC for $40,000 and writes (sells) ten listed call options on DEF at $40 (strike price) at $500 per option (total premium $5,000). No funds are withdrawn from the account.
At a later date, the market values have appreciated to $25 per share for XYZ, $50 per share for ABC and $700 per option for DEF. Based on these prices, the total amount of credit extended on the restricted security is $12,000, which must be included solely for purposes of calculating the amount to be deducted from net capital under Rule 4210(e)(8)(C)(iii) for purposes of determining the member’s status under Rule 4120. The above amount is calculated as follows:
| Liquidation of short sale of ABC | ||
| 1,000 shares at $50 | $50,000 | |
| Less proceeds of sale | 40,000 | |
| Loss | $10,000 | |
| Short cover value of DEF calls | ||
| 10 Calls at $700 | $7,000 | |
| Less Premium held | 5,000 | |
| Loss | $2,000 | |
| Adjusted debit balance | $12,000 |
4210(e)(8)(C)(iii)b./02 Example of FINRA Rule 4120 Deduction
For example, if a member’s excess net capital is $2,000,000 and aggregate credit extended to all customers on control and restricted securities totals $1,000,000. The charge to net capital for determining the member’s status under Rule 4120 would be $250,000, computed as follows:
| Excess net capital | $2,000,000 |
| 50% limit on excess net capital | 1,000,000 |
| Aggregate credit extended | $1,000,000 |
| Charge to Rule 4120 of 25% as aggregate credit extended does not exceed limit on excess net capital | $ 250,000 |
If in the above example, the member’s excess net capital was $1,600,000, the charge to net capital under Rule 4120 would be $400,000, computed as follows:
| Excess net capital | $1,600,000 |
| 50% limit on excess net capital | 800,000 |
| Aggregate credit extended | $1,000,000 |
| Charge to Rule 4120 25% of amount up to 50% ($800,000) of excess net capital | $200,000 |
| 100% of amount exceeding 50% of excess net capital ($1,000,000 - $800,000) | 200,000 |
| Total Charge | $ 400,000 |
| Percent of Outstanding Shares | or Percent of Average Weekly Volume | Margin Requirement |
| Up to 10 percent | Up to 100 percent | 25 percent |
| Over 10 percent and under 15 percent | Over 100 percent and under 200 percent | 30 percent |
| 15 percent and under 20 percent | 200 percent and under 300 percent | 45 percent |
| 20 percent and under 25 percent | 300 percent and under 400 percent | 60 percent |
| 25 percent and under 30 percent | 400 percent and under 500 percent | 75 percent |
| 30 percent and above | 500 percent and above | 100 percent |
4210(e)(8)(C)(iv)/01 Securities Subject to Concentration Formula
Only control and restricted securities are to be considered in determining when a concentration exists. Shelf-registered securities are not subject to the concentration formula. Other securities of the same issuer, or securities of other issuers held in the customer’s account, are not subject to the concentration formula.
4210(e)(8)(C)(iv)/02 Example of Concentration Computation
If the customer’s position in the example in Interpretation Rule 4210(e)(8)(B)(ii)/02 above represented 11% of the outstanding shares, thereby subjecting the position to a concentration reduction. The “customer’s margin computation” would be unchanged, but the “capital charge computation” would be as follows:
At the time the restricted securities were deposited with a current market value of $1,000,000 and a saleable market value of $600,000:
“Capital charge computation”
| Saleable market value | $600,000 |
| Debit balance | 500,000 |
| Equity based on saleable market value | 100,000 |
| 30% requirement on saleable market value for net capital purposes pursuant to concentration reduction. | 180,000 |
| Amount to be deducted in computing the member’s net capital under SEA Rule 15c3-1 and, if applicable, Rule 4110(a), pursuant to Rule 4210(e)(8)(B)(i) and (C)(iv). | $80,000 |
If the restricted securities decrease in value to $800,000 and the saleable market value decreased to $480,000:
Capital charge computation
| Saleable market value | $480,000 |
| Debit | 500,000 |
| Equity based on saleable market value | (20,000) |
| 30% requirement on saleable market value for net capital purposes pursuant to concentration reduction. | 144,000 |
| Margin deficiency for purposes of concentration reduction | $164,000 |
| Current outstanding margin call outstanding less than five business days. (See previous example in Interpretation Rule 4210(e)(8)(ii)/02 | -20,000 |
| Amount to be deducted in computing the member’s net capital under SEA Rule 15c3-1(c)(2)(xii) and, if applicable, Rule 4110(a), pursuant to Rule 4210(e)(8)(B)(i) and (C)(iv) | $144,000 |
4210(e)(8)(D)(ii)/01 Non-Affiliate Exemption — (Rescinded)
4210(e)(8)(D)(ii)/011 Scope of Exemption
Rule 4210(e)(8)(D) exempts from Rule 4210(e)(8) all securities that the member could sell immediately without restriction in the event the customer fails to meet a margin call or otherwise defaults, regardless of whether the customer is an affiliate or non-affiliate. For example, SEC Division of Corporate Finance’s Compliance and Disclosure Interpretation (CD&I) 532.01 provides:
To rely on CD&I 532.01 to treat non-restricted securities deposited in a margin account by an affiliate of their issuer as exempt from Rule 4210(e)(8)(B), a member must determine that each of the conditions of CD&I 532.01 (including that the securities are the subject of a bona fide pledge) are satisfied and document its basis for that determination.
4210(e)(8)(D)(ii)/02 Continuing Requirement for Non-Affiliate Exemption — (Rescinded)
4210(e)(8)(D)(ii)/03 Optional Member Procedures
The provisions of Rule 4210(e)(8)(D) do not restrict members from imposing such higher maintenance margin requirements as they may deem appropriate. See Rule 4210(d). Moreover, members may wish to establish special supervisory procedures to consider the desirability of and to monitor extensions of credit on control, restricted or shelf-registered securities.
4210(e)(8)(D)(ii)/04 Concentration Evaluation
Any member extending or maintaining credit on any securities exempted from Rule 4210(e)(8) under Rule 4210(e)(8)(D) is still required by Rule 4210(f)(1) to require “substantial additional margin” if there is a concentration in those securities (whether in the particular customer’s account, or in all margin accounts carried by the member) that may not be liquidated promptly due to its size.
4210(e)(9) Security-Based Swaps; SBS Offsets
4210(f)(1)/01 Concentration or Volatile Securities
Substantial additional margin must be required:
- When there are concentrations in single securities (either in particular accounts or in all margin accounts carried) which, due to their size, may not be liquidated promptly; and
- For accounts with positions in volatile securities subject to unusually rapid or violent changes in value.
Accordingly, steps should be taken to:
- Increase margin requirements when it appears that accumulated positions will be difficult to liquidate promptly; and
- Prevent such positions from being acquired.
4210(f)(1)/02 Suspended Securities
Securities suspended by the SEC (not those whose trading has been halted or suspended by a self-regulatory organization) that are held in customer’s accounts are valued and margined as follows:
- Long positions have no value for margin purposes or a 100 percent maintenance margin requirement.
- Short positions are valued for margin purposes at the last known sale price prior to suspension and regular maintenance margin requirements are applied.
- Long and short positions of the same security are paired-off and only the excess position is margined in accordance with (a) or (b) above.
- Long stock versus short warrants representing the same security are treated the same as (c) above.
- Long exchangeable or convertible securities versus equivalent shorts of the underlying security position are treated as follows:
- there is no maintenance requirement, if there is no conversion cost or other restrictions, or
- if there is a conversion cost but no other restriction, the requirement is the conversion cost or the regular maintenance requirement on the short position, whichever is less, or
- if there is a restriction to the conversion other than a conversion cost, the positions are margined in accordance with (a) and (b) above.
4210(f)(2)(A)(xxxii)/01 Mini Option, Jumbo Option, and Standard Option Contract Spread Combinations
Members may combine mini option contracts, jumbo option contracts, or standard option contracts to create a spread strategy, as defined in Rule 4210(f)(2)(A)(xxxii), provided all the required criteria has been satisfied.
4210(f)(2)(A)(xxxvi)/01 Condor Spreads — (Rescinded)
4210(f)(2)(E)/01 Treatment of Options Involving Mergers and Acquisitions
When an options exchange ceases trading in a listed option of a specific company because the “underlying asset” (as defined in Regulation T, Section 220.2) no longer trades due to a merger or acquisition and the registered clearing agency has formally announced that all outstanding options will settle for cash in an amount equal to the difference between a fixed dollar amount and the exercise price of the option, the margin required on such options may, at the member’s discretion, be computed as follows:
| Out-of-the-money options | No requirement |
| In-the-money options | The difference between the dollar amount set by the registered clearing agency and the exercise price of the option or the amount of margin required by the registered clearing agency, whichever is greater. |
FRB letter to CBOE dated April 12, 1990
4210(f)(2)(E)/02 Options on Leveraged Exchange Traded Products
The initial and maintenance margin requirement for uncovered short positions in listed or OTC options on leveraged exchange trade products, including exchange traded funds (ETFs) and exchange traded notes (ETNs) shall be increased by a factor commensurate with the leverage of the ETP as set out in the following chart:
| Type of ETP Option | Initial and Maintenance Requirement | Minimum Margin Requirement |
| Listed Non-Leveraged ETP Option on a Broad-Based Index or Benchmark | 100% of the option premium plus 15% of the market value, minus any out-of-the-money amount. | Calls: 100% of the option premium plus 10% of the market value. Puts: 100% of the option premium plus 10% of the exercise amount for put options. |
| Listed Leveraged ETP Option on a Broad-Based Index or Benchmark | 100% of the option premium plus (15% multiplied by the leverage factor of the ETP) of the market value minus any out-of-the-money amount. | Calls: 100 percent of the option premium plus (10% multiplied by the leverage factor of the ETP) of the market value. Puts: 100% of the option premium plus (10% multiplied by the leverage factor of the ETP) of the exercise amount. |
| OTC Non-Leveraged ETP Option on a Broad-Based Index or Benchmark | 20% of the market value, plus any in-the-money amount or minus any out-of-the-money amount | Calls: 10% of the market value. Puts: 10% of the exercise amount. |
| OTC Leveraged ETP Option on a Broad-Based Index or Benchmark | (20% multiplied by the leverage factor of the ETP) of the market value, plus any in-the-money amount or minus any out-of-the-money amount. | Calls: (10% multiplied by the leverage factor of the ETP) of the market value. Puts: (10% multiplied by the leverage factor of the ETP) of the exercise amount. |
| Listed Non-Leveraged ETP Option on an Industry, Single-Stock, or Narrow-Based Index or Benchmark | 100% of the option premium plus 20% of the market value minus any out-of-the-money amount. | Calls: 100% of the option premium plus 10% of the market value. Puts: 100% of the option premium plus 10% of the exercise amount for put options. |
| Listed Leveraged ETP Option on an Industry, Single-Stock, or Narrow-Based Index or Benchmark | 100% of the option premium plus (20% multiplied by the leverage factor of the ETP) of the market value minus any out-of-the-money amount. | Calls: 100% of the option premium plus (10% multiplied by the leverage factor of the ETP) of the market value. Puts: 100% of the option premium plus (10% multiplied by the leverage factor of the ETP) of the exercise amount for put options. |
| OTC Non-Leveraged ETP Option on an Industry, Single-Stock, or Narrow-Based Index or Benchmark | 30% of the market value, plus any in-the-money amount or minus any out-of-the-money amount. | Calls: 10% of the market value. Puts: 10% of the exercise amount. |
| OTC Leveraged ETP Option on an Industry, Single-Stock, or Narrow-Based Index or Benchmark | (30% multiplied by the leverage factor of the ETP) of the market value, plus any in-the-money amount or minus any out-of-the-money amount. | Calls: (10% multiplied by the leverage factor of the ETP) of the market value. Puts: (10% multiplied by the leverage factor of the ETP) of the exercise amount. |
(Regulatory Notice 09-53)
(Regulatory Notice 19-21)
(Regulatory Notice 24-11)
The margin on any listed put, call, currency warrant, currency index warrant, or stock index warrant carried "short" in a customer's account may be reduced by any "out-of-the-money amount" (as defined below), but shall not be less than 100 percent of the current market value of the option or warrant plus the percentage of the current market value of the underlying component specified in column III, except in the case of any listed put carried "short" in a customer's account. Margin on such put option contracts shall not be less than the current value of the put option plus the percentage of the put option's aggregate exercise price as specified in column III.
| I Type of Option | II Initial and/or Maintenance Margin Required | III Minimum Margin Required | IV Underlying Component Value | |
| (1) | Stock | 20 percent | 10 percent | The equivalent number of shares at current market prices. |
| (2) | Industry index stock group | 20 percent | 10 percent | The product of the index group value and the applicable index multiplier. |
| (3) | Broad index stock group | 15 percent | 10 percent | The product of the index group value and the applicable index multiplier. |
| (4) | U.S. Treasury bills — 95 days or less to maturity | .35 percent | 1/20 percent | The underlying principal amount. |
| (5) | U.S. Treasury notes | 3 percent | 1/2 percent | The underlying principal amount. |
| (6) | U.S. Treasury bonds | 3.5 percent | 1/2 percent | The underlying principal amount. |
| (7) | Foreign Currency Options and Warrants* | 4 percent | 3/4 percent | The product of units per foreign currency contract and the closing spot price. |
| (8) | Interest Rate contracts | 10 percent | 5 percent | The product of the current interest rate measure and the applicable multiplier. |
| (9) | Currency Index Warrants | ** | ** | The product of the index group value and the applicable index multiplier. |
| (10) | Stock Index Warrant on Broad Index Stock Group | 15% | 10% | The product of the index group value and the applicable index multiplier. |
| (11) | Stock Index Warrant on Industry Index Stock Group | 20% | 10% | The product of the index group value and the applicable index multiplier. |
For purposes hereof, "out-of-the-money amounts" are determined as follows:
| Option or Warrant Issue | Call | Put |
| Stock Options | Any excess of the aggregate exercise price of the option over the current market value of the equivalent number of shares of the underlying security. | Any excess of the current market value of the equivalent number of shares of the underlying security over the aggregate exercise price of the option. |
| U.S. Treasury Options | Any excess of the aggregate exercise price of the option over the current market value of the underlying principal amount. | Any excess of the current market value of the underlying principal amount over the aggregate exercise price of the option. |
| Index Stock Group Options, Currency Index Warrants, and Stock Index Warrants | Any excess of the aggregate exercise price of the option or warrant over the product of the index group value and the applicable multiplier. | Any excess of the product of the index group value and the applicable multiplier over the aggregate exercise price of the option or warrant. |
| Foreign Currency Options and Warrants | Any excess of the aggregate exercise price of the option or warrant over the product of units per foreign currency contract and the closing spot prices. | The product of units per foreign currency contract and the closing spot prices over the aggregate price of the option or warrant. |
| Interest Rate Options | Any excess of the aggregate exercise price of the option over the product of the current interest rate measure value and the applicable multiplier. | Any excess of the product of the current interest rate measure value and the applicable multiplier over the aggregate exercise price of the option. |
4210(f)(2)(E)(i)/01 Uncovered Put Option Requirement
The maximum maintenance margin requirement for a short, uncovered put option is the aggregate exercise price, as defined in Rule 4210(f)(2)(A)(ii).
In the case of OTC options, the margin on any put or call carried "short" in a customer's account may be reduced by any "out-of-the-money amount" (as defined in paragraph (f)(2)(E)(i)), but shall not be less than the percentage of the current value of the underlying component and the applicable multiplier, if any, specified in column III below, except in the case of any OTC put carried "short" in a customer's account. Margin on such put option contracts shall not be less than the percentage of the put option's exercise price as specified in column III below.
| I Type of Option | II Initial and/or Maintenance Margin Required | III Minimum Margin Required | IV Underlying Component Value | |
| 1. | Stock and convertible corporate debt securities | 30% | 10% | The equivalent number of shares at current market prices for stocks or the underlying principal amount for convertible corporate debt securities. |
| 2 | Industry Index stock group | 30% | 10% | The product of the index group value and the applicable index multiplier. |
| 3 | Broad index stock group | 20% | 10% | The product of the index group value and the applicable index multiplier. |
| 4. | U.S. Government or U.S. Government Agency debt securities other than those exempted by SEA Rule 3a12-7* | 5% | 3% | The underlying principal amount. |
| 5. | Listed non-equity securities and other margin eligible non-equity securities as defined in paragraphs (a)(15) and (a)(16). | 15% | 5% | The underlying principal amount. |
| 6. | All other OTC options not covered above | 45% | 20% | The underlying principal amount. |
For the purpose of this paragraph (f)(2)(E)(iii), "in-the-money amounts" are determined as follows:
| Option Issue | Call | Put |
| Stock options | Any excess of the current market value of the equivalent number of shares of the underlying security over the aggregate exercise price of the option. | Any excess of the aggregate exercise price of the option over the current market value of the equivalent number of shares of the underlying security. |
| Index stock group options | Any excess of the product of the index group value and the applicable multiplier over the aggregate exercise price of the option. | Any excess of the aggregate exercise price of the option over the product of the index group value and the applicable multiplier. |
| U.S. Government mortgage related or corporate debt securities options | Any excess of the current value of the underlying principal amount over the aggregate exercise price of the option. | Any excess of the aggregate exercise price of the option over the current value of the underlying principal amount. |
4210(f)(2)(F)(ii)/01 Control or Restricted Securities Covering Options Sold
The sale (writing) of listed call options against securities subject to Securities Act Rules 144 and 145 is permissible, provided all conditions of sale under such Rules have been met, both at the time of sale of the option and at the time that the underlying security is delivered pursuant to an exercise notice.
SEC Release No. 33-5890 Dated December 20, 1977
4210(f)(2)(F)(ii)/02 Accounts in Which Call Options May Be Sold
Call options may be sold (written) against control or restricted securities in either the margin account or the cash account, and will be deemed covered calls, provided that all conditions to sale under Securities Act Rules 144 and 145 are satisfied to prior to the sale (writing) of the call options.
4210(f)(2)(F)(ii)/03 Margin accounts — (Rescinded)
4210(f)(2)(F)(ii)/04 Partially Covered Option
The sale (writing) of a short option contract may be partially covered by the proportionate amount of shares of the underlying security, and members may apply the appropriate uncovered option requirement to the remaining uncovered portion. This transaction is not eligible for the cash account.
4210(f)(2)(H)(v)/01 Expiration Dates
In a conversion, reverse conversion or collar strategy in which the long put or warrant expires on or after the expiration of the short call or warrant, and the long option is paid for in full, the member may apply the margin treatment provided in applicable Rule 4210(f)(2)(H)(v)b. through d., provided the other conditions of the applicable strategy are satisfied.
4210(f)(2)(I)(i)b./01 Convertible Bond Hedge — (Rescinded)
4210(f)(2)(I)(iii)/01 Net Positions
In the case of convertible hedge positions (i.e., where a security carried in a long position is exchangeable or convertible within a reasonable time, without restriction, other than the payment of money, into a security carried in a short position) or “short against the box” positions in a customer’s account, neither the long nor the short position is available to offset the margin required on any option position carried for such customer.
4210(f)(2)(I)(iv)/01 OTC Government Options
Regulation T, Section 220.12(b) states that the margin on exempted securities is that required by the creditor in “good faith” or the percentage set by the regulatory authority where the trade occurs, whichever is greater. Under SEA Rule 3a12- 7, OTC options on government securities which represent obligations of $250,000 or more are designated as exempt securities. Therefore, an escrow agreement for an OTC government option where the underlying value is $250,000 or more may be collateralized by cash.
An escrow agreement for an OTC government option where the underlying value is less than $250,000 requires that the underlying security be held as collateral for the agreement.
FRB Letter to CBOE Dated December 12, 1986
4210(f)(2)(I)(iv)/02 Use of Government Security Under Escrow Agreement
It is not permissible for the underlying security backing an escrow agreement that is collateralizing an OTC government option to be sold under a repurchase agreement. Further, the underlying security may not be used to secure another obligation.
FRB Letter to CBOE Dated December 12, 1986
4210(f)(2)(I)(iv)/03 Escrow Agreement Covering Index Options – Under Collateralized
If a member is notified by the bank or trust company issuing the escrow agreement (pursuant to the terms of the escrow agreement) that the value of the escrow deposit has fallen below 50% of the current aggregate position value, the escrow agreement will cease to be acceptable in lieu of margin unless the member promptly obtains additional collateral.
4210(f)(2)(I)(iv)/04 Escrow Agreement
The privilege of using escrow agreements may be extended to any customer of a member provided such agreement is issued by a third party custodian bank or trust company.
In this regard:
- FINRA’s prescribed forms of escrow agreements for puts and calls on equity securities or U.S. Government securities and for puts on indices are the only forms that may be accepted by members. Any other form of escrow agreement is not acceptable for purposes of Rule 4210 absent prior written approval of FINRA.
- Members must comply with Rule 2360 (Options) as it relates to the customer trading the options and to the bank or trust company issuing the escrow agreement.
- Escrow agreements may not be accepted unless the securities or cash held by the bank or trust company are free of all liens or encumbrances.
- Members should set a limit on the number of customers from whom escrow agreements will be accepted, or the number of escrow agreements to be accepted on behalf of any one customer.
- Escrow agreements should be recorded on the member’s books and records.
- Members should establish a limit on the total dollar amount of all outstanding escrow agreements accepted from any one bank or trust company and a total dollar amount of all escrow agreements accepted in relation to the member’s net worth.
- If the security against which an option is written is being carried in a member account, the security position must be maintained at the member.
- Banks acting as fiduciaries for trust clients may issue escrow agreements for their trust accounts.
Exhibits I and II are FINRA’s prescribed forms of escrow agreements for puts and calls, respectively, on equity securities or U.S. Government securities. Exhibits III and IV are FINRA’s prescribed forms of escrow agreements for puts and calls, respectively, on indices.
4210(f)(2)(I)(iv)/EXHIBIT I EQUITY/TREASURY ESCROW AGREEMENT (PUT)
[Bank Letterhead]
____________________________
(Date)
To: ____________________________ (Broker-Dealer Name)
The undersigned (the "Bank") having an office located at________________________ hereby certifies and warrants that:
- it is a bank or trust company, doing business in corporate form, organized under the laws of United States or any State thereof and is supervised and examined by State or Federal authorities having supervision over banks or trust companies;
- as escrow agent, it has on deposit in the United States for the account of ___________________ (the "Customer"), cash or cash equivalents meeting the requirements of Sec.220.8(a)(4)(i) of Regulation T of the Board of Governors of the Federal Reserve System (the “Deposit”) having an aggregate market value not less than $__________ (valuing cash equivalents at face value), which amount equals the product obtained by multiplying (a) the "aggregate exercise price," as that term is defined in the pertinent By-Laws of The Options Clearing Corporation (the "OCC"), of each option contract referred to below by (b) the number of such contracts referred to below; and
- the Bank has received specific authorization from the Customer to issue this escrow agreement and to hold the Deposit pursuant to the provisions hereof, in respect of the Customer's position (the "short position") as a writer of the following option contract(s):
| Trade Date: | Underlying Securities: |
| Options Series | ||||
| Expiration | Aggregate Exercise Price | |||
| Number of Contracts | Option Type | Month | Year | Per Contact |
| Put | ||||
The Bank represents and covenants that, in consideration of your carrying the above described option contract(s) "short" in the account of the Customer on your books, it will maintain the Deposit for your benefit in an account segregated on its books, separate and apart from all other accounts held by it, and will not subject nor consent to the Customer subjecting the Deposit or any portion thereof to any lien or encumbrance, or cause or permit the Deposit or any portion thereof to be applied to or used in satisfaction of any claim by the Bank (in any capacity whatsoever) against the Customer or any other person or entity or used by the Bank as an offset in whole or in part in any manner whatsoever. The Bank will use its best efforts to promptly notify you if any notice of lien, levy, court order, or other process that may or purports to affect the Deposit or any portion thereof is served upon it.
The Customer shall have the right from time to time to deposit with the Bank, as escrow agent to be held by the Bank hereunder and subject to all of the provisions hereof, cash or cash equivalents and thereupon to withdraw from the Deposit cash or cash equivalents which have in aggregate market value of the cash or cash equivalents so deposited (valuing cash equivalents at face value), provided, however, that the aggregate market value of the Deposit immediately after such deposit and withdrawal shall not be less than the aggregate market value of the Deposit immediately prior to such events.
The Bank agrees that it will hold the Deposit in accordance with the terms hereof until this escrow agreement is released or the Bank is directed to make payment as hereinafter provided. Upon presentation of this escrow agreement to the Bank at the address shown above, with the Endorsement of Release below that, in the Bank's reasonable belief, has been duly executed on your behalf, the Bank may release the Deposit held pursuant to this escrow agreement to the Customer.
Upon (a) presentation of this escrow agreement to the Bank at the address shown above, with the Payment Order below that, in the Bank's reasonable belief, has been duly executed on your behalf, and (b) delivery to the Bank for the account of the Customer of the securities underlying the above-described option contract(s), which securities shall be in form to constitute good delivery under the rules of the OCC, the Bank will pay you, out of the Deposit or the proceeds thereof; the exercise settlement amount as to each of the option contracts described above, plus all applicable commission and other charges due you.
In the event of any cash or stock dividend, interest payment, stock distribution, stock split, rights offering, distribution, reorganization, recapitalization or reclassification, or other similar event, affecting the securities underlying the above-described option contract(s), the amount to be paid by the Bank to you and/or the securities or other property to be delivered by you to the Bank shall be adjusted as may be required by the OCC.
The Bank has been authorized by the Customer to confirm the Customer's understanding that if the short position described above is closed out, it is the Customer's responsibility to ensure that this escrow agreement is released by you, and until this escrow agreement is so released, you shall retain the right to demand payment upon the assignment of an exercise notice to any short position in a series of options identified above carried in the Customer's account.
If the Customer is the Bank acting in a fiduciary or similar capacity, or is a trust, custodial, or similar account maintained with the Bank, it is nonetheless understood that in issuing this escrow agreement and functioning as escrowee and bailee of the Deposit, the Bank is acting in its general capacity. Nothing herein shall be deemed to require the Bank to make payment in contravention of any court order or judgment binding on the Bank in its capacity as escrowee and bailee hereunder, which on its face affects the Deposit or the proceeds thereof.
Bank______________________________________________________
| By_______________________________ | Date_____________________ |
| (Authorized Signature) |
ENDORSEMENT OF RELEASE (to be completed by the Broker-Dealer)
The undersigned hereby releases all rights of the undersigned with respect to this Escrow Agreement.
| ______________________________________________________ |
| (Broker-Dealer) |
| By_______________________________ | Date_____________________ |
PAYMENT ORDER (to be completed by the Broker-Dealer)
The undersigned hereby (1) certifies to the above-named Bank that an exercise notice filed with The Options Clearing Corporation has been assigned to the short position of the undersigned which includes the option contract(s) described above, (2) delivers to the Bank the securities underlying the above-described option contract(s), and (3) demands payment that will settle such assignment, plus applicable commissions and other charges, in the amount of $_________.
| ______________________________________________________ |
| (Broker-Dealer) |
| By_______________________________ | Date_____________________ |
4210(f)(2)(I)(iv)/EXHIBIT II EQUITY/TREASURY ESCROW AGREEMENT (CALL)
[Bank Letterhead]
____________________________
(Date)
To: ____________________________
(Broker-Dealer Name)
The undersigned (the "Bank") having an office located at________________________ hereby certifies and warrants that:
- it is a bank or trust company, doing business in corporate form, organized under the laws of the United States or any State thereof and is supervised and examined by State or Federal authorities having supervision over banks or trust companies;
- as escrow agent, it has on deposit in the United States for the account of ________________________ (the "Customer"), in form to constitute good delivery under the rules of The Options Clearing Corporation (the "OCC"), the securities that underlie the option contract(s) described below or other securities which are immediately convertible into or exchangeable for such securities without the payment of money (which right to convert or exchange does not expire on or before the expiration date of the option contract(s) described below), such deposited securities being hereinafter referred to as the Deposited Securities; and
- the Bank has received specific authorization from the Customer to issue this escrow agreement and to hold the Deposited Securities pursuant to the provisions hereof, in respect of the Customer's position (the "short position") as a writer of the following option contract(s):
| Trade Date: | Underlying Securities: | |||
| Options Series | ||||
| Expiration | Aggregate Exercise Price | |||
| Number of Contracts | Option Type | Month | Year | Per Contact |
| Call | ||||
The Bank represents and covenants that, in consideration of your carrying the above described option contract(s) "short" in the account of the Customer on your books, it will maintain the Deposited Securities (or other securities satisfying the definition of Deposited Securities set forth above, which other securities, upon deposit with the Bank, shall be included within the term Deposited Securities as hereinafter referred to) for your benefit in an account segregated on its books, separate and apart from all other accounts held by it, and will not subject nor consent to the Customer subjecting the Deposited Securities or any portion thereof to any lien or encumbrance, or cause or permit the Deposited Securities or any portion thereof to be applied to or used in satisfaction of any claim by the Bank (in any capacity whatsoever) against the Customer or any other person or entity or used by the Bank as an offset in whole or in part in any manner whatsoever. The Bank will use its best efforts to promptly notify you if any notice of lien, levy, court order, or other process that may or purports to affect the Deposited Securities or any portion thereof is served upon it.
The Bank agrees that it will hold the Deposited Securities in accordance with the terms hereof until this escrow agreement is released or the Bank is directed to make delivery as hereinafter provided.
Upon the presentation of this escrow agreement to the Bank at the address shown above, with the Endorsement of Release below that, in the Bank’s reasonable belief has been duly executed on your behalf, the Bank may release the Deposited Securities held pursuant to this escrow agreement to the Customer.
Upon presentation of this escrow agreement to the Bank at the address shown above, with the Payment Order below that, in the Bank's reasonable belief has been duly executed on your behalf, and delivery to the Bank of an amount equal to the product of (a) the aggregate exercise price per contract described above, times (b) the number of option contracts described above, minus all applicable commissions and other charges due you, the Bank will deliver the Deposited Securities to you for the account of the Customer.
In the event of any cash or stock dividend, interest payment, stock distribution, stock split, rights offering, distribution, reorganization, recapitalization or reclassification, or other similar event affecting the securities underlying the above-described option contract(s), the amount to be paid by you to the Bank and/or the securities or other property to be delivered by the Bank to you shall be adjusted as may be required by the OCC.
The Bank has been authorized by the Customer to confirm the Customer's understanding that if the short position described above is closed out, it is the Customer's responsibility to ensure that this escrow agreement is released by you, and until this escrow agreement is so released, you shall retain the right to demand delivery of the Deposited Securities as herein provided upon the assignment of an exercise notice to any short position in a series of options identified above carried in the Customer's account.
If the Customer is the Bank acting in a fiduciary or similar capacity, or is a trust, custodial, or similar account maintained with the Bank, it is nonetheless understood that in issuing this escrow agreement and functioning as escrowee and bailee of the Deposited Securities, the Bank is acting in its general capacity. Nothing herein shall be deemed to require the Bank to make delivery in contravention of any court order or judgment binding on the Bank in its capacity as escrowee and bailee hereunder, which on its face affects the Deposited Securities or the proceeds thereof.
Bank______________________________________________________
| By_______________________________ | Date_____________________ |
| (Authorized Signature) |
ENDORSEMENT OF RELEASE (to be completed by the Broker-Dealer)
The undersigned hereby releases all rights of the undersigned with respect to this Escrow Agreement.
| ______________________________________________________ |
| (Broker-Dealer) |
| By_______________________________ | Date_____________________ |
PAYMENT ORDER (to be completed by the Broker-Dealer)
The undersigned hereby (1) certifies to the above-named Bank that an exercise notice filed with The Options Clearing Corporation has been assigned to the short position of the undersigned which includes the option contract(s) described above, (2) delivers to the Bank an amount equal to the product of (a) the aggregate exercise price per contract described above, times (b) the number of option contracts described above, minus all applicable commissions and other charges due the undersigned, and (3) demands delivery of the Deposited Securities sufficient to permit the undersigned to settle such assignment.
| ______________________________________________________ |
| (Broker-Dealer) |
| By_______________________________ | Date_____________________ |
4210(f)(2)(I)(iv)/EXHIBIT III MARKET INDEX ESCROW AGREEMENT (PUT)
[Bank Letterhead]
____________________________
(Date)
To: ____________________________
(Broker-Dealer Name)
The undersigned (the "Bank") having an office located at________________________ hereby certifies and warrants that:
- it is a bank or trust company, doing business in corporate form, organized under the laws of the United States or any State thereof and is supervised and examined by State or Federal authorities having supervision over banks or trust companies;
- as escrow agent, it has on deposit in the United States for the account of _________________________(the "Customer"), cash or cash equivalents meeting the requirements of Section 220.8(a)(4)(i) of Regulation T of the Board of Governors of the Federal Reserve System (the "Deposit") having an aggregate market value not less than $____________(valuing cash equivalents at face value), which amount equals the product obtained by multiplying (a) the "aggregate exercise price," as that term is hereinafter defined, of each market index option contract referred to below by (b) the number of such contracts referred to below; and
- the Bank has received specific authorization from the Customer to issue this escrow agreement and to hold the Deposit pursuant to the provisions hereof, in respect of the Customer's position (the "short position") as a writer of the following market index option contract(s):
| Trade Date: | Underlying Securities: | |||
| Options Series | ||||
| Expiration | Aggregate Exercise Price | |||
| Number of Contracts | Option Type | Month | Year | Per Contact |
| Put | ||||
The Bank represents and covenants that, in consideration of your carrying the above described market index option contract(s) "short" in the account of the Customer on your books, it will maintain the Deposit for your benefit in an account segregated on its books, separate and apart from all other accounts held by it, and will not subject nor consent to the Customer subjecting the Deposit or any portion thereof to any lien or encumbrance, or cause or permit the Deposit or any portion thereof to be applied to or used in satisfaction of any claim by the Bank (in any capacity whatsoever) against the Customer or any other person or entity or used by the Bank as an offset in whole or in part in any manner whatsoever. The Bank will use its best efforts to promptly notify you if any notice of lien, levy, court order, or other process that may or purports to affect the Deposit or any portion thereof is served upon it.
The Customer shall have the right from time to time to deposit with the Bank, as escrow agent to be held by the Bank hereunder and subject to all of the provisions hereof, cash or cash equivalents and thereupon to withdraw from the Deposit cash or cash equivalents which have an aggregate market value of the cash or cash equivalents so deposited (valuing cash equivalents at face value), provided, however, that the aggregate market value of the Deposit immediately after such deposit and withdrawal shall not be less than the aggregate market value of the Deposit immediately prior to such events.
The Bank agrees that it will hold the Deposit in accordance with the terms hereof until this escrow agreement is released or the Bank is directed to make payment as hereinafter provided.
Upon presentation of this escrow agreement to the Bank at the address shown above, with the Endorsement of Release below that, in the Bank's reasonable belief, has been duly executed on your behalf, the Bank may release the Deposit held pursuant to this escrow agreement to the Customer.
Upon presentation of this escrow agreement to the Bank at the address shown above, with the Payment Order below that, in the Bank's reasonable belief, has been duly executed on your behalf, the Bank will pay you, out of the Deposit or the proceeds thereof, the exercise settlement amount as to each of the market index option contracts described above, which, as to each such contract, shall be the amount by which the "aggregate exercise price" of such contract is greater than the "aggregate current index value" of the underlying index (as those quoted terms are defined in the pertinent By-Laws of The Options Clearing Corporation), plus all applicable commissions and other charges due you.
The Bank has been authorized by the Customer to confirm the Customer's understanding that if the short position described above is closed out, it is the Customer's responsibility to ensure that this escrow agreement is released by you, and until this escrow agreement is so released, you shall retain the right to demand payment upon the assignment of an exercise notice to any short position in a series of options identified above carried in the Customer's account.
If the Customer is the Bank acting in a fiduciary or similar capacity, or is a trust, custodial, or similar account maintained with the Bank, it is nonetheless understood that in issuing this escrow agreement and functioning as escrowee and bailee of the Deposit, the Bank is acting in its general capacity. Nothing herein shall be deemed to require the Bank to make payment in contravention of any court order or judgment binding on the Bank in its capacity as escrowee and bailee hereunder, which on its face affects the Deposit or the proceeds thereof.
Bank______________________________________________________
| By_______________________________ | Date_____________________ |
| (Authorized Signature) |
ENDORSEMENT OF RELEASE (to be completed by the Broker-Dealer)
The undersigned hereby releases all rights of the undersigned with respect to this Market Index Escrow Agreement.
| ______________________________________________________ |
| (Broker-Dealer) |
| By_______________________________ | Date_____________________ |
PAYMENT ORDER (to be completed by the Broker-Dealer)
The undersigned hereby (1) certifies to the above-named Bank that an exercise notice filed with The Options Clearing Corporation has been assigned to the short portion of the undersigned which includes the option market index contract(s) described above and (2) demands payment that will settle such assignment, plus applicable commissions and other charges due, in the amount of $ _____________.
| ______________________________________________________ |
| (Broker-Dealer) |
| By_______________________________ | Date_____________________ |
4210(f)(2)(I)(iv)/EXHIBIT IV MARKET INDEX ESCROW AGREEMENT (CALL)
[Bank Letterhead]
____________________________
(Date)
To: ____________________________
(Broker-Dealer Name)
The undersigned (the "Bank") having an office located at________________________ hereby certifies and warrants that:
- it is a bank or trust company, doing business in corporate form, organized under the laws of the United States or any State thereof and is supervised and examined by State or Federal authorities having supervision over banks or trust companies;
- as escrow agent, it has on deposit in the United States for the account of _____________________________________________________(the “Customer”), (a) cash, (b) cash equivalents meeting the requirements of Regulation T of the Board of Governors of the Federal Reserve System, (c) one or more qualified securities as defined in FINRA Rule 4210(f)(2)(I)(iv), or (d) any combination thereof (the “Deposit”);
- the aggregate market value of the Deposit, computed as of the close of business on the trade date referred to below (valuing cash equivalents at face value and qualified securities at their last sale price, as reported on such trade date pursuant to an effective transaction reporting plan as defined in Rule 600 of SEC Regulation NMS or their last bid price, if not subject to last sale reporting) was not less than the aggregate current index value set forth in the table below;
- to the extent the Deposit includes securities such securities are in good deliverable form or the Bank has the unrestricted power to put such securities into good deliverable form, in accordance with the requirements of the primary market for such securities and the Customer has duly authorized the Bank to liquidate such securities to the extent necessary to perform the Bank’s obligations thereunder; and
- the Bank has received written affirmation from the Customer that all index call options covered by this escrow agreement are written against a diversified stock portfolio and has also received specific authorization from the Customer to issue this escrow agreement and to hold the Deposit pursuant to the provisions hereof, in respect of the Customer’s position (the “short position”) as a writer of the over-the-counter call option contract on the underlying index referred to below
| Trade Date: | Expiration Date: | Underlying Index: | ||
| Aggregate | ||||
| Number of | Current Index | Index | ||
| Contracts | Option Type | Value | Multiplier | Exercise Price |
| Call | $ |
The Bank represents and covenants that, in consideration of Broker-Dealer carrying the above described index option contract(s) ‘short’ in the account of the Customer on Broker-Dealer’s books, it will maintain the Deposit for Broker-Dealer’s benefit in an account segregated on its books, separate and apart from all other accounts held by it, and will not subject nor consent to the Customer subjecting the Deposit or any portion thereof to any lien or encumbrance, or cause or permit the Deposit in any portion thereof to be applied to or used in satisfaction of any claim by the Bank (in any capacity whatsoever) against the Customer or any other person or entity or used by the Bank as an offset in whole or part in any manner whatsoever. The Bank will use its best efforts to promptly notify Broker-Dealer if any notice of lien, levy, court order, or other process that may or purports to affect the Deposit or any portion thereof is served upon it.
The Customer shall have the right from time to time to deposit with the Bank, as escrow agent to be held by the Bank hereunder the subject to all the provisions hereof, cash, cash equivalents, or qualified securities as described in clause (ii) above and thereupon to withdraw from the Deposit cash, cash equivalents, or qualified securities which have an aggregate market value not exceeding the market value of the cash, cash equivalents, or qualified securities so deposited, with the result that the aggregate market value of the Deposit immediately after such deposit and withdrawal shall not be less than the aggregate market value of the Deposit immediately prior to such events. For purposes of this paragraph, aggregate market value shall be determined in the manner indicated in clause (iii) above, except that qualified securities shall be valued as of the close of business on the preceding business day of the date of such deposit and withdrawal.
Upon the request of the Broker-Dealer, the Bank will promptly provide the Broker-Dealer with a written listing of the cash, cash equivalents, and/or qualified securities included in the Deposit. If at any time the current aggregate market value of the Deposit shall be less than the greater of either (a) 55% of the product of (A) the number of contracts indicated above and (B) the aggregate current index value of the underlying index determined on the immediately preceding business day (such product being the “Current Index Amount”) or (b) 130% of the aggregate Exercise Settlement Amount (as defined in FINRA Rule 4210(f)(2)(A)) of option contracts referred to herein, the Bank shall promptly notify the Broker-Dealer and the Customer in writing of such fact and request that the Customer supplement the Deposit. As used herein, the term “aggregate current index value” means the “current index value” as such term is defined by the By-Laws of The Options Clearing Corp., multiplied by the “Index Multiplier” in the above table.
If at any time the current aggregate market value of the Deposit shall at any time be less than the greater of either (x) 50% of the Current Index Amount or (y) 120% of the Exercise Settlement Amount of option contracts referred to herein, whether or not a request to the Customer for supplementation is then pending, the Bank will immediately advise the Broker-Dealer in writing thereof. For purposes of determining the market value of the Deposit, qualified securities shall be valued as the close of business on the preceding business day.
If any cash equivalent or qualified security shall cease to meet the requirements of clause (ii) above, such cash equivalents or qualified security shall be assigned no value for purposes of determining current aggregate market value pursuant to this paragraph.
The Bank agrees that it will hold the Deposit in accordance with the terms hereof until this escrow agreement is released or the Bank is directed to make delivery as hereinafter provided. Upon presentation of this escrow agreement to the Bank at the address shown above, with the Endorsement of Release below that, in the Bank’s reasonable belief, has been duly executed on Broker-Dealer’s behalf, the Bank may release the Deposit held pursuant to this escrow agreement to the Customer.
Upon presentation of this escrow agreement to the Bank at the address shown above, with the Payment Order below that, in the Bank’s reasonable belief, has been duly executed on Broker-Dealer’s behalf, the Bank will pay Broker-Dealer, out of the Deposit or the proceeds thereof, the Exercise Settlement Amount as to each of the market index option contracts described above, plus all applicable commissions and other charges due Broker-Dealer.
The Bank has been authorized by the Customer to confirm the Customer’s understanding that if the short position described above is closed out, it is the Customer’s responsibility to ensure that this escrow agreement is released by the Broker-Dealer, and until this escrow agreement is so released, the Broker-Dealer shall retain the right to demand payment upon the assignment of any Exercise Notice to any short position in a series of options identified above carried in the Customer’s account.
If the Customer is the Bank acting in a fiduciary or similar capacity, or is a trust, custodial, or similar account maintained with the Bank, it is nonetheless understood that in issuing this escrow agreement and functioning as escrowee and bailee of the Deposit, the Bank is acting in its general capacity. Nothing herein shall be deemed to require the Bank to make delivery in contravention of any count order or judgment binding on the Bank in its capacity as escrowee and bailee hereunder, which on its face affects the Deposit or the proceeds thereof.
Bank______________________________________________________
| By_______________________________ | Date_____________________ |
| (Authorized Signature) |
ENDORSEMENT OF RELEASE (to be completed by the Broker-Dealer)
The undersigned hereby releases all rights of the undersigned with respect to this Market Index Escrow Agreement.
| ______________________________________________________ |
| (Broker-Dealer) |
| By_______________________________ | Date_____________________ |
PAYMENT ORDER (to be completed by the Broker-Dealer)
The undersigned hereby (1) certifies to the above-named Bank that it has, as holder, exercised the call option contracts referred to above and (2) demands payment that will settle such exercise, plus applicable commissions and other charges due, in the amount of $__________________.
| ______________________________________________________ |
| (Broker-Dealer) |
| By_______________________________ | Date_____________________ |
4210(f)(2)(K)(ii)c./01 Specialists’ or Market Makers’ Option Hedging
Transactions in options effected by a specialist or a market maker are deemed “market maker transactions”, and shall be subject to the margin requirements of this Rule 4210(f)(2)(K). Therefore, the amount of margin which the specialist or market maker must maintain with the clearing member may be determined by mutual agreement between the clearing member and the specialist or market maker. However, such an account may not be carried in a “deficit equity” position. The margin treatment under Rule 4210(f)(2)(K) may be applied when the clearing member does not carry the equity position(s) of the specialist or market maker.
4210(f)(3)(A)/01 Offsetting Position
When an account has a short position in a “when issued” security and the underlying security is held in a margin account, no margin need be required on the short position.
4210(f)(3)(A)/02 Marked-to-the-Market Gains and Losses
When calculating Regulation T or maintenance excess, any marked- to–the-market loss on a “when issued” position shall be added to the “when issued” requirement and any marked-to-the-market gain shall be subtracted. Any marked-to-the-market gain on a “when issued” position cannot be applied towards the margin requirement of any other unrelated security position. However, any marked-to-the- market gain can be applied to the margin requirement of any other open “when issued” position of the same issue.
4210(f)(3)(A)/03 Market Value — (Rescinded)
4210(f)(3)(B)(ii)/01 Offsetting Position
No margin need be obtained for contracts to sell “when issued” securities when the underlying security is held in a cash account or the member has been informed that the customer owns the underlying securities. Any sale based on ownership by the customer of the underlying security must be made in reliance upon an agreement accepted by the member in good faith that the customer will not dispose of the underlying security while the contract of sale remains outstanding and that upon consummation of the plan, the underlying security will be promptly deposited in the account and exchanged for the new security. Since the “when issued” sale may remain outstanding for a relatively long period of time, the member’s files should contain a written memorandum regarding the customer’s agreement.
4210(f)(5)/01 Foreign Currency Sub-Accounts — (Rescinded)
See Interpretation Rule 4210(f)(5)/03 and (c)(6)/15
4210(f)(5)/02 Separate Margin Accounts
Separate margin accounts may be carried for the same customer only as provided in Section 220.4(a)(2) of Regulation T. If the customer has consented that the money and securities in each of such accounts may be used to carry or pay any deficit in all such accounts, the margin to be maintained under this Rule may be determined on the net position of said accounts even though they are separate margin accounts for purposes of Regulation T.
This limitation does not apply to sub-accounts of a single margin account. See Interpretation /03 below.
4210(f)(5)/021 Portfolio Margin Accounts
Section 220.1(b)(3)(i) of Regulation T excludes portfolio margin accounts maintained in accordance with Rule 4210(g) from the scope of Regulation T. Accordingly, a portfolio margin account may be maintained as a separate margin account without regard to the limitation on separate margin accounts under Section 220.4(a)(2) of Regulation T. The consolidation of portfolio margin accounts is addressed by Rule 4210(g)(6).
4210(f)(5)/03 Margin Sub-Accounts
Although Regulation T limits the circumstances in which members may carry multiple margin accounts for the same customer (see Interpretation /02 above), a member may maintain separate sub-accounts of a single customer margin account, provided that:
- the customer has consented that the money and securities in each of such sub-accounts may be used to carry or pay any deficit in all such sub- accounts; and
- the member complies with the margin regulations (Regulation T and Rule 4210) as applied to the single margin account (i.e., to the combination of the separate sub-accounts).
A member that maintains multiple sub-accounts of a single customer margin account must implement procedures to combine positions and transactions in all of the sub-accounts where necessary to ensure compliance with Regulation T and Rule 4210, including, without limitation, in connection with:
- the determination of whether substantial additional margin must be required under Rule 4210(f)(1) and FINRA Interpretation /01 thereunder when the account contains a concentrated position in a security that, due to its size, may not be liquidated promptly; and
- the determination of whether a customer is a “pattern day trader” under Rule 4210(f)(8)(B)(ii) and the application of the other provisions of Rule 4210(f) (8)(B) in the event the customer is so classified.
4210(f)(6)/01 Fifteen Business Day Period
The fifteen business day period begins on the first business day that follows the date on which the margin deficiency occurred, not the day the member may have so notified the customer nor the fifth business day after the deficiency, when net capital charges were are required by SEA Rule 15c3-1(c)(2)(xii), provided that a bona fide margin call for the deficiency has been made.
4210(f)(6)/02 Requests for Additional Time
FINRA will only grant additional time upon written request filed in the Regulatory Extension (REX) system under reason code 068, which must fully explain the reason for the request. Where appropriate, the request should also explain how and when the deficiency is expected to be resolved and how the member will be adequately protected against credit and market risk until the deficiency is resolved. In general, FINRA will only consider those situations involving concentrations of a security which is difficult to liquidate, large volatile positions that would affect the market or price of the security and other similar conditions as the basis for approving a request for additional time.
See Extension Reason Codes for guidance.
4210(f)(6)/03 FINRA Oversight — (Rescinded)
4210(f)(7)/01 Liquidation
Members should have a complete understanding of how the customer intends to finance a margin transaction prior to execution of the transaction. If funds are not available in the account, margin is to be furnished by the deposit of cash or securities. If the customer intends to liquidate other securities to finance the transaction, that sale should take place at or before the time of the new transaction.
4210(f)(7)/02 Assignment of the Short Component of a Spread
If a customer receives a Regulation T margin call due to the assignment of a short option position that is part of a spread (as defined in Rule 4210(f)(2)(A)(xxxii)), the elimination or reduction of that margin call through the prompt exercise of a long option position that is part of that spread will not be considered to be meeting that margin call by liquidation for purposes of Rule 4210(f)(7).
4210(f)(7)/03 Making a Practice of Meeting Regulation T Margin Calls by Liquidation
As a general matter, a customer who satisfies not more than three Regulation T margin calls in a rolling 12-month period by the liquidation of positions in the account would not be considered to be “making a practice” of meeting Regulation T margin calls by liquidation.
4210(f)(7)/04 Liquidations in Error Accounts
An error account of an introducing broker-dealer or registered investment advisor shall not be subject to rule 4210(f)(7), provided such account is used exclusively for bona fide errors, and in which any position resulting from a bona fide error is promptly liquidated.
4210(f)(7)/05 Regulation T Margin Calls on Good Faith Securities
“Regulation T margin calls" include margin calls for the initial margin on new positions in good faith securities (equal to the FINRA maintenance requirement or any higher amount required by the broker in good faith).
4210(f)(8)/01 Special Initial Requirements
Any special initial margin requirements imposed by FINRA shall, without regard to the other provisions of this Rule, be imposed only on the day of a new transaction. Thereafter, the maintenance requirement will be applicable.
Equity in the margin account which is in excess of FINRA maintenance requirements may be used to satisfy special initial margin requirements. However, the credit balance in a customer’s Special Memorandum Account may not be used toward the margin required.
The required margin for any margin purchase or any short sale of special requirement securities must be in the account before any new order is accepted. It is not necessary to deposit more than the initial margin required on any new transaction or group of transactions on a given day.
4210(f)(8)/02 Exemptions
The special initial margin requirements will not apply to:
- purchases of stocks to cover existing short positions;
- accounts long that sell short against the box;
- puts, calls and other options held in accounts prior to the establishment of special margin requirements on the underlying security in accordance with this Rule (Note: Such options issued after the establishment of special margin requirements must be margined as though the potential security positions were established at that time.);
- transactions in cash accounts; and
- transactions in U.S. Government and Municipal obligations.
4210(f)(8)/03 In-the-Money Options
Transactions in in-the-money options as outlined under Interpretation Rule 4210(b)(4)/05 are exempt from special initial margin requirements.
4210(f)(8)(B)(i)/01 Approved Specialist or Approved Market-Maker
Transactions executed by an approved specialist or approved market-maker in accordance with Rule 4210(e)(5)(A) of this Rule, shall be exempt from the day trading requirements promulgated under Rule 4210. All other transactions executed by the specialist or market maker shall be subject to such day trading requirements.
4210(f)(8)(B)(i)/02 Omnibus Accounts
The omnibus credit account of a registered broker-dealer, which is carried and cleared by a member pursuant to section 220.7(f) of Regulation T, will not be subject to Rule 4210(f)(8)(B).
4210(f)(8)(B)(i)/03 Day Trading in Error Accounts
An error account of an introducing broker-dealer or registered investment advisor shall not be subject to Rule 4210(f)(8)(B), provided such account is used exclusively for bona fide errors, and in which any position resulting from a bona fide error is promptly liquidated.
4210(f)(8)(B)(i)/04 Spreads
If a short option component of a spread (as defined in Rule 4210(f)(2)(A)(xxxii)) is exercised against the customer, the customer may exercise a long option component of the spread on the same day to close out the resulting security position without being considered to have effected a day trade.
4210(f)(8)(B)(ii)/01 Multiple Purchases and Sales
If a customer enters an order to purchase a security and sells the same security within the same day, but for reasons beyond the customer’s control e.g., price, the purchase was executed in smaller blocks, it will be considered as one day trade. However, the member must be able to demonstrate that it was the customer’s intent to execute one day trade. This will also apply to when a customer enters a sale order and buys the same security within the same day. In addition, the trades would have to have been executed in sequential order.
One purchase and several subsequent sale transactions of the same security, where the sales were executed in sequential order within the same day, shall constitute one day trade. One sale and several subsequent purchases of the same security, where the purchases were executed in sequential order within the same day, shall also constitute one day trade.
4210(f)(8)(B)(ii)/02 Multiple Purchases and Sales – Alternative Method
Rather than counting day trades based on the number of transactions a customer executes to establish or increase a position that is liquidated on the same day (as set out in Interpretation /01) a member may instead count day trades based on the number of times during the day that the day trading customer changes its trading direction (i.e., changes from buying a particular security to selling it, or changes from selling a particular security to buying it).
Example A:
09:30 Buy 250 ABC
09:31 Buy 250 ABC
13:00 Sell 500 ABC
The customer has executed one day trade.
Example B:
09:30 Buy 100 ABC
09:31 Sell 100 ABC
09:32 Buy 100 ABC
13:00 Sell 100 ABC
The customer has executed two day trades.
Example C:
09:30 Buy 500 ABC
13:00 Sell 100 ABC
13:01 Sell 100 ABC
13:03 Sell 300 ABC
The customer has executed one day trade.
Example D:
09:30 Buy 250 ABC
09:31 Buy 300 ABC
13:01 Buy 100 ABC
13:02 Sell 150 ABC
13:03 Sell 175 ABC
The customer has executed one day trade.
Example E:
09:30 Buy 199 ABC
09:31 Buy 142 ABC
13:00 Sell 1 ABC
13:01 Buy 45 ABC
13:02 Sell 100 ABC
13:03 Sell 200 ABC
The customer has executed two day trades.
Example F:
09:30 Buy 200 ABC
09:30 Buy 100 XYZ
13:00 Sell 100 ABC
13:00 Sell 100 XYZ
The customer has executed two day trades
4210(f)(8)(B)(ii)/03 Terminating Pattern Day Trader Status
A customer that has been classified as a pattern day trader under Rule 4210(f)(8)(B)(ii) of this Rule is presumed to remain a pattern day trader. However, if a customer seeks to terminate its pattern day trader classification, a member may so accommodate such request after the member determines in good faith, as defined in Section 220.2 of Regulation T, that the customer will no longer engage in pattern day trading.
A member may, for example, base its good faith determination on providing the definition of pattern day trader to the customer and receiving a written certification from the customer that (1) the customer understands the definition of pattern day trading and (2) the customer will not engage in future pattern day trading.
As an alternative, a good faith determination that a customer will not engage in future pattern day trading may be based on the member’s application of technological restrictions on such customer’s trading activity that effectively prevent the customer from engaging in pattern day trading.
If, after a termination of pattern day trader status, a customer again engages in pattern day trading, such customer’s pattern day trader status may not be terminated absent extraordinary circumstances.
4210(f)(8)(B)(iii)/01 Day-Trading Buying Power
For a proprietary account of a registered broker-dealer subject to SEA Rule 15c3-1, “day-trading buying power” means the equity in the account at the close of business of the previous day, less any haircut requirement as prescribed in SEA Rule 15c3-1, multiplied by six, for transactions in equity securities.
4210(f)(8)(B)(iii)/02 Option Day Trade
Option day trades are subject to Rule 4210(f)(8)(B). For day trades executed in accounts of customers not deemed pattern day traders, the margin requirement is 100% of the premium on the “long” or “short” transaction, whichever occurred first.
If a customer is a pattern day trader, the day-trading transactions are treated as having created a naked short option position and, therefore, subject to the margin requirements as prescribed in Rule 4210(f)(2)(E). However, if the member can substantiate that the purchase side of the day trade took place prior to the sell side of the day trade, the margin required will be 100% of the premium on the “long” option. A written record of the time of each executed option transaction must be maintained to demonstrate that the purchase was prior to the sale. In addition, in a margin account that is not a portfolio margin account, if the option that was day traded was part of an intra-day hedge strategy currently recognized under Rule 4210(f), then the margin required will be 100% of the premium of the option transaction that was executed first. A written record of the time of each executed transaction must be maintained to demonstrate that an intra-day hedge strategy was created first.
4210(f)(8)(B)(iii)/03 “Time and Tick” and Aggregation
A member that has “time and tick” information for some, but not all, day trades in an account during a day may separately
- compute the special maintenance margin requirement on the day trades for which “time and tick” information is available, utilizing the highest (dollar amount) open position during that day, and
- compute the special maintenance margin requirement on the day trades for which “time and tick” information is not available,
and then add the results of these two computations to determine that day’s special maintenance margin requirement for that account.
4210(f)(8)(B)(iii)/04 Multiple Day-Trade Calls
When a customer has multiple day-trade calls outstanding, the customer can meet the calls by depositing the highest day-trade call amount.
4210(f)(8)(B)(iii)/05 Liquidation to Meet a Day-Trade Call
A customer may liquidate securities to satisfy a day-trade call; however, when doing so, only the maintenance margin requirement of the liquidated securities shall be credited toward meeting such call.
4210(f)(8)(B)(iii)/06 Option Spreads and Combinations as Day Trades
Option transactions executed to create an option spread, as defined under Rule 4210(f)(2)(A)(xxxii), or combination as described under Rule 4210(f)(2)(G)(i) and (ii), may be treated as one option transaction for the purpose of applying day trade requirements. Thus, only one day trade will be deemed to have occurred when all the components of a spread (“legs”) are, on the same day, opened through a single order and subsequently closed through a single order. In addition, a written record of the time of each executed option transaction must be maintained to substantiate that all the components of the option spread were established, and subsequently closed, contemporaneously. Absent such written record, each component must be treated as a separate day trade.
For a customer that is not a pattern day trader (as defined in Rule 4210(e)(8)(B)(ii)), the day trade requirement of the opening option spread transactions shall be 100% of the net dollar amount (debit or credit) of the opening option spread transaction executed first.
Non-Pattern Day Trader
Example A (Two-Legged Option Spread)
| 10:00 | Buy 1 XYZ Call Jan 40 @ $3.50 Sell 1 XYZ Call Jan 50 @ $1.00 Net Debit: $2.50 |
| 14:00 | Sell 1 XYZ Call Jan 40 @ $4.25 Buy 1 XYZ Call Jan 50 @ $1.25 Net Credit: $3.00 |
The day trade requirement for this option spread would be net debit of $250.
Pattern Day Trader
For a customer deemed a pattern day trader, the day trade requirement for option spreads shall be the higher margin requirement generated by either the opening or closing option spread transactions that constitute a day trade. However, if the member can substantiate that the opening option spread transaction had the lower requirement, then the day trade requirement shall be the margin requirement for that opening option spread transaction. A written record of the time of each executed option transaction must be maintained to substantiate that the spread with the lower requirement was executed first.
Example B (Two-Legged Option Spread) – Execution Time Unknown
| Time: N/A | Buy 1 XYZ Call Jan 40 @ $3.50 Sell 1 XYZ Call Jan 50 @ $1.00 Net Debit: $2.50 |
| Time: N/A | Sell 1 XYZ Call Jan 40 @ $4.25 Buy 1 XYZ Call Jan 50 @ $1.25 Net Credit: $3.00 |
The day trade requirement for this option spread would be based on the leg with the higher requirement as execution time is unknown and is assumed to be the opening transaction. Therefore, the day trade requirement is calculated as follows: ((50 – 40) x 100) – 300 = $700.
Example C (Two-Legged Option Spread) – Execution Time Known
| 10:00 | Buy 1 XYZ Call Jan 40 @ $3.50 Sell 1 XYZ Call Jan 50 @ $1.00 Net Debit: $2.50 |
| 14:00 | Sell 1 XYZ Call Jan 40 @ $4.25 Buy 1 XYZ Call Jan 50 @ $1.25 Net Credit: $3.00 |
As the member was able to substantiate that the option spread with the lower requirement was executed first, then the day trade requirement for this option spread transaction day trade would be the net debit of $250.
Example D (Butterfly Spread) - Execution Time Unknown
| Time: N/A | Buy 1 XYZ Call Jan 40 @ $3.50 Sell 1 XYZ Call Jan 50 @ $1.00 Sell 1 XYZ Call Jan 50 @ $1.00 Buy 1 XYZ Call Jan 60 @ $0.50 Net Debit: $2.00 |
| Time: N/A | Sell 1 XYZ Call Jan 40 @ $4.25 Buy 1 XYZ Call Jan 50 @ $1.25 Buy 1 XYZ Call Jan 50 @ $1.25 Sell 1 XYZ Call Jan 60 @ $0.75 Net Credit: $2.50 |
The day trade requirement for this option spread would be based on the leg with the higher requirement as execution time is unknown and is assumed to be the opening transaction. Therefore, the day trade requirement is calculated as follows: ((50 – 40) x 100) – 250 = $750.
Example E (Butterfly Spread) - Execution Time Known
| 10:00 | Buy 1 XYZ Call Jan 40 @ $3.50 Sell 1 XYZ Call Jan 50 @ $1.00 Sell 1 XYZ Call Jan 50 @ $1.00 Buy 1 XYZ Call Jan 60 @ $0.50 Net Debit: $2.00 |
| 14:00 | Sell 1 XYZ Call Jan 40 @ $4.25 Buy 1 XYZ Call Jan 50 @ $1.25 Buy 1 XYZ Call Jan 50 @ $1.25 Sell 1 XYZ Call Jan 60 @ $0.75 Net Credit: $2.50 |
As the member was able to substantiate that the option spread with the lower requirement was executed first, then the day trade requirement for this option spread transaction day trade would be $200.
4210(f)(8)(B)(iv)a./01 Minimum Equity Requirement
Members may use any settled and available funds, or any available market value from fully paid for securities, including option market value, money market mutual funds, held long in the customer’s cash account to satisfy the $25,000 minimum equity requirement, without moving the funds or securities to the margin account. The member must have adequate procedures in place in order to prevent the funds in the cash account from being used for other withdrawal purposes such as debit card and check withdrawals. Any funds, securities or money market mutual funds held in the cash account cannot be used for the calculation of day-trading buying power unless they have been moved to the margin account one business day prior to calculating the day-trading buying power. In the event money market mutual funds are to be moved to the margin account, members must adhere to Exchange Act Section 11(d)(1). In addition, for both minimum equity and day-trading buying power, members may use money market mutual funds provided the member has custody of the fund shares and the exclusive ability to liquidate the fund shares. Members shall not allow a pattern day trader to day trade until the minimum equity of $25,000 has been satisfied. When a pattern day trader’s account falls below the $25,000 minimum equity requirement, based on the previous business day’s close, the member must have procedures in place in order to prevent the pattern day trader from day trading. In addition, the $25,000 must be in the margin account or cash account one business day prior to resuming any day trading.
4210(f)(8)(B)(iv)d./01 Cash Available
Cash available means 100% of the maintenance excess (equity after maintenance margin is met). No “time and tick” calculations will be allowed for accounts on a 90-day day trading restriction.
4210(f)(8)(B)(iv)f./01 Deposit of Funds
Members may look to funds in a customer’s cash account to satisfy a day-trade call without moving the funds to the margin account.
This exception will only be permitted if the member has adequate procedures in place to prevent the circumvention of the two (2) day hold requirement on funds deposited into or held in that account i.e., the customer must be prohibited from using the funds for other withdrawal purposes such as debit card and check withdrawals relative to this balance while it is being used to satisfy the day- trade margin call. Funds deposited into the cash account within two business days prior to the creation of a day trade call, which the member can utilize to satisfy the day-trade call, are subject to the two-day holding period following the close of business on the day of deposit.
4210(f)(9)/01 90-Day Freeze
Customers that purchase securities in a cash account and sells them before payment is received, are to be placed on a restricted status for a period of 90 calendar days following the trade date or the payment period (as defined in Regulation T, Section 220.2) of the purchase. Unless funds sufficient to pay for a new purchase in full are in the account during this 90-day freeze, no security may be purchased for or sold to that customer in its cash account. When a member believes a restriction should be lifted, it may apply in writing for relief to the Credit Regulation Department at FINRA. Each application for a waiver of the 90-day freeze should be signed by an authorized person of the member and should contain the following information:
- the full name and address of the customer;
- the name and description of the security or securities involved, purchase and sale prices, and the respective dates of purchase and sale;
- a statement describing the circumstances upon which the request is made; and
- the date on which full payment for the purchase was received.
| Description of Offset | Security Underlying the Security Future | Initial Margin Requirement | Maintenance Margin Requirement | |
| (1) | "Long" security future (or basket of security futures representing each component of a narrow-based securities index) and "long" put option on the same underlying security (or index). | Individual stock or narrow-based security index. | 20 percent of the current market value of the "long" security future, plus pay for the "long" put in full. | The lower of: (1) 10 percent of the aggregate exercise price of the put plus the aggregate put out-of-the-money amount, if any; or (2) 20 percent of the current market value of the "long" security future. |
| (2) | "Short" security future (or basket of security futures representing each component of a narrow-based securities index) and "short" put option on the same underlying security (or index). | Individual stock or narrow-based security index. | 20 percent of the current market value of the "short" security future, plus the aggregate put in-the-money amount, if any. Proceeds from the put sale may be applied. | 20 percent of the current market value of the "short" security future, plus the aggregate put in-the-money amount, if any. |
| (3) | "Long" security future and "short" position in the same security (or securities basket) underlying the security future. | Individual stock or narrow-based security index. | The initial margin required under Regulation T for the "short" stock or stocks. | 5 percent of the current market value as defined in Regulation T of the stock or stocks underlying the security future. |
| (4) | "Long" security future (or basket of security futures representing each component of a narrow-based securities index) and "short" call option on the same underlying security (or index). | Individual stock or narrow-based security index. | 20 percent of the current market value of the "long" security future, plus the aggregate call in-the-money amount, if any. Proceeds from the call sale may be applied. | 20 percent of the current market value of the "long" security future, plus the aggregate call in-the-money amount, if any. |
| (5) | "Long" a basket of narrow-based security futures that together tracks a broad based index and "short" a broad-based security index call option contract on the same index. | Narrow-based security index. | 20 percent of the current market value of the "long" basket of narrow-based security futures, plus the aggregate call in-the-money amount, if any. Proceeds from the call sale may be applied. | 20 percent of the current market value of the "long" basket of narrow-based security futures, plus the aggregate call in-the-money amount, if any. |
| (6) | "Short" a basket of narrow-based security futures that together tracks a broad-based security index and "short" a broad-based security index put option contract on the same index. | Narrow-based security index. | 20 percent of the current market value of the "short" basket of narrow-based security futures, plus the aggregate put in-the-money amount, if any. Proceeds from the put sale may be applied. | 20 percent of the current market value of the "short" basket of narrow-based security futures, plus the aggregate put in-the-money amount, if any. |
| (7) | "Long" a basket of narrow-based security futures that together tracks a broad-based security index and "long" a broad-based security index put option contract on the same index. | Narrow-based security index. | 20 percent of the current market value of the long basket of narrow-based security futures, plus pay for the long put in full. | The lower of: (1) 10 percent of the aggregate exercise price of the put, plus the aggregate put out-of-the-money amount, if any; or (2) 20 percent of the current market value of the long basket of security futures. |
| (8) | "Short" a basket of narrow-based security futures that together tracks a broad-based security index and "long" a broad-based security index call option contract on the same index. | Narrow-based security index. | 20 percent of the current market value of the "short" basket of narrow-based security futures, plus pay for the "long" call in full. | The lower of: (1) 10 percent of the aggregate exercise price of the call, plus the aggregate call out-of-the-money amount, if any; or (2) 20 percent of the current market value of the "short" basket of security futures. |
| (9) | "Long" security future and "short" security future on the same underlying security (or index). | Individual stock or narrow-based security index. | The greater of: (1) 5 percent of the current market value of the "long" security future; or (2) 5 percent of the current market value of the "short" security future. | The greater of: (1) 5 percent of the current market value of the "long" security future; or (2) 5 percent of the current market value of the "short" security future. |
| (10) | "Long" security future, "long" put option and "short" call option. The "long" security future, "long" put and "short" call must be on the same underlying security and the put and call must have the same exercise price. (Conversion) | Individual stock or narrow-based security index. | 20 percent of the current market value of the "long" security future, plus the aggregate call in-the-money amount, if any, plus pay for the put in full. Proceeds from the call sale may be applied. | 10 percent of the aggregate exercise price, plus the aggregate call in-the-money amount, if any. |
| (11) | "Long" security future, "long" put option and "short" call option. The "long" security future, "long" put and "short" call must be on the same underlying security and the put exercise price must be below the call exercise price. (Collar) | Individual stock or narrow-based security index. | 20 percent of the current market value of the long security future, plus the aggregate call in-the-money amount, if any, plus pay for the put in full. Proceeds from call sale may be applied. | The lower of: (1) 10 percent of the aggregate exercise price of the put plus the aggregate put out-of-the-money amount, if any; or (2) 20 percent of the aggregate exercise price of the call, plus the aggregate call in-the-money amount, if any. |
| (12) | "Short" security future and "long" position in the same security (or securities basket) underlying the security future. | Individual stock or narrow-based security index. | The initial margin required under Regulation T for the "long" security or securities. | 5 percent of the current market value, as defined in Regulation T, of the long stock or stocks. |
| (13) | "Short" security future and "long" position in a security immediately convertible into the same security underlying the security future, without restriction, including the payment of money. | Individual stock or narrow-based security index. | The initial margin required under Regulation T for the "long" security or securities. | 10 percent of the current market value, as defined in Regulation T, of the long stock or stocks. |
| (14) | "Short" security future (or basket of security futures representing each component of a narrow-based securities index) and "long" call option or warrant on the same underlying security (or index). | Individual stock or narrow-based security index. | 20 percent of the current market value of the short security future, plus pay for the call in full. | The lower of: (1) 10 percent of the aggregate exercise price of the put plus the aggregate put out-of-the-money amount, if any; or (2) 20 percent of the current market value of the short security future. |
| (15) | "Short" security future, "short" put option and "long" call option. The "short" security future, "short" put and "long" call must be on the same underlying security and the put and call must have the same exercise price. (Reverse Conversion) | Individual stock or narrow-based security index. | 20 percent of the current market value of the "short" security future, plus the aggregate put in-the-money amount, if any, plus pay for the call in full. Proceeds from put sale may be applied. | 10 percent of the aggregate exercise price, plus the aggregate put in-the-money amount, if any. |
| (16) | "Long" ("short") a security future and short ("long") an identical1 security future traded on a different market. | Individual stock and narrow-based security index. | The greater of: (1) 3 percent of the current market value of the "long" security future(s); or (2) 3 percent of the current market value of the short security future(s). | The greater of: (1) 3 percent of the current market value of the "long" security future(s); or (2) 3 percent of the current market value of the "short" security future(s). |
| (17) | "Long" ("short") a basket of security futures that together tracks a narrow-based index and "short" ("long") a narrow-based index future. | Individual stock and narrow-based security index. | The greater of: (1) 5 percent of the current market value of the "long" security future(s); or (2) 5 percent of the current market value of the "short" security future(s). | The greater of: (1) 5 percent of the current market value of the "long" security future(s); or (2) 5 percent of the current market value of the "short" security future(s). |
4210(g)(1)(C)/01 Intra-Day Monitoring
Although an introducing broker-dealer may have the capability to monitor accounts intra-day, the clearing broker-dealer is ultimately responsible for monitoring the accounts of the introducing broker-dealer and cannot solely rely on the introducing broker-dealer's intra-day monitoring.
4210(g)(1)(C)/02 Trades Executed Away
In accounts where trades are executed away (e.g., prime brokerage accounts), FINRA members should attempt to obtain real-time drop copies of the trades and analyze such accounts at least once per day, after the markets close. Members should also include in their intraday monitoring process any other real-time account activity, such as cash deposits and withdrawals, deliveries and receipts of securities, check writing activity, debit card activity, etc.
4210(g)(1)(E)/01 Schedule of Audit
Members that are approved for portfolio margin must conduct an audit review of all of their portfolio margin policies and procedures within the first year after opening their first portfolio margin account. A member’s regular audit schedule can be resumed thereafter.
4210(g)(1)(I)/01 Concentrated Positions
Members must have procedures that describe the identification and monitoring of concentrated positions within individual portfolio margin accounts and across all portfolio margin accounts, including what department is responsible for the daily monitoring of such positions, what the escalation procedures are, and a detailed description of what additional margin requirements, if any, are applied to concentrated positions.
4210(g)(1)(I)/02 Higher House Margin on Concentrated Positions
Members’ procedures for positions that;
- represent of a relatively large amount of the overall exposure market within individual portfolio margin accounts;
- either individually or when aggregated by accounts under common control, represent a relatively large exposure to an issuer’s market capitalization or daily trading volume;
should include higher house margin requirements on those positions.
4210(g)(2)(F) The term "theoretical gains and losses" means the gain and loss in the value of individual eligible products and related instruments at ten equidistant intervals (valuation points) ranging from an assumed movement (both up and down) in the current market value of the underlying instrument. The magnitude of the valuation point range shall be as follows:
| Portfolio Type | Up / Down Market Move (High & Low Valuation Points) |
| High Capitalization, Broad-based Market Index2 | +6% / -8% |
| Non-High Capitalization, Broad-based Market Index3 | +/- 10% |
| Any other eligible product that is, or is based on, an equity security or a narrow-based index | +/- 15% |
4210(g)(4)(A)/01 Omnibus Credit Accounts
Portfolio margin can be applied to omnibus credit accounts maintained for another registered broker-dealer (an “omnibus member”) in accordance with Section 220.7(f) of Regulation T, provided that such account contains only the positions of portfolio margin customers of the omnibus member. In this case, both the omnibus member and the broker-dealer carrying the omnibus account must be approved for portfolio margin. Both broker-dealers would have to submit an application to FINRA, subject to FINRA’s review and approval process. Portfolio margin customers of the omnibus broker-dealer would be subject to the provisions of Rule 4210(g).
4210(g)(4)(C)/01 Uncovered Option Approval
To qualify for portfolio margin, the account of a registered broker-dealer or futures commission merchant does not need to be approved for uncovered short options. In addition, customers that cannot trade options because they are not legally permitted to do so need not be approved for uncovered options. However, FINRA expects members to continue to exercise due diligence when reviewing these customers to ensure that they possess a level of trading experience and sophistication equivalent to that required for uncovered short options approval. Members that have not documented their procedures for approving these customers in their portfolio margin applications must amend their application to document those procedures before opening portfolio margin accounts for customers who have not been approved for uncovered options.
4210(g)(4)(C)/02 Minimum Equity
Customers may not use collateral held at a foreign affiliate for minimum equity purposes. A customer can only use collateral held at an affiliate that is governed by the SEC or the CFTC. For example, an account held at a bank affiliate cannot be considered for the purposes of meeting the minimum equity requirement.
4210(g)(6)(B)(i)a./01 Non-Marginable Equity Security — (Rescinded)
4210(g)(6)(B)(i)a./02 Equity Security — (Rescinded)
4210(g)(6)(B)(i)d./01 Unlisted Derivative
An unlisted derivative that has a non-margin equity security as its underlier is not eligible for portfolio margin.
4210(g)(6)(B)(i)e./01 Margin Eligible Warrants
Exchange-traded warrants (and other warrants that qualify as margin equity securities) are eligible for portfolio margin if they are included in an approved theoretical pricing model. Warrants that qualify as margin equity securities, but are not included in an approved theoretical pricing model, may be carried in a portfolio margin account provided that the member applies the applicable strategy-based margin requirements of Rule 4210 to those positions.
4210(g)(8)(E)/01 Convertible Bonds
Debt securities convertible into margin equity securities are margin equity securities and therefore portfolio margin eligible products. To compute the margin requirement on a portfolio that includes such debt securities:
- Calculate the theoretical gains and losses and offsets as described above on the assumption that the debt securities have been converted into the margin equity securities; and
- Increase the margin requirement by 15% of the excess (if any) of
- the value of the convertible debt securities (plus any payment that would be required to effect the conversion), over
- the value of the margin equity securities into which the securities are convertible.
4210(g)(8)(E)/02 Baskets
The margin requirement for baskets will be equal to the haircuts required in SEA Rule 15c3-1, Appendix A, provided the basket meets the definition of a qualified stock basket, pursuant to SEA Rule 15c3-1a(b)(1)(D) and the capitalization requirements are met.
4210(g)(10)(A)/01 Satisfaction of Portfolio Margin Deficiency
If a customer has a strategy-based margin account and a portfolio margin account with the same legal name and tax ID, collateral does not have to be transferred from the strategy-based margin account to satisfy a margin deficiency in the portfolio margin account. As long as the strategy-based margin account has sufficient maintenance excess, the margin deficiency in the portfolio margin account can be considered satisfied. However, the Special Memorandum Account (SMA) in the strategy-based margin account must be reduced by the amount of the portfolio margin deficiency in order to prevent a customer from utilizing the available excess for additional transactions in the strategy-based margin account. In the event a customer has an account directly with a clearing and carrying member, and another account with an introducing broker-dealer that clears through the same carrying and clearing member, then funds and/or securities must be transferred between the two accounts.
4210(g)(10)(A)/02 House Margin Deficiency
The “margin required” for purposes of Rule 4210(g)(10) is the margin required by Rule 4210(g)(7) (including the margin required by Rule 4210(g)(7)(D) or (E) for positions in portfolio margin accounts that are not portfolio margin eligible products). A portfolio margin account that contains the equity required by Rule 4210(g)(7) does not have a portfolio margin deficiency, even if the account has less equity than the “house margin” required by the member's portfolio margin procedures. Members, however, must maintain and follow procedures for the effective enforcement of their house margin requirements.
4210(g)(10)(B)/01 Capital Charge Timing
A capital charge required by Rule 4210(g)(10(B) shall be taken as of the close of business on the next business day after the portfolio margin deficiency arises. For example, if a portfolio margin deficiency arises on a Monday and is not eliminated by the close of business on the next business day (Tuesday), then a capital charge for such deficiency would be taken as of the close of business on Tuesday.
4210(g)(10)(D)/01 Requests for Additional Time
FINRA will only grant additional time upon written request filed in the Regulatory Extension (REX) system under reason code 069, which must fully explain the reason for the request, . Where appropriate, the request should also explain how and when the deficiency is expected to be resolved and how the member will be adequately protected against credit and market risk until the deficiency is resolved. In general, FINRA will only consider those situations involving concentrations of a security which is difficult to liquidate, large volatile positions that would affect the market or price of the security and other similar conditions as the basis for approving a request for additional time.
See Extension Reason Codes for guidance.
4210(g)(10)(E)/01 Adverse Market Movements
Members that cannot distinguish between adverse market movements and new transactions should take a conservative view and consider all margin deficiencies as resulting from the account holder's trading activities.
4210(g)(10)(E)/02 Practice of Liquidating
If a customer has three liquidations within a rolling 12-month period, FINRA expects the member to restrict the account to funds on hand for 90 calendar days. However, if upon internal review the member does not restrict an account after the third liquidation, then a waiver of the restriction must be granted, in writing, by two officers of the member and maintained for audit purposes. Members should also be aware that granting waivers as a practice may be regarded as a circumvention of FINRA rules.
4210(g)(10)(E)/03 Intra-Day Liquidation
If a member captures a margin deficiency intra-day, and the customer executes a risk-reducing transaction and eliminates the deficiency intra- day, the risk-reducing transaction is not considered a liquidation.
4210(g)(12)(A)/01 Portfolio Margin Requirements
The “portfolio margin requirements” aggregated for purposes of Rule 4210(g)(12) are the amounts of margin required by Rule 4210(g)(7)(A) or (B) on portfolio margin eligible products (including portfolio margin eligible products, such as foreign margin stock, that are not included in the OCC’s TIMS files) in the member’s portfolio margin accounts. They do not include the margin requirements under Rule 4210(g)(7)(D) or (E) for positions in portfolio margin accounts that are not portfolio margin eligible products, nor do they include any “house” margin requirements in excess of the margin requirements under Rule 4210(g)(7).
4210(g)(13)/01 Equity Less than $5 Million
If a portfolio margin account has less than $5 million in equity, day trading can still occur, provided the member has the ability to apply the appropriate day trading requirements promulgated under Rule 4210(f)(8). If the securities subject to day trading are a part of a hedge strategy, then FINRA does not consider the collective transactions as day trades and therefore it would not subject the customer to the day trading requirements. A "hedge strategy" for this purpose means a transaction or series of transactions that reduce or offset a material portion of the risk in a portfolio.
4210(g)(13)/02 Day Trading
For equity securities, the day trading requirement is 15 percent of the market value, calculated using the same methodology as in strategy-based margin accounts. The option day trade requirement for non-pattern day traders is 100 percent of the premium on the long or short transaction, whichever occurred first. For pattern day traders, if the member can substantiate that the purchase transaction took place prior to the sell transaction, then the day trade requirement is also 100 percent of the premium of the purchase transaction. Otherwise, members should apply the highest TIMS valuation point that is applicable to the short option involved in the day trade as the requirement. The highest valuation point shall be 8 percent of the underlying market value for high capitalization, broad-based market index options, 10 percent of the underlying market value for non-high capitalization, broad-based market index options, and 15 percent for equity options and narrow-based index options. However, the requirement shall not be less than the $37.50 per standard contract minimum.
In addition, when a portfolio margin customer, who is a pattern day trader, incurs a day trading call, its account is subject to the limitations imposed by Rule 4210(f)(8)(B)(iv)c. This action results in equal treatment for both strategy-based and portfolio margin pattern day trading customers who exceed their day-trading buying power. That is, a pattern day trading portfolio margin customer who has incurred a day trading call will have its buying power reduced to two times regulatory maintenance excess for equity securities and the customer will lose the ability to rely on time and tick. In addition, both pattern and non-pattern day trading customers should not make a practice of incurring day trading margin calls. FINRA staff has interpreted FINRA rules such that customers with more than three day trading calls within a rolling 12-month period should be restricted from exceeding their day-trading buying power for 90 days.
4210(g)(13)/03 Intra-Day Maintenance Excess
A member can use intraday maintenance excess to calculate day trading requirements provided the member has the intraday capability to re-price and recalculate the account to determine if there is sufficient excess equity in the account at the time an order is received, and to automatically block the order if there is insufficient excess equity.
• • • Supplementary Material: --------------
.01 The following tables are given to illustrate the method of computing the number of elapsed days in conformity with paragraph (f)(2)(A)(ii):
| On bonds (except bonds issued or guaranteed by the United States Government): |
| From 1st to 30th of the same month to be figured as 29 days |
| From 1st to 31st of the same month to be figured as 30 days |
| From 1st to 1st of the following month to be figured as 30 days. |
| Where interest is payable on 30th or 31st of the month: |
| From 30th or 31st to 1st of the following month to be figured as 1 day |
| From 30th or 31st to 30th of the following month to be figured as 30 days |
| From 30th or 31st to 31st of the following month to be figured as 30 days |
| From 30th or 31st to 1st of second following month, figured as 1 month, 1 day |
| On bonds issued or guaranteed by the United States Government: |
| From 15th of a 28-day month to the 15th of the following month is 28 days |
| From 15th of a 30-day month to the 15th of the following month is 30 days |
| From 15th of a 31-day month to the 15th of the following month is 31 days. |
| The six month's interest period ending: | |
| January 15 is 184 days | July 15 is 181* days |
| February 15 is 184 days | August 15 is 181* days |
| March 15 is 181* days | September 15 is 184 days |
| April 15 is 182* days | October 15 is 183 days |
| May 15 is 181* days | November 15 is 184 days |
| June 15 is 182* days | December 15 is 183 days |
.02 Guaranteed. For purposes of paragraph (e)(2)(H) of this Rule, a member is deemed to have “guaranteed” a transaction if such member has become liable for the performance of either party’s obligations under such transaction.
.03 Risk Limit Determination.
For purposes of any risk limit determination pursuant to paragraphs (e)(2)(F), (e)(2)(G) or (e)(2)(H) of this Rule:
.04 Reserved.
.05 Reserved.
.06 Good Faith Account. A Regulation T good faith account, other than a non-securities account, is a margin account for purposes of Rule 4210.