The Securities and Exchange Commission proposed amendments to a regulation that would lower the margin requirement for unhedged security futures from 20% to 15%. Additionally, the SEC proposed conforming revisions to its margin offset table to enable exchanges to set margin less than 20% for customers holding security futures and one or more related securities and futures. The SEC argued that such lower level of margin is defensible because there are exchange-traded options based on an equity security or narrow-based index where the required margin is 15% or less.

In March 2001, the Board of Governors of the Federal Reserve Board delegated its authority over security futures margin jointly to both the SEC and the Commodity Futures Trading Commission. In response, in 2002, the SEC and CFTC adopted their current margin requirements for brokers to collect from customers trading security futures. Because of the SEC’s and CFTC’s joint oversight of security futures, the SEC’s proposed amendment to its related margin requirements will not be published in the Federal Register until after an equivalent amendment is proposed by the CFTC – expected to happen on July 11. (Click here for information regarding a CFTC open meeting scheduled for July 11.)

SEC Commissioner Robert Jackson declined to support the SEC’s proposal because of the SEC’s failure to consider alternatives to its proposal and for not conducting a “serious economic analysis” of whether reduced margin might increase price discovery.