On February 12, the National Association of Securities Dealers, Inc. filed with the Securities and Exchange Commission a rule change to amend Rule 2520 to permit members to extend initial and maintenance margin according to a prescribed portfolio margin methodology on a pilot basis. NASD also amended Rule 2860 to require that a disclosure statement and written acknowledgement for use with the proposed portfolio margin program be furnished to customers using a portfolio margin account. This rule change is substantially similar to the New York Stock Exchange and the Chicago Board Options Exchange portfolio margining rule amendments which were recently approved by the SEC (the NYSE and CBOE rule amendments were previously discussed in the December 15, 2006 edition of the Corporate and Financial Weekly Digest).
As proposed, Rule 2520 would, on a pilot basis starting on April 2, 2007, and ending July 31, 2007 allow members to elect to apply a portfolio margin methodology for initial and maintenance margin to all margin equity securities, listed options, security futures products, unlisted derivatives, warrants, index warrants and related instruments, provided that certain conditions are met.
In addition, a member that is a Futures Commission Merchant and is either a clearing member of a futures clearing organization or has an affiliate that is a clearing member of a futures clearing organization is permitted to combine an eligible participant’s related instruments with listed index options, unlisted derivatives, options on exchange traded funds, index warrants and underlying instruments, and compute a margin requirement for such combined products on a portfolio margin basis.