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When oh when will this ever get resolved ??!!#$* Everyone knows the CBOE
would be shaking in their boots if the margins for SSF went to 10%. Note the
politicking for 25% !!! That's BS.
Note: Love that word "Byzantine" below.
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DJ US Futures, Securities Groups Debate Stk Futures Margins
CHICAGO (Dow Jones)--Once again regulators are set to tackle one of the
most difficult, controversial and still unresolved aspects of securities
futures:
margins.
With the close of the public comment period on the issue Wednesday, the
Securities and Exchange Commission and the Commodity Futures Trading
Commission must now jointly sift through suggested changes to the proposed
rules
governing how much money investors have to put up and maintain before
trading these
new products.
Previously, negotiations over the rules allowing for the trading of these
new products were highlighted by turf battles between the SEC and CFTC over
whose rules would dominate and which regulator's approach would be better.
Now, various members of the investment community have joined in to ensure
no one gets an unfair advantage when the Byzantine and complicated margin
rules
from both the securities and futures worlds are brought together for the new
securities futures.
The Commodity Futures Modernization Act of 2000, which lifted the 19-year
ban on the trading of futures on individual stocks and narrowly based
securities
indexes, said margins for the new futures cannot be less than what currently
exists for comparable option products. That's typically 20% - though some
point out that the law never defines what "comparable" means.
In a joint letter to regulators from the Futures Industry Association and
the Securities Industry Association, the groups readily admit their members
"are
divided" on the margin issue.
Proponents of 20% margins, meaning investors would have to deposit 20% of
the market value of the underlying cash product before trading, say such a
level
has been envisioned in the law and is considered an adequate level of
minimum margin protection. After all, if a firm wants to raise the margin on
a
customer, it can.
But as the eleventh hour approached, there was a growing chorus calling
for 25% minimum initial and maintenance margin requirements.
This camp feels 20% is too low for prudent investor and firm risk
protection. In addition, they feel 20% is not consistent with the margin
requirements
applicable to listed stocks.
"These members believe that a 20% requirement fails to take account of the
varying volatility/share price profiles of equity securities and the credit
risk implications of these differences," said the FIA/SIA letter.
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