|  | | 2006 News and Press Releases | | |
HEADLINE NEWS:
SEC Inches Toward Risk-Based Margin Requirements
Staff Writer – Investment Dealers Digest
Securities Mosaic. November 8, 2006
_________________________________________________________________________
EXCERPT: For years, options traders and hedge funds have been clamoring for the Securities and Exchange Commission to ease borrowing rules and sanction portfolio margining. Now that the SEC has begun making steps in that direction - moving away from the stringent strategy-based margin requirements - investors are pregnant with anticipation. "It's going to revolutionize the options industry," says Douglas Engman, a managing director at the Societe Generale-affiliated brokerage group Fimat and CEO of its trading platform Fimat Preferred. "This is the first big change to Regulation T in 50 years and by far the biggest change for hedge funds since the prime brokerage industry took off more than a decade ago." The current SEC guidelines tie margin levels to specific asset classes. Equities, exchange traded funds, options and other securities all have their own defined margin floors that can't be manipulated, regardless of what other holdings an investor may possess and how those holdings hedge other positions. Critics argue that under the current rules, margin levels don't accurately reflect the true risk and volatility of an investor's entire portfolio. This, in turn, squelches leverage and bottles up capital that could otherwise flow back into the market. The new rules being considered address these qualms, and though the rollout has been painstaking, progress is slowly being made. This past summer, the SEC greenlighted the first rule changes, which were championed by the New York Stock Exchange and the Chicago Board of Options Exchange. Phase One allows for risk-based margin models to be used for broad-based index options, corresponding exchange traded funds and also equity options. The next step, expected to spark more widespread enthusiasm, is when the commission opens the door to include underlying equities and over-the-counter derivatives. "This is what everyone has been waiting for," says Susan Milligan, general counsel at the Options Clearing Corp. Milligan, who's based in Washington DC, anticipates that the SEC will act on this next phase within weeks. |
|
|
