Issue: Portfolio Margin is a margin methodology that sets margin requirements for an account based on the entirety of the account and results in a more efficient use of capital. In general, positions in index option class groups that are highly correlated may be netted against each other based on allowed percentage amounts to determine the overall profit/loss of an account. For example, in a securities portfolio margin account, cash-index options and exchange-traded funds within the same class groups may be netted to determine the overall profit/loss of the account as a whole at various assumed up and down market moves in the underlying. The greatest loss from among the assumed market moves, if any, is the margin requirement, subject to a per contract minimum. Also, some security-based swaps may be held in a futures account for portfolio margin purposes. Customers benefit from PM because margin requirements calculated on net risk are generally lower than alternative position or strategy based methodologies for determining margin requirements.
Currently, futures and securities options, including VIX® futures and VIX options cannot be held in either the same securities or futures account. However, the Dodd-Frank Act (DFA) amended various SEC and CFTC statutes to enable securities to be held in a futures account or futures to be held in a securities account. To give effect to these amendments, SEC and CFTC action is needed either in the form of an exemptive order or rule or regulation, and the SEC and CFTC together need to promulgate rules to ensure transactions and accounts are subject to comparable requirements to the extent practicable for similar products.
Our Position: CBOE advocates strongly for portfolio margining of index futures in a securities account. CBOE believes that the ability to hold index futures and securities in a single account, and for margin to be calculated based on the entirety of the account and not assessed separately by instrument would result in a more efficient use of customers' capital and help avoid liquidating transactions in times of market stress.
Additional Information: Read CBOE's Press Release on position margining rules. The DFA provides for portfolio margining. CBOE, in conjunction with The Options Clearing Corporation (OCC), plans to undertake an initiative to petition the CFTC to issue an exemptive order that would permit portfolio margining of VIX futures in a securities account.
CBOE believes that options users who utilize VIX futures would benefit from its initiative with the OCC.