New Portfolio Margining Rules

Portfolio Margining Press Release Dated Dec. 13, 2006

CBOE Regulatory Circular Re: Portfolio Margining of Customer Accounts (Dated Dec. 15, 2006)

Margin Requirements Examples for Sample Options-based Positions. (A 2007 table providing comparisons of strategy-based and portfolio margin requirements for 38 different positions.)

The new portfolio margining rules have the effect of aligning the amount of margin money required to be held in a customer's account to the risk of the portfolio as a whole, calculated through simulating market moves up and down, and accounting for offsets between and among all products held in the account that are highly correlated (for example, options on the S&P 500 Index (SPX), can be offset against options on the S&P 500 Depositary Receipts (SPY), or options on DIAMONDS (DIA) can be offset against SPX options). The longstanding practice for strategy-based margins is to require margin based on set formulas for various strategies (i.e., some spread strategies require a certain minimum margin), regardless of what other offsetting positions were held in the account and regardless of potential market moves. For some positions the margin requirements may not change significantly, but for other positions, such as owning a protective put against a long stock position, the difference may be sizable. This is appropriate in that the margin calculation accounts for the fact that the risk of one position (long stock) is offset by the other (long put).

Expanded Portfolio Margining In 2007

The SEC has approved amendments to CBOE rules that allow for expanded portfolio margining for customer accounts. The new rules become effective in April 2007. Further details of the new portfolio margining rules can be found at www.cboe.org/legal (Rule Filing SR-CBOE-2006-014). Click here for examples comparing strategy and portfolio margining methodologies as of December 2006.

Changes for Portfolio Margining for Certain Index Options Approved in July 2005

In July 2005 the SEC approved new rules regarding portfolio margining for index options positions of certain customers.

The Options Clearing Corporation's Customer Portfolio Margin page has a link to an Online Position Editor.

This website is only a brief summary and should only serve as a supplement to careful review of relevant CBOE rules and federal securities laws dealing with margin requirements. The requirements explained here are based on publication date rules and regulations, and therefore, subject to change. This website should be used as a reference document and is not intended to be an all-encompassing restatement of Federal Reserve Board and Exchange margin rules. Brokerage firms may require customers to post higher margins than the minimum margins specified on this website. For more information on margin requirements for options, please contact CBOE's Department of Member Firm Regulation at (312) 786-7718. In addition please see the discussion of margins in the Characteristics and Risks of Standardized Options publication, Chapter 12 of the rules of the CBOE, and also the 41-page CBOE Margin Manual.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606. The information on this website is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in the website information. No statement within the website should be construed as a recommendation to buy or sell a security or to provide investment advice. The inclusion of non-CBOE advertisements on the website should not be construed as an endorsement or an indication of the value of any product, service, or website. The Terms and Conditions govern use of this website and use of this website will be deemed acceptance of those Terms and Conditions.