FINRA Proposes New Rule Regarding Margin Accounts (Rule 4210)

On May 31, 2012, FINRA filed a notice of the proposed rule change that would amend FINRA Rule 4210. Rule 4210 details the margin account requirements and collateral deposits required to be maintained. Specifically, the rule elucidates margin requirements for equity and fixed income securities, as well as options, warrants and futures.

The proposed rule change attempts to: (1) revise the definitions and margin treatment of option spread strategies; (2) clarify the maintenance margin requirement for non-margin eligible equity securities; (3) clarify the maintenance margin requirements for non-equity securities; (4) eliminate the current exemption from the free-riding prohibition for designated accounts; (5) conform the definition of “exempt account”; and (6) eliminate the requirement to stress test portfolio margin accounts in the aggregate. SEC Release No. 34-67088; File No. SR-FINRA-2012-024

Importantly, the proposed rule change broadens the current definition of option spread strategies  to include a “long” and “short” position in different call or put option series. Additionally, the Rule would require that “long” option contracts within such spreads be paid in full while the  margin for “short” options be the lesser of (a) 4210(f)(2)(E) or (b) the maximum potential loss.

For additional information about the proposed rule change or any other compliance questions please contact Andrew Deddeh at andrew.deddeh@corecls.com or (619) 278-0020.