The SEC Wants to Lower Futures Minimum Margin Requirements

Proposition could have a substantial impact on the futures market.

The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission are inviting the public to comment on a new proposition that would set the minimum margin requirement for security futures at 15% of their respective current market values, down from 20%.

The current 20% requirement has been in place for almost 20 years. But recent changes to other financial products prompted the SEC to gauge whether lowering futures margins is appropriate.

“In light of lower margin requirements that have been established for comparable financial products and the resulting asymmetry, the commissions have determined that it is appropriate to re-examine the minimum margin required for security futures and are proposing an adjustment,” the agency said in a prepared statement.

A spokesperson for the SEC declined to elaborate on the agency’s thinking behind the move.

One primary motive for the adjustment, according to the SEC’s announcement, is to “further harmonize their regulatory regimes for the benefit of investors and the markets.”

The rule would establish a 15% minimum while allowing for higher margin requirements for particular instances.

“The joint margin regulations will continue to permit SROs and security futures intermediaries to establish higher margin levels and to take appropriate action to preserve their own financial integrity. The proposed minimum margin requirement of 15% would apply to an unhedged position in a security future, whether the position is held in a securities account or a futures account,” the proposed rule states.

The SEC is welcoming suggestions from the public on any risk-based margin methodologies they should use to prescribe margin requirements for security futures.

“The proposal highlights the ongoing collaboration between the two commissions and our progress in harmonization of our respective regulatory regimes,” said SEC Chairman Jay Clayton.

The proposed rule in its entirety is available to read here. In the document, the agencies discussed risk-related costs for security futures intermediaries and customers, a description of possible costs, and protection of market participants and the public.

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