# SSFs Margin Requirements

## US SSF Margin Requirements

For residents of the United States trading SSFs:

• Rules-based margin
• Portfolio margin

The complete margin requirement details are listed in the sections below.

The following calculations apply only to Margin Accounts. See our Portfolio Margin section below for US SSFs requirements in a Portfolio Margin account. Note that for commodities including futures, single-stock futures and futures options, margin is the amount of cash a client must put up as collateral to support a futures contract. For securities, margin is the amount of cash a client borrows from the broker.

Note:

These formulas make use of the functions Maximum (x, y, ..), Minimum (x, y, ..) and If (x, y, z). The Maximum function returns the greatest value of all parameters separated by commas within the paranthesis. As an example, Maximum (500, 2000, 1500) would return the value 2000. The Minimum function returns the least value of all parameters separated by commas within the paranthesis. As an example, Minimum (500, 2000, 1500) would return the value of 500. The If function checks a condition and if true uses formula y and if false formula z. As an example If (20 < 0, 30, 60) would return the value 60.

### Long or Short SSF

 Margin Initial Margin 20% * SSF Market Value Maintenance Margin Same as initial margin.

Long and Short SSF with the same underlying.

 Margin Initial Margin Maximum ((5% * long SSF market value), (5% * short SSF value)) Maintenance Margin Same as initial margin.

### Protective SSF 1

Long SSF, short stock.

 Margin Initial Margin Short stock margin requirement Maintenance Margin 5% * Stock Market Value

### Covered SSF 1

Short SSF, long stock

 Margin Initial Margin Long stock margin requirement Maintenance Margin 5%*Stock Market Value

### Protective Call or Put SSF 1

Short SSF, long call or long SSF, long put

 Margin Initial Margin 20% * SSF market value Maintenance Margin Minimum ((10% * option strike price) + out of the money value, (20% * SSF market value))

### Covered Call or Put SSF 1

Long SSF and short call or short SSF and short put

 Margin Initial Margin In the money amount + 20% * SSF market value.Proceeds from the short option are applied. Maintenance Margin Same as initial margin.

### Collar SSF 1

Short call, long SSF, long put Strike (call) > Strike (put)

 Margin Initial Margin In the money amount of call + 20% * SSF market value. Proceeds from the short option are applied. Maintenance Margin Minimum (In the money amount of call + ((10%*Put Strike price) + out of the money amount of put), (20% * call option strike price))

### Conversion SSF 1

Short call, long put, long SSF Strike (call) = Strike (put)

 Margin Initial Margin In the money amount of call + 20% * SSF market value. Proceeds from the short option are applied. Maintenance Margin In the money amount of call + (10%*call and put strike price)

### Reverse Conversion SSF 1

Long call, short put, short SSF Strike (call) = Strike (put)

 Margin Initial Margin In the money amount of put + 20% * SSF market value. Proceeds from the short option are applied. Maintenance Margin In the money amount of put + (10% * call and put strike price)

## Overview of Pattern Day Trading ("PDT") Rules

FINRA and the NYSE have instituted regulations intended to limit the amount of trading that can be done in accounts with small amounts of capital, specifically accounts with less than USD 25,000 Net Liquidation Value. Pattern Day Trading rules will not apply to Portfolio Margin accounts.

Pattern

Pattern

Mon

Tues

Wed

Thurs

Fri

Sell XXZ
Sell ZZX
Sell YYZ
Sell YYZ
• Day Trade: any trade pair wherein a position in a security (Stocks, Stock and Index Options, Warrants, T-Bills, Bonds, or Single Stock Futures) is increased ("opened") and thereafter decreased ("closed") within the same trading session.
• Pattern Day Trader: someone who effects 4 or more Day Trades within a 5 business day period. A trader who executes 4 or more day trades in this time is deemed to be exhibiting a ‘pattern’ of day trading and is thereafter subject to the PDT restrictions.
• In order to day trade, the account must have at least USD 25,000 in Net Liquidation Value, where Net Liquidation Value includes cash, stocks, options, and futures P+L.
• The NYSE regulations state that if an account with less than USD 25,000 is flagged as a day trading account, the account must be frozen to prevent additional trades for a period of 90 days. We have created algorithms to prevent small accounts from being flagged as day trading accounts, to avoid triggering the 90 day freeze. We implement this by prohibiting the 4th opening transaction within 5 days if the account has less than USD 25,000 in equity.

The previous day's equity is recorded at the close of the previous day (4:15 PM ET). Previous day's equity must be at least USD 25,000. However, net deposits and withdrawals that brought the previous day's equity up to or greater than the required USD 25,000 after 4:15 PM ET on the previous trading day are handled as adjustments to the previous day's equity, so that on the next trading day, the customer is able to trade.

For example, suppose a new customer's deposit of USD 50,000 is received after the close of the trading day. Even though his previous day's equity was 0 at the close of the previous day, we handle the previous day's late deposit as an adjustment, and this customer's previous day equity is adjusted to USD 50,000 and he is able to trade on the first trading day. Without this adjustment, the customer's trades would be rejected on the first trading day based on the previous day's equity recorded at the close.

## Special Cases

• Accounts that at one time had more than USD 25,000, were identified as accounts with day trading activity, and thereafter the Net Liquidation Value in the account dropped below USD 25,000, may find themselves subject to the 90 day trading restriction. The restrictions can be lifted by increasing the equity in the account or following the release procedure located in the Day Trading FAQ section.
• The proceeds of an option exercise or assignment will count towards day trading activity as if the underlying had been traded directly. Deliveries from single stock futures or lapse of options are not considered part of a day trading activity.

Additional details relating to PDT regulations and our implementation of these rules can be found in the FAQ section.

FINRA and the NYSE define a Pattern Day Trader (PDT) as one who effects four or more day trades (same day opening and closing of a given equity security ("stock") or equity option) within a five business day period.

Note that Futures contracts and Futures Options are not included in the SEC Day Trade rule.

A potential pattern day trader error message means that an account has less than the SEC required USD 25,000 minimum Net Liquidation Value AND the number of available day trades (3) has already been used within the last five days.

The system is programmed to prohibit any further trades to be initiated in the account, regardless of the intent to day trade that position or not. The system is programmed to protect the accounts with less than USD 25,000 so the account would not "potentially" be flagged as a day trading account.

If an account receives the error message "potential pattern day trader", there is no PDT flag to remove. The account holder will need to wait for the five-day period to end before any new positions can be initiated in the account.

The customer has the following options:

1. Deposit funds to bring the account's equity up to the SEC required minimum of USD 25,000
2. Wait the required 90 day period before any new positions can be initiated
3. Request a PDT account reset

If the intraday situation occurs, the customer will immediately be prohibited from initiating any new positions. Customers should be able to close any existing positions in his account, but will not be allowed to initiate any new positions.

The customer will have the same options listed above, however, if at any time the Net Liquidation Value figure goes back above the threshold amount (USD 25,000), then the account will once again have unlimited day trades available.

FINRA has provided brokerage firms the ability to remove the PDT flag from a customer's account once every 180 days. If an account was erroneously flagged, and the customer's intent is not to day trade in his/her account, we have the ability to remove this flag. Once the PDT flag is removed, the customer will then be allowed three day trades every five business days. If an account gets re-flagged as a PDT account within 180 days after the reset, the customer then has the following options:

1. Deposit funds to bring the account's equity up to the SEC required minimum of USD 25,000
2. Wait the required 90 day period before any new positions can be initiated

FINRA and the NYSE define a Pattern Day Trader (PDT) as one who effects 4 or more day trades (same day purchase and sale of a given equity security ("stock") or equity option) within a five-day period, and NYSE and FINRA rules place certain restrictions on those who are deemed to be pattern day traders. If a customer account effects three (3) day trades involving stocks or equity options within any five (5) day period, we will require that such account satisfy the minimum Net Liquidation Value requirement of USD 25,000 before we will accept the next order to purchase or sell a stock or equity option. Once the account has effected a fourth day trade (in such 5 day period), we will deem the account to be a PDT account.

Pattern Day Trading regulations allow a broker to remove the PDT designation if the client acknowledges that she/he does not intend to engage in day trading strategies, and requests that the PDT designation be removed. If you wish to have the PDT designation for your account removed, provide us with the following information in a letter using the Customer Service Message Center in Account Management:

1. Provide the following acknowledgements:
• I do not intend to engage in a day trading strategy in my account.
• I hereby request that you the broker no longer designate my account as a "Pattern Day Trading" account under NYSE and FINRA rules.
• I understand that if, following this acknowledgement I engage in Pattern Day Trading, my account will be designated as a Pattern Day Trading" account, and you the broker will apply all applicable PDT rules to my account.
2. Log into Account Management, then click Message Center in the Support menu. Create a ticket in the Message Center, then paste the aforementioned acknowledgements, your account number, your name, and the statement "I agree" into the ticket form. Submit the ticket to Customer Service.

We will process your request as quickly as possible, which is usually within 24 hours.

For example, if the window reads (0,0,1,2,3), here is how to interpret this information:

If today was Wednesday, the first number within the parenthesis, 0, means that 0-day trades are available on Wednesday. The 2nd number in the parenthesis, 0, means that no day trades are available on Thursday. The 3rd number within the parenthesis, 1, means that on Friday 1-day trade is available. The 4th number within the parenthesis, 2, means that on Monday, if 1-day trade was not used on Friday, and then on Monday, the account would have 2-day trades available. The 5th number within the parenthesis, 3, means that if no day trades were used on either Friday or Monday, then on Tuesday, the account would have 3-day trades available.

## Portfolio Margin

Under SEC-approved Portfolio Margin rules and using our real-time margin system, our customers are able in certain cases to increase their leverage beyond Reg T margin requirements. For decades margin requirements for securities (stocks, options and single stock futures) accounts have been calculated under a Reg T rules-based policy. This calculation methodology applies fixed percents to predefined combination strategies. With Portfolio Margin, margin requirements are determined using a "risk-based" pricing model that calculates the largest potential loss of all positions in a product class or group across a range of underlying prices and volatilities. This model, known as the Theoretical Intermarket Margining System ("TIMS"), is applied each night to U.S. stocks, OCC stock and index options and U.S. single stock futures positions by the federally-chartered Options Clearing Corporation("OCC") and is disseminated by the OCC to participating brokerage firms each night. The minimum margin requirement in a Portfolio Margin account is static during the day because the OCC only disseminates the TIMS parameter requirements once per day.

However, Portfolio Margin compliance is updated by us throughout the day based on the real-time price of the equity positions in the Portfolio Margin account. Please note, at this time, Portfolio Margin is not available for U.S. commodities futures and futures options, U.S. bonds, Mutual Funds, or Forex positions, but U.S. regulatory bodies may consider inclusion of these products at a future date.

Portfolio or risk based margin has been utilized for many years in both commodities and many non-U.S. securities markets, with great success. Dependent upon the composition of the trading account, Portfolio Margin may require a lower margin than that required under Reg T rules, which translates to greater leverage. Trading with greater leverage involves greater risk of loss. There is also the possibility that, given a specific portfolio composed of positions considered as having higher risk, the requirement under Portfolio Margin may be higher than the requirement under Reg T. Part of the reasoning behind the creation of Portfolio Margin is that the margin requirements would more accurately reflect the actual risk of the positions in an account. Thus, it is possible that, in a highly concentrated account, a Portfolio Margin approach may result in higher margin requirements than under Reg T. One of the main goals of Portfolio Margin is to reflect the lower risk inherent in a balanced portfolio of hedged positions. Conversely, Portfolio Margin must assess proportionately larger margin for accounts with positions which represent a concentration in a relatively small number of stocks.

## Portfolio Margin Eligibility

Customers must meet the following eligibility requirements to open a Portfolio Margin account:

• An existing account must have at least USD 110,000 (or USD equivalent) in Net Liquidation Value to be eligible to upgrade to a Portfolio Margin account (in addition to being approved for uncovered option trading). Existing customers may apply for a Portfolio Margin account on the Account Type page in Account Management at any time and your account will be upgraded upon approval. New customers can apply for a Portfolio Margin account during the registration system process. It should be noted that if your account drops below USD 100,000 you will be restricted from doing any margin-increasing trades. Therefore if you do not intend to maintain at least USD 100,000 in your account, you should not apply for a Portfolio Margin account.
• New customer accounts requesting Portfolio Margin may take up to 2 business days (under normal business circumstances) to have this capability assigned after initial account approval. It should be noted that if your account is subsequently funded with less than USD 100,000 in Net Liquidation Value (or USD equivalent), you will be restricted from doing any margin-increasing trades until the Net Liquidation Value exceeds USD 100,000. Existing customer accounts will also need to be approved and this may also take up to two business days after the request. Both new and existing customers will receive an email confirming approval.
• Those institutions who wish to execute some trades away from us and use us as a prime broker will be required to maintain at least USD 6,000,000 (or USD equivalent).
• Customers in Canada are not eligible for Portfolio Margin accounts due to IDA restrictions. In addition, all Canadian stock, stock options, index options, European stock, and Asian stock positions will be calculated under standard rules-based margin rules so Portfolio Margin will not be available for these products.
• Non-U.S. Omnibus Broker (Long Position/Short Position) accounts are not eligible for Portfolio Margin accounts.
• Accounts reporting equity below the USD 100,000 minimum will be subject to a margin surcharge, the effect of which will be to gradually transition the account to margin levels approximating those of the Reg. T methodology as equity continues to decline.

## Portfolio Margin Mechanics

Under Portfolio Margin, trading accounts are broken into three component groups: Class groups, which are all positions with the same underlying; Product groups, which are closely related classes; and Portfolio groups, which are closely related products. Examples of classes would include IBM, SPX, and OEX. A product example would be a Broad Based Index composed of SPX, OEX, etc. A portfolio could include such products as Broad Based Indices, Growth Indices, Small Cap Indices, and FINRA Indices.

The portfolio margin calculation begins at the lowest level, the class. All positions with the same class are grouped and stressed (underlying price and implied volatility are changed) together with the following parameters:

• A standardized stress of the underlying.
• For stock, equity options, narrow based indices and single stock futures, the stress parameter is plus or minus 15%, with eight other points within that range.
• For U.S. market small caps and FINRA market indices the stress parameter is plus 10%, minus 10% as well as eight other points in-between.
• For Broad Based Indices and Growth indices the stress parameter is plus 6%, minus 8% as well as eight other points in-between.
• A market-based stress of the underlying based on historical moves in Bloomberg pricing data.
• For Broad Based Indices the implied volatility factor is increased 75% and decreased by 75%.
• For all other classes, the implied volatility for each options class is increased by 150% and decreased by 150%

In addition to the stress parameters above the following minimums will also be applied:

• Classes with large single concentrations will have a margin requirement of 30% applied to the concentrated position.
• A USD 0.375 multiplied by the index per contract minimum is computed.
• The same special margin requirements for OTCBB, Pink Sheet and low cap stocks that apply under Reg T, will still apply under Portfolio Margin.
• Initial margin will be 110% of Maintenance Margin.

All of the above stresses are applied and the worst case loss is the margin requirement for the class. Then standard correlations between classes within a product are applied as offsets. As an example, within the Broad Based Index product 90% offset is allowed between SPX and OEX. Lastly standard correlations between products are applied as offsets. An example would be a 50% offset between Broad Based Indices and Small Cap Indices. For stocks and Single Stock Futures offsets are only allowed within a class and not between products and portfolios. After all the offsets are taken into account all the worst case losses are combined and this number is the margin requirement for the account. For a complete list of products and offsets, see the Appendix-Product Groups and Stress Parameters section at the end of this document.

Our real-time, intra-day margining system enables us to apply the Day Trading Margin Rules to Portfolio Margin accounts based on real-time equity, so Pattern Day Trading Accounts will always be able to trade based on their full, real-time buying power.

Because of the complexity of Portfolio Margin calculations it would be extremely difficult to calculate margin requirements manually. We encourage those interested in Portfolio Margin to use our TWS Portfolio Margin Demo to understand the impact of Portfolio Margin requirement under different scenarios.

Click here for the OCC's published list of Product Groups and Offset Parameters.

For Residents of the United States:

Use the following links to view other margin requirements:

Stocks

Options

Futures & FOPs

Fixed Income

Mutual Funds

US Metals

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