Chapter 13.3

Question 1

What does portfolio margining use to determine margin requirements?

Answer 1

Quantitative models - it measures risk and the effect of hedging. It allows investors greater leverage on margin equity securities based on actual risk.

Question 2

What must customer be approved for prior to the initial transaction in a Portfolio Margin Account?

Answer 2

Approved for writing uncovered options and be provided with a risk disclosure statement and the firm must obtain a signed acknowledgement from the customer.

Question 3

Securities eligible for portfolio margining:

Answer 3

• Marginable equity securities
• Warrants on marginable equity securities
• Equity and index based options
• Securities futures products
• Some unlisted derivatives
• Index of equity securities
• *U.S. Government securities and non-investment grade corporate bonds are not eligible for portfolio margin trading
• *Long non-margin eligible equity securities have a margin requirement equal to 100% of the current market value at all times.

Question 4

When must margin deficiencies be met for portfolio margin accounts?

Answer 4

Within 3 business days

Question 5

What happens on a portfolio margin account if margin shortfalls are not met within 3 business days?

Answer 5

No new orders are allowed to be entered and prompt liquidation will occur

Question 6

Requirements of member firms with portfolio margin accounts?

Answer 6

Member firms must monitor the risk of portfolio margin accounts and maintain a comprehensive written risk analysis methodology for assessing the potential risk to the member’s capital over a specified range of possible market movements of positions maintained in such accounts.

Question 7

Member firms must do what prior to offering portfolio margin accounts to their customers?

Answer 7

Must seek approval of the appropriate SRO prior to offering portfolio margin accounts to their customers.