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Investor Alert |
| Past Alerts Click Here | March 1, 2007 |
| One of the Biggest Changes in Customer Margin Rules in 40 Years Newedge USA continues to expand its "Portfolio Margining" program to qualified customers with options trading experience. As a result, risk-based margining is becoming available to more investors that are now subject only to traditional product-based margin requirements. In general, portfolio margining is a new program adopted by the SEC and the Exchanges that allows approved clearing broker-dealers to calculate margin on securities held in certain qualifying client trading accounts based on the aggregate risk of their portfolios. This is a more precise risk calculation, based upon theoretical moves in the underlying securities in a whole portfolio, verses static and separate calculations for stocks and options as under more traditional margin rules. It more closely reflects today's complex hedging strategies. A benefit of the new program includes the possibility of enhanced leverage in accounts due to better calculation of credit and risk. It can free up additional capital in many portfolio margined accounts. The final portfolio margining program is nearing its completion on April 2, 2007, and a wide range of products will be offered, including broad-based indices, corresponding ETFs and single stock options. Newedge USA is the only U.S. firm now offering a pilot portfolio margining program for certain products, under the current SEC-approved plan, and plans to offer the full program on April 2, 2007. Customers can begin the process of opening a portfolio margining account in preparation of the scheduled April 2, 2007 start of the full program and are encouraged to contact us to discuss requirements. Contact customer service at (888) 871-0283 or email PortfolioMargin@NewedgeGroup.com to begin the process of adding portfolio margining to your account. Eligible Participants Newedge USA applies its own eligibility and risk guidelines to all approved portfolio margining accounts. Certain risk guidelines for these accounts are also set by the SEC and other regulatory agencies in addition to Newedge USA, and differ relating to the type of instruments in a trading account and other factors. Please be advised that portfolio margining risk levels and related capital requirements can vary significantly day-to-day depending on the volatility of positions in a portfolio and on the movements of the overall market. Newedge USA eligibility requirements for portfolio margining status beginning after April 2, 2007 are that customers must:
Compare Portfolio Margining Vs. Traditional Margin
Sources for portfolio margin and standard margin calculations were the CBOE website margin calculator and the OCC CPM website calculator. Supporting data is available upon written request. Product Risk Parameters for Portfolio Margining
Note Please be advised that portfolio margining risk levels and related capital requirements can vary significantly day-to-day depending on the volatility of positions in a portfolio and on the movements of the overall market. Newedge USA Guidelines Newedge USA will apply its own risk guidelines and limits to all approved portfolio margined accounts. These guidelines and limits may be more stringent than what is available under portfolio margining rules. Newedge USA may also require additional margin beyond the risk-based margin requirements, particularly for positions with naked or uncovered calls or puts.  PreferredTrade Division of Newedge USA, LLC Mailing: 220 Bush Street, Suite 650, San Francisco, CA 94104 Member NYSE, NASD, MSRB, NFA, SIPC and other principal exchanges Customer Service can be reached at 888-781-0283 or by email at Service@NewedgeGroup.com. Customer Service Fax is (415) 520 - 5633
Important Disclosures All of the illustrative examples based on OCC initial margin calculations show how Portfolio Margining, by creating a more accurate reflection of risk, may require less capital in margin collateral for various hedging strategies compared to traditional strategy or product-based Reg T margin calculations. Dramatic day-to-day changes in the implied volatilities are not represented in the risk analysis above. Positions in a portfolio margined account, and the margin requirements relating to such accounts, can change dramatically day-to-day due to changes in market conditions. All examples of option positions under a portfolio margining status are for illustrative purposes only and do not represent any suggestion of how to trade, or which positions to include in your portfolio, or indicate any potential profitability. These are specific examples showing the possible margin relief under portfolio margining rules in comparison to the Reg T margin requirements. Newedge has no opinion about the profitability or risk associated with the positions shown in any example contained herein. Supporting data for all illustrative examples are available upon written request. Prior to any trading account being opened, all potential clients wishing to trade under the guidelines of a portfolio margined account will undergo an interview with Newedge USA's Senior Risk Manager in order for the firm to ascertain the client's knowledge of option trading, option strategies, and the risks associated with a portfolio margined account. In addition, all required account documentation is to be completed and reviewed prior to an account approval and opening. Newedge USA reserves the right to approve or not approve an account for portfolio margin status for any reason. Newedge USA also reserves the right to sell out any position at any time in a portfolio margined account. Portfolio Margining risks do not represent all risks associated with positions in a particular portfolio. Dramatic day-to-day changes in the implied volatilities are not represented in the risk analysis. Margin requirements may be significantly greater than simple Risk based Haircuts (RBH) calculations. RBH is not a Value at Risk (VAR) calculation and does not make a correlation between stocks in a portfolio. Newedge USA will apply its own risk guidelines and limits to all approved portfolio margined accounts. These guidelines and limits may be more stringent than what is available under portfolio margining rules. Newedge USA may also require additional margin beyond the risk-based margin requirements, particularly for positions with naked or uncovered calls or puts. Please note that current or pending portfolio margining rules, guidelines and requirements are subject to change by the SEC, NYSE or other regulatory entities. Please note that options are not suitable for all investors and investing in options carries substantial risk. Because of the importance of tax considerations to all options transactions, investors considering options should consult with a tax advisor as to how taxes affect the outcome of contemplated options transactions. Individuals should not enter into options transactions until they have read and understood the risk disclosure document titled "Characteristics and Risks of Standardized Options." To obtain a copy of the Options Disclosure Document contact us at 888-781-0283. All contents of this document are for educational purposes only. Graphics are for illustration purposes only. Newedge USA does not offer investment advice. Note: Multiple leg option strategies, including spreads, will incur multiple commission charges. Newedge USA, LLC ("Newedge"), a member of SIPC and a broker-dealer and futures commission merchant registered under US laws, makes no representations or warranty regarding the appropriateness of any transaction for any person. This sales literature is solely for informational purposes, and is not to be construed as an offer to buy or sell any security. The information herein is based on sources we believe to be reliable, but is not guaranteed by us and may be incomplete or condensed. Any opinions expressed herein are statements of Newedge's or third-party sources' as of the date indicated and are subject to change without notice. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. All futures, securities and options trading entails significant risks, which should be fully understood prior to trading. Consult your account representative for details. Past performance is not a guarantee of future results. Except as indicated otherwise, Newedge and the Newedge Group refer to all companies or divisions of companies owned directly or indirectly by Societe Generale that include the "Newedge" name. Not all products and transactions offered by Newedge are available from all companies of the Newedge Group. Newedge does not necessarily endorse the views and opinions contained herein by individuals not affiliated with Newedge. References to third-party brokers are for informational purposes only. Third-party brokers have registered trademarks and reference to them herein does not constitute any affiliation with, sponsorship or endorsement of any of the statements or recommendations made herein. Charts are sourced from in-house analytics unless otherwise indicated. The views expressed herein may differ from those expressed by affiliates of Newedge, and such views do not represent or purport to represent those of such affiliates. Newedge, or one or more of its employees, may have a position in any of the securities discussed herein, including options, rights or warrants to purchase such securities. Date of first use: March 5, 2007. Copyright Newedge USA, LLC 2007. All rights reserved. |
