Statement of Commissioner Dan M. Berkovitz Regarding the Proposed Amendments for Customer Margin Rules for Security Futures

July 9, 2019

I support issuing the joint notice of proposed rulemaking (“Proposal”) with the Securities Exchange Commission (“SEC”) (collectively with the CFTC, “Commissions”) to amend the security futures margin requirements.

In 2000, Congress passed the Commodity Futures Modernization Act (“CFMA”) which permitted security futures trading.[1]  The CFMA provides that customer margin requirements for security futures shall be set at levels that: (1) require (a) consistency with the margin requirements for comparable exchange-traded options and (b) margin levels not lower than the lowest level of margin, exclusive of premium, required for any comparable exchange-traded options, (2) preserve the financial integrity of markets trading security futures products, (3) prevent systemic risk, and (4) are and remain consistent with certain margin requirements established by the Federal Reserve Board under its Regulation T.[2]

The Proposal would decrease the required minimum margin from 20 percent to 15 percent of the current market value.  The Proposal reasons that amending the minimum required margin reflects the current stress level percentage of 15 percent set for unhedged exchange-traded options in self-regulated organization risk-based portfolio margining programs.[3]  This action would increase consistency in the markets by bringing the margin requirement for security futures held outside of a securities portfolio margin account into alignment with the margining for security futures under risk-based portfolio margining methodologies.[4]

The 20 percent level was originally set by the Commissions in 2002.  Markets have evolved since that time and it is appropriate to reconsider the margin level in light of the subsequent adoption of the risk-based portfolio margining programs.  In doing so, the Proposal has followed the statutory mandate to set the security futures margin requirement at levels consistent with, and not lower than, levels for similar options.   

In conclusion, I commend the joint work by the Commissions’ respective staffs in preparing the Proposal.  The Proposal represents an opportunity for the Commissions to gain more knowledge about the security futures markets, reevaluate the status quo, and establish a more effective regulatory standard.  I look forward to public comments in response to the Proposal, particularly comments that provide additional data and analysis regarding the appropriateness of the 15 percent level under each of the statutory factors the Commissions must consider.