Release: #4118-98

For Release: March 11, 1998
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� � CFTC SEEKS PUBLIC COMMENT ON PROPOSED AMENDMENTS TO ITS NET CAPITAL RULE, RULE 1.17, THAT WILL ELIMINATE THE CHARGE AGAINST THE CAPITAL OF AN FCM, KNOWN AS THE SHORT OPTION VALUE CHARGE

WASHINGTON -- The Commodity Futures Trading Commission (Commission or CFTC) announced today that it is proposing to amend its minimum financial requirements for futures commission merchants (FCMs). The proposed amendment would eliminate the charge against the net capital of an FCM, presently required by rule 1.17(c)(5)(iii). The charge is four percent of the market value of options sold by customers trading on contract markets or foreign boards of trade. It is generally referred to as the "short option value charge" or "SOV charge". The original intent in adopting this rule was to require FCMs to provide additional capital to offset the risk of short options positions carried on behalf of customers. The Commission is proposing to rescind this rule because it has determined that the charge is not closely correlated to the actual risk of the options carried on behalf of customers and, in any event, there are adequate other protections in place to address the risk of short options. In particular, the Standard Portfolio Analysis of Risk (SPAN) margining system has been effectively used to set appropriate levels of risk margin and there are many other non-capital protections. These protections include effective self-regulatory organization (SRO) audit and financial surveillance programs and modern risk management and control systems at FCMs. Because of the demonstrated effectiveness of these programs, the Commission believes it may now be appropriate to rescind the SOV charge. The Commission seeks comment on this proposal and has provided for a 60-day comment period.

The Commission expects the proposal to be published in the Federal Register within the next week. Also, the proposal will be available on the Commission's Internet Home Page (www.cftc.gov) and may be obtained by contacting the Commission's Office of the Secretariat at (202)418-5100.�