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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 41

RIN 3038-AE88

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-90244; File No. S7-09-19]

RIN 3235-AM55

CUSTOMER MARGIN RULES RELATING TO SECURITY FUTURES 

AGENCIES: Commodity Futures Trading Commission and Securities and Exchange 

Commission.

ACTION: Joint final rule.

SUMMARY: The Commodity Futures Trading Commission (“CFTC”) and the 

Securities and Exchange Commission (“SEC”) (collectively, the “Commissions”) are 

adopting rule amendments to lower the margin requirement for an unhedged security 

futures position from 20% to 15% and adopting certain conforming revisions to the

security futures margin offset table.

DATES: [Insert date 30 days from the date of publication in the Federal Register].

FOR FURTHER INFORMATION CONTACT:

CFTC: Melissa A. D’Arcy, Special Counsel and Sarah E. Josephson, Deputy Director, 

Division of Clearing and Risk, at (202) 418-5430; and Michael A. Penick, Economist 

at (202) 418-5279, and Ayla Kayhan, Economist at (202) 418-5947, Office of the 

Chief Economist, Commodity Futures Trading Commission, Three Lafayette Centre, 

1155 21st Street, NW, Washington, DC 20581.
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SEC: Michael A. Macchiaroli, Associate Director, at (202) 551-5525; Thomas K. 

McGowan, Associate Director, at (202) 551-5521; Randall W. Roy, Deputy Associate 

Director, at (202) 551-5522; Sheila Dombal Swartz, Senior Special Counsel, at (202) 

551-5545; or Abraham Jacob, Special Counsel, at (202) 551-5583; Division of Trading 

and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 

20549-7010.

SUPPLEMENTARY INFORMATION:

I. BACKGROUND.................................................................................................... 3

II. FINAL RULE AMENDMENTS.......................................................................... 11

A. Lowering the Minimum Margin Level from 20% to 15% ............................ 11

1. The Commissions’ Proposal ...................................................................... 11

2. Comments and Final Amendments............................................................ 15

B. Conforming Revisions to the Strategy-Based Offset Table .......................... 47

1. The Commissions’ Proposal ...................................................................... 47

2. Comments and the Re-Published Strategy-Based Offset Table................. 49

C. Other Matters................................................................................................. 55

III. PAPERWORK REDUCTION ACT ................................................................ 57

A. CFTC ............................................................................................................. 57

B. SEC................................................................................................................ 57

IV. CFTC CONSIDERATION OF COSTS AND BENEFITS AND SEC 

ECONOMIC ANALYSIS (INCLUDING COSTS AND BENEFITS) OF THE 

PROPOSED AMENDMENTS .................................................................................... 58

A. CFTC ............................................................................................................. 58

1. Introduction................................................................................................ 58

2. Economic Baseline..................................................................................... 59

3. Summary of the Final Rules....................................................................... 60

4. Description of Costs................................................................................... 61

5. Description of Benefits Provided by the Final Rules................................. 77

6. Discussion of Alternatives......................................................................... 80

7. Consideration of Section 15(a) Factors...................................................... 89
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B. SEC................................................................................................................ 96

1. Introduction............................................................................................... 96

2. Baseline...................................................................................................... 98

3. Considerations of Costs and Benefits ...................................................... 104

4. Effects on Efficiency, Competition, and Capital Formation................... 113

5. Reasonable Alternatives Considered..................................................... 132

V. REGULATORY FLEXIBILITY ACT .............................................................. 139

A. CFTC ........................................................................................................... 139

B. SEC.............................................................................................................. 141

VI. OTHER MATTERS .................................................................................... 144

VII. ANTI-TRUST CONSIDERATIONS............................................................. 145

VIII. STATUTORY BASIS.................................................................................... 146

I. BACKGROUND 

A security future is a futures contract on a single security or on a narrow-based 

securities index.

1

 The Commodity Futures Modernization Act of 2000 (“CFMA”) 

lifted the ban on trading security futures and established a framework for the joint 

regulation of these products by the Commissions.

2

 Among other things, the CFMA 

 

1 See Section 1a(44) of the Commodity Exchange Act (“CEA”) and Section 3(a)(55) of 

the Exchange Act (both defining the term “security future”). A “security future” is 

distinguished from a “security futures product,” which is defined to include a security 

future as well as any put, call, straddle, option, or privilege on a security future. See

Section 1a(45) of the CEA and Section 3(a)(56) of the Exchange Act (both defining 

the term “security futures product”). Under Section 2(a)(1)(D)(iii)(II) of the CEA and 

Section 6(h)(6) of the Exchange Act, the Commissions may, by order, jointly 

determine to permit the listing of options on security futures. The Commissions have 

not exercised this authority. The amendments being adopted in this release relate to 

margin requirements for security futures and not for options on security futures. Most 

of the discussion in this release relates to security futures. The term “security futures 

products” will be used when discussing security futures and options on security 

futures. 

2 See Appendix E of Pub.L.No.106-554, 114 Stat. 2763 (2000). Futures on security 

indexes that are not narrow-based are subject to the exclusive jurisdiction of the 

CFTC.
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amended Section 7 of the Securities Exchange Act of 1934 (“Exchange Act”) to 

establish a margin program for security futures. Section 7(c)(2)(A) of the Exchange 

Act provides that it shall be unlawful for any broker, dealer, or member of a national 

securities exchange3 to, directly or indirectly, extend or maintain credit to or for, or 

collect margin from any customer on, any security future unless such activities comply 

with the regulations prescribed by: (1) the Board of Governors of the Federal Reserve 

System (“Federal Reserve Board”); or (2) the Commissions jointly pursuant to 

authority delegated by the Federal Reserve Board.

Section 7(c)(2)(B) of the Exchange Act provides that the customer margin 

requirements for security futures products adopted by the Federal Reserve Board or 

jointly by the Commissions, “including the establishment of levels of margin (initial 

and maintenance),” must satisfy four requirements. First, they must preserve the 

financial integrity of markets trading security futures products.4 Second, they must 

prevent systemic risk.5 Third: (1) they must be consistent with the margin 

requirements for comparable options traded on any exchange registered pursuant to 

Section 6(a) of the Exchange Act;6 and (2) the initial and maintenance margin levels 

must not be lower than the lowest level of margin, exclusive of premium, required for 

 3 A futures commission merchant (“FCM”) (as defined in Section 1(a)(28) of the CEA) 

may be a member of a national securities exchange, a clearing member of a 

clearinghouse, or a customer of a clearing member of a clearinghouse. 

4 See Section 7(c)(2)(B)(i) of the Exchange Act.

5 See Section 7(c)(2)(B)(ii) of the Exchange Act.

6 See Section 7(c)(2)(B)(iii)(I) of the Exchange Act. In this release, this provision of the 

statute is sometimes referred to as the “consistent with restriction.”
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any comparable exchange-traded options.7 Fourth, excluding margin levels, they must 

be, and remain consistent with, the margin requirements established by the Federal 

Reserve Board under Regulation T (“Regulation T”).8

On March 6, 2001, the Federal Reserve Board delegated its authority under 

Section 7(c)(2)(A) of the Exchange Act to the Commissions.9 Pursuant to that 

delegation, the Commissions adopted rules in 2002 establishing a margin program for 

security futures.

10 These rules require security futures intermediaries to collect margin 

from their customers.11 A security futures intermediary is a creditor, as defined under 

 7 See Section 7(c)(2)(B)(iii)(II) of the Exchange Act. In this release, this provision of 

the statute is sometimes referred to as the “not lower than restriction.”

8 See Section 7(c)(2)(B)(iv) of the Exchange Act. Regulation T is codified at 12 CFR 

220 et seq.

9 See Letter from Jennifer J. Johnson, Secretary of the Board, Federal Reserve Board, to 

James E. Newsome, Acting Chairman, CFTC, and Laura S. Unger, Acting Chairman, 

SEC (Mar. 6, 2001) (“FRB Letter”); see also Customer Margin Rules Relating to 

Security Futures, Exchange Act Release No. 44853 (Sep. 26, 2001), 66 FR 50720 

(Oct. 4, 2001) (“2001 Proposing Release”) (reprinting the FRB Letter in Appendix B). 

10 See Customer Margin Rules Relating to Security Futures, Exchange Act Release No. 

46292 (Aug. 1, 2002), 67 FR 53146 (Aug. 14, 2002) (“2002 Adopting Release”). See 

also 17 CFR 41.41 through 41.49 (CFTC regulations, hereinafter referred to as “CFTC 

Rule 41.42”, “CFTC Rule 41.43” et seq.) and 17 CFR 242.400 through 242.406 (SEC 

regulations, hereinafter referred to as “SEC Rule 400”, “SEC Rule 401” et seq.). 

CFTC regulations referred to herein are found at 17 CFR Ch. 1, and SEC regulations 

referred to herein are found at 17 CFR Ch. 2.

11 See CFTC Rule 41.45 and SEC Rule 403. See also CFTC Rule 41.43(a)(29) and SEC 

Rule 401(a)(1)(29) (both defining the term “security futures intermediary” to include a 

broker-dealer and an FCM). The term “security futures intermediary” includes FCMs 

that are clearing members or customers of clearing members. As of September 18, 

2020, the Options Clearing Corporation (“OCC”) was the only clearinghouse for U.S. 

exchange-traded security futures.
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Regulation T, with respect to its financial relations with any person involving security 

futures, and includes registered entities such as brokers-dealers and FCMs.

12 

The Commissions’ rules include requirements governing: account 

administration; type, form, and use of collateral; calculation of equity; withdrawals 

from accounts; and the treatment of undermargined accounts. The Commissions 

stated that “the inclusion of these provisions in the Final Rules satisfies the statutory 

requirement that the margin rules for security futures be consistent with Regulation 

T.”13 

The Commissions’ rules contemplate that all security futures intermediaries 

will pay to or receive from their customers a daily variation settlement (i.e., the daily 

net gain or loss on a security future) as a result of all open security futures positions 

being marked to current market value by the clearing organization where the security 

futures are cleared.14 In addition, the Commissions’ rules establish minimum initial 

and maintenance margin levels for unhedged security futures equal to 20% of their 

“current market value.”15

 12 Because a security future is both a security and a future, customers who wish to buy or 

sell security futures must conduct the transaction through a person registered both with 

the CFTC as either an FCM or an introducing broker (“IB”) and with the SEC as a 

broker-dealer. 

13 See 2002 Adopting Release, 67 FR at 53155. As indicated above, Section 

7(c)(2)(B)(iv) of the Exchange Act requires that margin requirements for security 

futures (other than levels of margin), including the type, form, and use of collateral, 

must be consistent with the requirements of Regulation T.

14 See CFTC Rules 41.43(a)(32), 41.46(c)(1)(vi) and (c)(2)(iii), and 41.47(b)(1), and 

SEC Rules 401(a)(32), 404(c)(1)(vi) and (c)(2)(iii), and 405(b)(1).

15 See CFTC Rule 41.45(b)(1) and SEC Rule 403(b)(1). See also CFTC Rule 

41.43(a)(4) and SEC Rule 401(a)(4) (defining the term “current market value”).
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The Commissions’ rules permit a “self-regulatory authority” (“SRA”),

16 as that 

term is defined in the rules, to set initial and maintenance margin levels lower than 

20% of the current market value for certain strategy-based offsetting positions 

involving security futures and one or more related securities or futures.17 The SRA

rules must meet the four criteria set forth in Section 7(c)(2)(B) of the Exchange Act 

and must be effective in accordance with Section 19(b)(2) of the Exchange Act and, as 

applicable, Section 5c(c) of the CEA.18 In connection with these provisions governing 

SRA rules, the Commissions published a table identifying offsets for security futures 

that were consistent with the offsets permitted for comparable exchange-traded options

(“Strategy-Based Offset Table”).19 SRAs have adopted margin rules that permit 

strategy-based offsets between security futures and related positions based on the 

Strategy-Based Offset Table.

20

 16 The Commissions’ rules define the term “self-regulatory authority” to mean a national 

securities exchange registered under Section 6 of the Exchange Act, a national 

securities association registered under Section 15A of the Exchange Act, a contract 

market registered under Section 5 of the CEA or Section 5f of the CEA, or a 

derivatives transaction execution facility registered under Section 5a of the CEA. See

CFTC Rule 41.43(a)(30) and SEC Rule 401(a)(30). The term “SRA” as used in this 

release refers to self-regulatory organizations (“SROs”) registered under the Exchange 

Act and self-regulatory authorities registered under the CEA. The term “securities 

SRO” as used in this release refers only to SROs registered under the Exchange Act.

17 See CFTC Rule 41.45(b)(2) and SEC Rule 403(b)(2). See also 2002 Adopting 

Release, 67 FR at 53158-61. The initial margin level is the required amount of margin 

that must be posted when the trade is executed. The maintenance margin level is the 

required amount of margin that must be maintained while the contract is open.

18 Section 19(b)(2) of the Exchange Act governs SRA rulemaking with respect to SEC 

registrants, and Section 5c(c) of the CEA governs SRA rulemaking with respect to 

CFTC registrants.

19 See 2002 Adopting Release, 67 FR at 53158-61.

20 See, e.g., FINRA Rule 4210(f)(10) and Cboe Rule 10.3(k).
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The Commissions’ rules also enumerate specific exclusions from the margin 

requirements for security futures, and those exclusions will continue under the final 

rule amendments.21 For example, margin requirements that derivatives clearing 

organizations (“DCOs”) or clearing agencies impose on their clearing members are not 

subject to the 20% margin level requirement.22 

There also is an exclusion providing that the required 20% initial and 

maintenance margin levels do not apply to financial relations between a customer and 

a security futures intermediary to the extent that they comply with a portfolio 

margining system under rules that meet the four criteria set forth in Section 7(c)(2)(B) 

of the Exchange Act and that are effective in accordance with Section 19(b)(2) of the 

Exchange Act and, as applicable, Section 5c(c) of the CEA.23 Subsequent to the 

adoption of the Commissions’ rules, and consistent with this exclusion, two securities 

SROs implemented portfolio margining rules that permit a broker-dealer to combine 

certain of a customer’s securities and security futures positions in a securities account

in order to compute the customer’s margin requirements (“Portfolio Margin Rules”).

24 

 21 See CFTC Rule 41.42(c)(2)(i) through (v) and SEC Rule 400(c)(2)(i) through (v). 

22 See CFTC Rule 41.42(c)(2)(iii) and SEC Rule 400(c)(2)(iii). The OCC is registered 

with the SEC as a clearing agency pursuant to Section 17A of the Exchange Act and 

registered with the CFTC as a DCO pursuant to Section 5b of the CEA. 

23 CFTC Rule 41.42(c)(2)(i) and SEC Rule 400(c)(2)(i). 

24 See FINRA Rule 4210(g) and Cboe Rule 10.4. The broker-dealer would need to be 

registered with the CFTC (as an FCM) to include security futures in the securities 

account. See also 2019 Proposing Release, 84 FR 36437, n.36. FINRA Rule 4210

(Margin Requirements) was adopted as part of a new consolidated rulebook effective 

permanently on December 2, 2010, after the pilot program was approved and made 

available on August 1, 2008. Cboe rules on portfolio margining became effective 

permanently on July 8, 2008, after they were approved under a pilot program on April 

2, 2007. 
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As discussed in more detail below, the Portfolio Margin Rules established a 15% 

margin level for unhedged exchange-traded options on an equity security or narrowbased equity index (sometimes referred to herein as “exchange-traded equity 

options”).25 The 15% margin level also applies to unhedged security futures held in a 

securities account that is subject to Portfolio Margin Rules. There is no comparable 

portfolio margining system for security futures held in a futures account.

26 These 

same unhedged security futures positions, if held in a futures account, are subject to 

the required 20% initial and maintenance margin levels set forth in the Commissions’ 

rules.

2019 Proposing Release

In July 2019, the Commissions proposed amending the security futures margin 

rules to lower the required initial and maintenance margin levels for an unhedged 

security futures position from 20% to 15% of its current market value.27 The 

Commissions sought to align margin requirements for security futures held in futures 

 25 The amendments adopted in this release were motivated, in part, by changes made to 

margin requirements for certain exchange-traded options pursuant to securities SRO

pilot programs offering risk-based portfolio margining rules. Those pilot programs 

were later made permanent after review and approval by the SEC. See 2019 

Proposing Release, 84 FR 36437, n.34-36. 

26 For purposes of this rulemaking a “futures account” is an account that is maintained in 

accordance with the requirements of Sections 4d(a) and 4d(b) of the CEA. See also

CFTC Rule 1.3.

27 See Customer Margin Rules Relating to Security Futures, Exchange Act Release No. 

86304 (July 3, 2019), 84 FR 36434 (July 26, 2019) (“2019 Proposing Release”). 

OneChicago, LLC (“OneChicago”) filed a rulemaking petition requesting that the 

minimum required margin for unhedged security futures be reduced from 20% to 

15%. See Letter from Donald L. Horwitz, Managing Director and General Counsel, 

OneChicago, to David Stawick, Secretary, CFTC, and Nancy M. Morris, Secretary, 

SEC (Aug. 1, 2008)(“OneChicago Petition”), at 2. 
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accounts and customer securities accounts that are not subject to the Portfolio Margin 

Rules with security futures and exchange-traded options held in customer securities 

accounts subject to the Portfolio Margin Rules (“Portfolio Margin Account”).28 The 

Commissions also proposed certain conforming revisions to the Strategy-Based Offset 

Table.

29 Because the Commissions’ proposal solely related to the reduction in “levels 

of margin” for security futures, the Commissions stated a preliminary belief that they 

did not implicate the requirement of Section 7(c)(2)(B)(iv) of the Exchange Act that 

the Commissions’ rules be consistent with Regulation T.30 

The Commissions received a number of comment letters in response to the 

proposal.

31 As discussed below, after considering the comments, the Commissions are 

adopting, as proposed, the amendments to the security futures margin rules to lower 

the required initial and maintenance margin levels for an unhedged security futures

position from 20% to 15%. The Commissions also are publishing a revised StrategyBased Offset Table as proposed.

 

28 See 2019 Proposing Release, 84 FR at 36437.

29 See 2019 Proposing Release, 84 FR at 36441-43.

30 See 2019 Proposing Release, 84 FR at 36440. As discussed above, Section 

7(c)(2)(B)(iv) of the Exchange Act requires that margin requirements for security 

futures (other than levels of margin), including the type, form, and use of collateral, 

must be consistent with the requirements of Regulation T (emphasis added).

31 The comment letters are available at https://www.sec.gov/comments/s7-09-

19/s70919.htm and 

https://comments.cftc.gov/PublicComments/CommentList.aspx?id=3013. The 

Commissions address these comments in section II below (discussing the final rule 

amendments), and in section IV (including the CFTC’s consideration of the costs and 

benefits of the amendments and the SEC’s economic analysis (including costs and 

benefits) of the amendments).
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Subsequent to the issuance of the 2019 Proposing Release, OneChicago, the 

only exchange listing security futures in the U.S., discontinued all trading operations 

on September 21, 2020. At this time, there are no security futures contracts listed for 

trading on U.S. exchanges. The final rule amendments in this release, however, would

apply to customer margin requirements for security futures if an exchange were to 

resume operations or another exchange were to launch security futures contracts. 

II. FINAL RULE AMENDMENTS

A. Lowering the Minimum Margin Level from 20% to 15%

1. The Commissions’ Proposal

As discussed above, the current minimum initial and maintenance margin 

levels for an unhedged long or short position in a security future are 20% of the 

current market value of the position,

32 unless an exclusion applies.33 For context, as 

discussed when adopting the margin requirements for security futures in 2002, the 

20% margin levels were designed to be consistent with the margin requirements then 

in effect for an unhedged short at-the-money exchange-traded option held in a 

customer account where the underlying instrument is either an equity security or a 

narrow-based index of equity securities.34 In this case, the margin requirement was 

 32 See CFTC Rule 41.45(b) and SEC Rule 403(b).

33 See CFTC Rule 41.42(c)(2)(i) through (v) and SEC Rule 400(c)(2)(i) through (v). 

34 See 2002 Adopting Release, 67 FR at 53157 (“The Commissions believe that a 

security future is comparable to a short, at-the-money option...”); 2001 Proposing 

Release, 66 FR at 50725-26 (“The Commissions propose that the initial and 

maintenance margin levels required of customers for each security future carried in a 

long or short position be 20 percent of the current market value of such security future 

because 20 percent is the uniform margin level required for short, at-the-money equity 

options traded on U.S. options exchanges.”) (footnote omitted). In 2002, the margin 
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100% of the exchange-traded option proceeds, plus 20% of the value of the underlying 

equity security or narrow-based equity index.

35 This margin requirement on options 

continues to apply if the exchange-traded option is held in a securities account that is 

not subject to the Portfolio Margin Rules.

36

However, as a result of the more recent Portfolio Margin Rules, an unhedged 

short at-the-money exchange-traded equity option held in a Portfolio Margin Account

is now subject to a lower margin level. More specifically, under the Portfolio Margin 

Rules, a broker-dealer can group options, security futures, long securities positions, 

and short securities positions in a customer’s account involving the same underlying 

security and stress the current market price for each position at ten equidistant points 

along a range of positive and negative potential future market movements using a 

theoretical option pricing model that has been approved by the SEC.

37 In the case of 

an option on an equity security or narrow-based equity securities index, the ten 

 

requirement for a long exchange-traded equity option with an expiration exceeding 

nine months was 75% of the contract’s in-the-money amount plus 100% of the 

amount, if any, by which the current market value of the option exceeded its in-themoney amount, provided the option is guaranteed by the carrying broker-dealer and 

has an American-style exercise provision. Otherwise, long exchange-traded options 

were not margin eligible and the customer needed to pay 100% of the purchase price. 

These requirements remain in place for long options contracts. See FINRA Rule 4210 

and Cboe Rule 10.3. 

35 This release generally discusses security futures on underlying equity securities and 

narrow-based equity security indexes because, while permitted, no exchange has listed 

security futures directly on one or more debt securities. See CFTC Rule 

41.21(a)(2)(iii), 17 CFR 41.21(a)(2)(iii), and SEC Rule 6h-2, 17 CFR 240.6h-2 (both 

providing that a security futures may be based upon a security that is a note, bond, 

debenture, or evidence of indebtedness or a narrow-based security index composed of 

such securities).

36 See FINRA Rule 4210 and Cboe Rule 10.3. 

37 See FINRA Rule 4210(g) and Cboe Rule 10.4.
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equidistant stress points span a range from -15% to +15% (i.e., -15%, -12%, -9%, -6%, 

-3%, +3%, +6%, +9%, +12%, +15%).38 The gains and losses of each position in the 

portfolio are allowed to offset each other to yield a net gain or loss at each stress 

point.39 The stress point that yields the largest potential net loss for the portfolio is 

used to determine the aggregate margin requirement for all the positions in the 

portfolio.40 

Under the Portfolio Margin Rules, the margin requirement for a short at-themoney exchange-traded equity option generally would be 15% if there were no other 

products in the account eligible to be grouped with the option position to form a 

portfolio (i.e., an unhedged position). Consequently, the Commissions proposed to 

lower the required initial and maintenance margin levels for unhedged security futures 

from 20% to 15%.41 In doing so, the Commissions preliminarily viewed unhedged 

exchange-traded equity options as comparable to security futures that may be held 

 38 This range of price movements (+/-) 15% is consistent with the prescribed 15% 

haircut for most proprietary equity securities positions under the SEC’s net capital rule 

for broker-dealers. See 17 CFR 240.15c3-1(c)(2)(vi)(J). 

39 For example, at the -6% stress point, XYZ Company stock long positions would 

experience a 6% loss, short positions would experience a 6% gain, and XYZ Company 

options would experience gains or losses depending on the features of the options. 

These gains and losses are added up resulting in a net gain or loss at that point. 

40 Because options are part of the portfolio, the greatest portfolio loss (or gain) would not 

necessarily occur at the largest potential market move stress points ((+/-) 15%). This 

is because a portfolio that holds derivative positions that are far out-of-the-money 

would potentially realize large gains at the greatest market move points as these 

positions come into the money. Thus, the greatest net loss for a portfolio conceivably 

could be at any market move stress point. In addition, the Portfolio Margin Rules 

impose a minimum charge based on the number of derivative positions in the account 

and that applies if the minimum charge is greater than the largest stress point charge. 

41 See 2019 Proposing Release, 84 FR at 36438-40.
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alongside the exchange-traded equity options in a Portfolio Margin Account.

42 The 

Commissions stated that Congress did not instruct the Commissions to set the margin 

requirement for security futures at the exact level as the margin requirements for 

exchange-traded equity options. Rather, pursuant to Section 7(c)(2)(B) of the 

Exchange Act, the Commissions must establish margin requirements that are

“consistent” with the margin requirements for “comparable” exchange-traded equity 

options and set initial and maintenance margin levels that are not lower than the lowest 

level of margin for the comparable exchange-traded equity options. 

Under the proposal, unhedged security futures held in futures accounts and 

securities accounts that are not Portfolio Margin Accounts would be subject to the 

same initial and maintenance margin levels as unhedged security futures held in 

Portfolio Margin Accounts (i.e., 15%). Thus, the proposed 15% initial and 

maintenance margin levels for unhedged security futures would bring security futures 

held in futures accounts and securities accounts that are not Portfolio Margin Accounts

into alignment with the required margin level for unhedged security futures held in 

Portfolio Margin Accounts. At the same time, the amendments would not lower the 

required margin levels for unhedged security futures below the lowest required margin 

level for unhedged exchange-traded equity options (i.e., 15%). As discussed below, 

margin levels for exchange-traded equity options are prescribed in rules promulgated 

 42 See 2019 Proposing Release, 84 FR at 36439 (“The Commissions are proposing to 

decrease the margin requirement for unhedged security futures from 20% to 15% in 

order to reflect the comparability between unhedged security futures and exchangetraded options that are held in risk-based portfolio margin accounts.”).
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by securities SROs.

43 

2. Comments and Final Amendments

One commenter stated that the proposed amendments would harmonize margin 

requirements, be simpler to administer and risk manage, and better align with 

customer use of security futures.

44 This commenter stated that it has long supported 

securities portfolio margining and has found the 15% margin level for unhedged 

positions sufficiently robust for intermediaries to risk manage their customer 

positions.45 Other commenters, however, raised concerns with the proposal, as 

discussed below. 

Addressing Commenters’ Concerns that the Proposal is 

Inconsistent with Section 7(c)(2)(B) of the Exchange Act

When proposing these amendments, the Commissions stated a preliminary 

belief that they would be consistent with Section 7(c)(2)(B) of the Exchange Act.

46 

The Commissions noted that, under that section, customer margin requirements, 

including the establishment of levels of margin (initial and maintenance) for security 

futures, must be consistent with the margin requirements for comparable options 

 43 See 12 CFR 220.12(f); FINRA Rule 4210; Cboe Rule 10.3. See also infra note 56 and 

accompanying text (noting securities SROs typically set margin levels for exchangetraded equity options through rule filings with the SEC under Section 19(b) of the 

Exchange Act).

44 Letter from Walt Lukken, President & Chief Executive Officer, Futures Industry 

Association (Aug. 26, 2019) (“FIA Letter”) at 2.

45 FIA Letter at 2.

46 See 2019 Proposing Release, 84 FR at 36439-40.
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traded on any exchange registered pursuant to Section 6(a) of the Exchange Act.47 

The Commissions stated a preliminary belief that “[c]ertain types of exchange-traded 

options, no matter what type of an account they are in, are comparable to security 

futures” and therefore the “margin requirements for comparable exchange-traded 

options and security futures must be consistent.”48 Finally, the Commissions – in 

proposing to lower the margin level for security futures from 20% to 15% – used the 

margin level for an unhedged exchange-traded equity option held in a Portfolio 

Margin Account to “establish a consistent margin level for security futures held 

outside” of a Portfolio Margin Account.49

Some commenters stated that the 15% margin level in a Portfolio Margin 

Account is prudent, given the requirements for these accounts (e.g., risk management, 

account approval process, and minimum equity required).

50 However, these

commenters stated that minimum margin levels for security futures held outside of a 

Portfolio Margin Account do not govern the levels of margin applicable for security 

futures held in a Portfolio Margin Account and, similarly, that the rules governing 

levels of margin for exchange-traded equity options held outside of a Portfolio Margin 

Account do not govern the levels of margin for exchange-traded equity options held in 

a Portfolio Margin Account. In the commenters’ view, Section 7(c)(2)(B) of the 

 47 Id.

48 Id.

49 Id. at 36440.

50 Letter from Angelo Evangelou, Chief Policy Officer, Cboe Global Markets, Inc. and 

Shelly Brown, EVP, Strategic Plannng & Operations, MIAX Exchange Group (Aug. 

26, 2019) (“Cboe/MIAX Letter”) at 4-7.
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Exchange Act requires initial and maintenance margin levels for security futures held 

outside of a Portfolio Margin Account to remain at 20% because the initial and 

maintenance margin levels for exchange-traded equity options held outside a Portfolio 

Margin Account are 20%. 

Some commenters stated that the proposal “may not be in line with the spirit or 

letter” of the CFMA and asked the Commissions to outline how the proposal to lower 

the required initial and maintenance margin levels from 20% to 15% is consistent with 

the CFMA.

51 Other commenters, while fully supportive of harmonizing margin 

requirements, urged the Commissions to reconsider the proposal or provide for a 

corresponding change to margin levels for exchange-traded equity options to ensure 

any final rule is consistent with Section 7(c)(2)(B) of the Exchange Act.52 In making 

these comments, these commenters agreed with (or did not state a disagreement with) 

the Commissions’ view that security futures are comparable to exchange-traded equity 

options in terms of their risk characteristics and uses.

After considering these comments, the Commissions continue to believe that it 

is appropriate to seek to align the required margin levels for unhedged security futures 

held in a futures account (or in a securities account that is not subject to Portfolio 

Margin Rules) with the 15% margin level for unhedged exchange-traded equity 

options held in a Portfolio Margin Account.

53 The primary benefit to customers of

 51 Letter from the Honorable Mike Bost and Rodney Davis, U.S. Congress (Nov. 13, 

2019) (“Bost/Davis Letter”) at 1.

52 Letter from the Honorable Jerry Moran, Thom Tillis, and M. Michael Rounds, U.S. 

Senate (Nov. 22, 2019) (“Moran/Tillis/Rounds Letter”) at 1-2.

53 See 2019 Proposing Release, 84 FR at 36439.
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holding positions in a Portfolio Margin Account is the lower margin requirements (i.e., 

margin levels less than 15%) that can result from grouping and recognizing the riskreducing offsets between positions involving the same underlying equity security or 

narrow-based equity securities index. These lower margin requirements also can 

increase the amount of leverage available to customers who use Portfolio Margin 

Accounts to trade equity positions. To address the lower margin requirements and 

increased leverage that may result from grouping risk reducing equity positions, 

Portfolio Margin Accounts are subject to additional requirements, as compared to nonPortfolio Margin Accounts.54 

An exchange-traded equity option that cannot be grouped with any other risk 

reducing offsetting equity positions in a Portfolio Margin Account (i.e., an unhedged 

position) does not receive the benefit of a lower margin requirement and is subject to a 

15% margin level. Therefore, the greater leverage that can be achieved by grouping 

offsetting positions is not available to the customer in the case of an unhedged 

position. Given the absence of risk-reducing offsetting positions, the risk of the 

unhedged position held in a Portfolio Margin Account generally is no different than if 

the unhedged position was held outside of a Portfolio Margin Account. The same is 

true with respect to an unhedged security futures position held in a Portfolio Margin 

 54 For example, in order to open a Portfolio Margin Account, a customer must be 

approved for writing uncovered options and meet minimum equity requirements 

(generally ranging from $100,000 to $500,000). In addition, Portfolio Margin 

Accounts are subject to enhanced risk management procedures and additional 

customer disclosure requirements. See FINRA Rule 4210(g) and Cboe Rule 10.4; see 

also FINRA Portfolio Margin FAQ, available at www.finra.org.
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Account as compared to an unhedged security futures position held outside of a 

Portfolio Margin Account. 

Moreover, there is no comparable portfolio margin system for security futures 

held in a futures account. Therefore, an unhedged security futures position held in a 

futures account is subject to the required 20% margin level even though the risk of the 

position is generally no different than if the position was held in a Portfolio Margin 

Account, given the absence of risk-reducing offsetting positions. In addition, as 

discussed above, in 2002, securities SROs had not yet proposed portfolio margin rules 

for exchange-traded options. With the adoption of the Portfolio Margin Rules, the 

lower 15% margin level for unhedged security futures and exchange-traded options 

held in Portfolio Margin Accounts became available as an alternative.

For these reasons, it is appropriate to use the margin level for an unhedged 

exchange-traded equity option held in a Portfolio Margin Account to establish a 

consistent margin level for security futures held outside of a Portfolio Margin 

Account. 

In addition, as discussed above, Section 7(c)(2)(B) of the Exchange Act 

provides that: (1) the margin requirements for security futures must be consistent with 

the margin requirements for comparable options traded on any exchange registered 

pursuant to Section 6(a) of the Exchange Act; and (2) the initial and maintenance 

margin levels for security futures must not be lower than the lowest level of margin, 

exclusive of premium, required for any comparable exchange-traded options. The 

statute requires that the Commissions establish customer margin requirements that are

“consistent” with the margin requirements for “comparable” exchange-traded options. 
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This provides the Commissions with some flexibility in establishing the margin levels 

for security futures, provided those margin requirements do not set initial and 

maintenance margin levels for security futures lower than the lowest level of margin, 

exclusive of premium, required for any comparable exchange-traded options. 

Further, Section 7(c)(2)(B)(iii)(II) of the Exchange Act provides that the initial 

and maintenance margin levels for security futures must not be lower than the lowest 

level of margin required for any comparable exchange-traded option. It does not 

specify that the initial and maintenance margin levels must not be lower than the 

lowest level of margin required with respect to a given type of account. Therefore, it 

is appropriate to consider the lowest level of margin for an unhedged exchange-traded 

equity option held in a Portfolio Margin Account when setting initial and maintenance 

margin levels for security futures held outside of a Portfolio Margin Account (i.e., held 

in a futures account or a securities account that is not a Portfolio Margin Account). 

As discussed above, commenters requested that the Commissions provide for a 

corresponding change to margin levels for exchange-traded equity options to ensure 

any final rule is consistent with Section 7(c)(2)(B) of the Exchange Act. This 

comment is outside the scope of this rulemaking, which is focused on margin levels 

for security futures. Margin levels for exchange-traded equity options are set forth in 

securities SRO rules.

55 Securities SROs typically set margin levels for exchangetraded equity options through rule filings with the SEC under Section 19(b) of the 

 55 See 12 CFR 220.12(f); FINRA Rule 4210; Cboe Rule 10.3.
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Exchange Act.

56 

Some commenters that raised concerns about the proposal’s consistency with 

Section 7(c)(2)(B) of the Exchange Act also stated that the proposal would create a 

competitive advantage for security futures over exchange-traded equity options 

through preferential margin treatment for security futures held outside of a Portfolio 

Margin Account.

57 These commenters noted that the Commissions recognized in 2001 

that security futures can compete with, and be an economic substitute for, equity 

securities, such as equity options, and stated that the CFMA was specifically designed 

to avoid regulatory arbitrage between security futures and exchange-traded options.58

These commenters believed that the proposal implies that exchange-traded options and 

security futures are not competing products and that the analysis in the proposal 

unfairly underestimates the utility of options.59 They also stated that synthetic futures 

strategies are an important segment of today’s options market, and could be used to 

compete with security futures. They stated that in June 2019 there were over 700,000 

contracts traded on their exchanges that replicate long and short security futures.60

The Commissions acknowledge that security futures and exchange-traded 

 56 Under Section 19(b) of the Exchange Act, securities SROs generally must file 

proposed rule changes with the SEC for notice, public comment, and SEC approval, 

prior to implementation. 15 U.S.C. 78s(b). Section 19(b)(1) of the Exchange Act 

requires each securities SRO to file with the SEC “any proposed rule or any proposed 

change in, addition to, or deletion from the rules of . . . [a] self-regulatory 

organization.” 15 U.S.C. 78s(b)(1).

57 Cboe/MIAX Letter at 6.

58 Cboe/MIAX Letter at 6. See also 2001 Proposing Release, 66 FR 50721 at n.10.

59 Cboe/MIAX Letter at 6. 

60 Cboe/MIAX Letter at 7.
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equity options can have similar economic uses.

61 However, reducing the margin level

for an unhedged security future held outside of a Portfolio Margin Account to 15% 

should not result in a competitive disadvantage for exchange-traded equity options, if 

security futures trading resumes. First, reducing the required margin levels for 

unhedged security futures to 15% will result in more consistent margin requirements 

between futures and securities accounts. Second, subject to certain requirements, 

customers may hold exchange-traded equity options in a Portfolio Margin Account, in 

which case the margin level for an unhedged position is 15%. 

Finally, customers can hold security futures in a Portfolio Margin Account, in 

which case the required margin level is 15% for an unhedged position. Nonetheless, 

the vast majority of security futures traded in the U.S. were held in futures accounts 

subject to required initial and maintenance margin levels of 20% for unhedged 

positions.62 Therefore, the relative advantage of a required 15% margin level as 

compared to a required 20% margin level did not cause customers to migrate their 

security futures trading to Portfolio Margin Accounts.

Some commenters that opposed lowering the required margin levels from 20% 

to 15% stated that industry solutions and rule changes that optimize the portfolio 

 61 For example, commenters noted that to create a synthetic long (short) futures contract, 

which requires two options, an investor would buy (sell) a call option and sell (buy) a 

put option on the same underlying security with the same expiration date and strike 

price. Cboe/MIAX Letter at 6-7.

62 In its petition, OneChicago stated that “because of operational issues at the securities 

firms, almost all security futures positions are carried in a futures account regulated by 

the CFTC and not in a securities account. The proposed joint rulemaking would permit 

customers carrying security futures in futures accounts to receive margin treatment 

consistent with that permitted under the [portfolio] margining provisions of CBOE.” 

See OneChicago Petition at 2 and 2019 Proposing Release 84 FR at 36440, n.67.
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margining of security futures and exchange-traded equity options, including the 

portfolio margining of security futures in both securities and futures accounts, would 

be a more appropriate solution.63 

As discussed above, lowering the required margin levels from 20% to 15% is 

appropriate, consistent with Section 7(c)(2)(B) of the Exchange Act, and should not 

disadvantage exchange-traded equity options markets if security futures trading 

resumes. Moreover, the Commissions remain committed to continuing to coordinate 

on issues related to harmonizing portfolio margining rules and requirements, as well as 

increasing efficiencies in the implementation of portfolio margining. Further, to the 

extent securities accounts are not operationally suited for holding security futures, the 

Commissions support industry efforts to address this issue. Finally, the realization of 

any potential harmonization efforts or operational improvements with respect to 

portfolio margining will depend on firms offering such programs to their customers.

Response to Commenters’ Request to 

Use Risk Models to Calculate Margin

In response to the Commissions’ request for comments in the 2019 Proposing 

Release,64 some commenters stated that the Commissions’ rules should permit the use 

of risk models to calculate required initial and maintenance margin levels for security 

 63 Cboe/MIAX Letter at 5. More specifically, to the extent securities accounts are not 

operationally optimal for security futures, the options exchanges support industry 

efforts to make improvements. Id.

64 The Commissions asked, “[a]re there any other risk-based margin methodologies that 

could be used to prescribe margin requirements for security futures? If so, please 

identify the margin methodologies and explain how they would meet the 

comparability standards under the Exchange Act.” 2019 Proposing Release, 84 FR at 

36441.
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futures65 – similar to how DCOs calculate margin requirements for futures and the 

OCC calculates margin requirements for its clearing members.

66 One of these 

commenters – OneChicago – believed that the required margin levels for security 

futures and the proposal to modify them were too conservative.67 OneChicago 

characterized the Commissions’ proposal as – “at best” – “a first-step towards the riskbased margining that is needed in the [security futures] marketplace.”68 It further 

stated that 92% of the security futures traded on its exchange were “margined at a 

level greater than is set by the clearinghouse for comparable products, which are 

equity swaps” and that, under the proposal, 84% would still be margined at a greater 

level.

69 According to OneChicago’s analysis, the Commissions’ proposal to lower the 

required margin levels from 20% to 15% would have resulted in a 25% reduction in 

the value of margin collected (from $540 million to $410 million) for the period 

 65 For purposes of this final rule, any references to using “risk models” or a “risk model 

approach” to calculate required initial margin levels is intended to mean the same 

thing. While there are different risk-based margin models, a key component of all 

such margin regimes is the use of modeling to generate expected potential future 

exposures that adjust over time in response to market conditions, credit risk, and other 

inputs. 

66 Letter from Thomas G. McCabe, Chief Regulatory Officer, OneChicago (Aug. 26, 

2019) (“OneChicago Letter”); Letter from Thomas G. McCabe, Chief Regulatory 

Officer, OneChicago (Oct. 7, 2019) (“OneChicago Letter 2”); Letter from Thomas G. 

McCabe, Chief Regulatory Officer, OneChicago (Apr. 27, 2020) (“OneChicago Letter 

3”); OneChicago, April 27, 2020 OneChicago Comment Letter Summary

(“OneChicago Letter 3 Summary”); Letter from Mike Ianni, individual (Aug. 29, 

2019) (“Ianni Letter”); Letter from Scott A. La Botz, individual (Dec. 4, 2019) (“La 

Botz Letter”).

67 OneChicago Letter at 1.

68 OneChicago Letter at 1.

69 OneChicago Letter at 1. In this release, the term “clearinghouse” may refer to a 

clearing organization or a clearing agency.
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between September 1, 2018, and August 1, 2019; whereas using a margin model 

would have resulted in a 61% reduction (from $540 million to $210 million).70 

OneChicago believed that the “margin regime in place today and the proposed 

margin regime incentivizes market participants to transact in other environments.”71 

OneChicago stated that the trading volume on its exchange “has been plummeting in 

recent years.”72 In the exchange’s view, these issues would be addressed if the 

Commissions adopted a risk model approach to calculate required margin levels for 

security futures. As a more limited alternative, OneChicago suggested the

Commissions could adopt a risk model approach for a class of security futures paired 

transactions executed on its exchange and known as “securities transfer and return 

spreads” (“STARS”).73

Risk models calculate margin requirements by measuring potential future 

exposures based on statistical correlations between positions in a portfolio. For 

example, the OCC’s risk model – known as the System for Theoretical Analysis and 

Numerical Simulations (“STANS”) – calculates a clearing member’s margin 

 70 OneChicago Letter at 14. However, as discussed in more detail in section IV of this 

release, it is possible that under certain circumstances the margin requirement under a 

risk-based margin model may exceed the 15% of the current market value that is 

required under the final rules. 

71 OneChicago Letter at 2.

72 OneChicago Letter at 14.

73 OneChicago Letter at 19; see also Memorandum from the SEC’s Division of Trading 

and Markets regarding a July 16, 2019, meeting with representatives of OneChicago.
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requirement based on full portfolio Monte Carlo simulations.74 The margin 

requirements in place today for exchange-traded equity options do not use risk models 

to calculate margin requirements for customer positions.75 Rather, current rules

prescribe margin requirements as a percent of a value or other amount of a single 

position or combinations of offsetting positions or, in the case of the Portfolio Margin 

Rules, stress groups of related positions across a preset range of potential percent 

market moves (e.g., market moves of -15%, -12%, -9%, -6%, -3%, +3%, +6%, +9%, 

+12%, +15% in the case of exchange-traded equity options). 

The Commissions’ required initial and maintenance margin levels for security 

futures (i.e., 20% of the current market value) are based on the margin requirements 

for exchange-traded equity options and are designed to be consistent with those 

requirements in accordance with Section 7(c)(2)(B) of the Exchange Act.76 

Consequently, implementing a risk model approach to calculate required margin levels 

for security futures would substantially alter how the required margin is calculated (or 

would be calculated under these amendments) and would substantially deviate from 

how customer margin requirements are calculated for exchange-traded equity options. 

It also could result in required initial and maintenance margin levels for unhedged 

security futures that are significantly lower than the 20% margin level for unhedged 

exchange-traded equity options held outside a Portfolio Margin Account as well as the 

 74 More information about the OCC’s STANS model is available at 

https://www.theocc.com/risk-management/Margin-Methodology/. 

75 See, e.g., FINRA Rule 4210 and Cboe Rule 10.3. 

76 See 2002 Adopting Release, 67 FR at 53156-61.
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15% margin level for unhedged exchange-traded equity options held in a Portfolio 

Margin Account. 

For these reasons, implementing a risk model approach to calculate margin for 

security futures would be inconsistent with how margin is calculated for exchangetraded equity options at this time and may result in margin levels for unhedged 

security futures positions that are lower than the lowest level of margin applicable to

unhedged exchange-traded equity options (i.e., 15%). Consequently, because no 

exchange-traded equity options are subject to risk-based margin requirements, 

adopting a risk model approach at this time for security futures would conflict with the 

requirements of Section 7(c)(2)(B) of the Exchange Act that: (1) the margin 

requirements for security futures must be consistent with the margin requirements for 

comparable options traded on any exchange registered pursuant to Section 6(a) of the 

Exchange Act; and (2) the initial and maintenance margin levels must not be lower 

than the lowest level of margin, exclusive of premium, required for any comparable 

exchange-traded options.77

To address the conflict between a risk model approach and Section 7(c)(2)(B) 

of the Exchange Act, OneChicago argued that the Commissions could adopt a risk 

model approach because Section 7(c)(2)(B) of the Exchange Act can be read to require

that the level of protection provided to the marketplace by the margin requirements for 

security futures must be consistent with the level of protection provided by the margin 

 77 In this adopting release, the Commissions are considering OneChicago’s proposed 

alternative risk model approach for margining security futures. However, as the 

discussion herein reflects, this alternative is not a viable one because the Commissions 

are not persuaded that it would satisfy the requirements of Section 7(c)(2)(B) of the 

Exchange Act at this time.
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requirements for exchange-traded options.78 Similarly, OneChicago argued that the 

statute can be construed to require that the level of protection provided by the margin 

requirements for security futures (rather than the margin levels) must not be lower than 

the lowest level of protection provided by the margin requirements for exchangetraded options.

OneChicago pointed out that Section 7(c)(2)(B)(iii)(I) of the Exchange Act 

provides that “margin requirements” for a security future product must be consistent 

with the margin requirements for comparable option contracts traded on any exchange 

registered under the Exchange Act. OneChicago further noted that Section 

7(c)(2)(B)(iv) of the Exchange Act also uses the phrase “margin requirements” but 

then qualifies it by excluding “levels of margin” from its provisions regarding 

consistency with Regulation T. Thus, OneChicago concluded that the phrase “margin 

requirements” in Section 7(c)(2)(B)(iii)(I) of the Exchange Act can be read to mean all 

aspects of margin requirements, including margin levels and the type, form, and use of 

collateral for security futures products. 

OneChicago also argued that futures-style margining includes daily pay and 

collect variation margining, and options-style margining – in its view – does not 

include variation margining.

79 Consequently, OneChicago believed that, if Section 

 78 See OneChicago Letter at 30-35.

79 For purposes of this discussion, the Commissions understand the phrase “futures-style 

margining” to refer to initial margin requirements based on the use of risk models, as 

well as the daily settlement of variation margin based on marking open positions to 

market. “Options-style margining” will refer to initial and maintenance margin 

requirements for exchange-traded equity options under the Exchange Act.
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7(c)(2)(B)(iii)(I) of the Exchange Act is read to relate to levels of margin, the 

Commissions would be required to implement a daily pay and collect variation margin 

feature for options (or to eliminate this feature from the security futures margin 

requirements) in order to achieve the consistency required by the statute. OneChicago 

argued that this does not make sense and, therefore, the better reading of the statute is 

that it requires the level of protection provided by the security futures margin 

requirements to be consistent with and not lower than the lowest level of protection 

provided by the margin requirements for comparable exchange-traded options. And, 

according to OneChicago, in analyzing the level of protection provided by futuresstyle margining, the Commissions can consider the daily pay and collect variation 

margin feature to find that a risk model approach to calculating margin would be 

consistent with Section 7(c)(2)(B)(iii) of the Exchange Act. 

The Commissions agree with OneChicago that the phrase “margin 

requirements” in Section 7(c)(2)(B)(iii)(I) of the Exchange Act refers to all aspects of 

margin requirements, including margin levels and the type, form, and use of collateral 

for security futures products. However, the Commissions do not agree that the 

“consistent with” and “not lower than” restrictions in the statute do not apply to levels 

of margin. Section 7(c)(2)(B)(iii)(II) of the Exchange Act states, in pertinent part, that 

“initial and maintenance margin levels for a security future product [must] not be 

lower than the lowest level of margin, exclusive of premium, required for any 

comparable option contract traded on any exchange” registered under the Exchange 
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Act (emphasis added).80

Moreover, the legislative history of the CFMA includes an earlier bill.81 In 

that earlier bill, the provisions governing the setting of margin requirements for 

security futures did not include the “consistent with” and “not lower than” restrictions 

in Sections 7(c)(2)(B)(iii)(I) and (II) of the Exchange Act, respectively.82 Instead, the 

earlier bill would have required that the margin requirements for security futures must 

“prevent competitive distortions between markets offering similar products.”83 The 

Senate Report on the earlier bill explained that “[u]nder the bill, margin levels on 

[security future] products would be required to be harmonized with the options 

markets.”84 Thus, while the text of the earlier bill was not as explicit in terms of 

articulating the “consistent with” and “not lower than” restrictions, the Senate Report 

indicates that the objective was to harmonize margin levels between security futures 

and options to prevent competitive distortions. This objective was clarified in the text 

of Section 7(c)(2)(B) of the Exchange Act, as enacted. In light of this statutory text 

and the legislative history, the best reading of the statute is that the “consistent with” 

and “not lower than” restrictions apply to levels of margin. 

 80 The prefatory text of Sections 7(c)(2)(B)(iii)(I) and (II) of the Exchange Act also uses 

the term “levels of margin.” In particular, it provides that the Federal Reserve Board 

or the Commissions, pursuant to delegated authority, shall prescribe “regulations to 

establish margin requirements, including the establishment of levels of margin (initial 

and maintenance) for security futures products under such terms, and at such levels,” 

as the Federal Reserve Board or the Commissions deem appropriate (emphasis added).

81 See S. Report 106-390 (Aug. 25, 2000).

82 See id. at 39-40.

83 Id. at 39.

84 Id. at 5 (emphasis added). 
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Consequently, the levels of margin for unhedged security-futures must be 

consistent with the margin levels for comparable unhedged exchange-traded equity 

options, and not lower than the lowest level of margin for comparable unhedged 

exchange-traded equity options. Currently, the margin levels for comparable 

unhedged exchange-traded equity options are determined through a percent of a value. 

Therefore, using a risk model approach for security futures would be inconsistent with 

how margin levels are currently determined for comparable exchange-traded equity 

options. Further, at this time, the lowest level of margin for comparable unhedged 

exchange-traded equity options is 15%. Accordingly, the margin levels for unhedged 

security futures cannot be lower than 15%.

OneChicago also cited legislative history to support its reading of the statute.85 

First, OneChicago cited statements that it believed demonstrated that “Congress 

intended to prevent the market for security futures from being ceded to overseas 

competitors” and that “Congress wanted to ensure that U.S. exchanges had the 

potential to compete with these product offerings in overseas markets.”86 However, 

these statements do not bear on whether Sections 7(c)(2)(B)(iii)(I) and (II) of the 

Exchange Act apply to levels of margin. Rather, if OneChicago’s view of 

Congressional intent is correct, it would support the notion that the CFMA was 

designed to establish a U.S. market for security futures to compete with overseas 

 85 OneChicago Letter at 30-32.

86 OneChicago Letter at 30. The Commissions address comments relating to the 

competition with foreign securities markets in section IV below (including the 

CFTC’s consideration of the costs and benefits of the amendments and the SEC’s 

economic analysis, including costs and benefits, of the amendments). 
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markets.87 Further, Sections 7(c)(2)(B)(iii)(I) and (II) require a comparison of security 

futures margin requirements to U.S. exchange-traded option margin requirements –

not to requirements of overseas security futures markets. For these reasons, these 

statements do not support OneChicago’s reading of the statute or conflict with the 

Commissions’ reading of the statute.

Second, OneChicago cited statements that it believed demonstrated “[t]here 

was concern, especially from options industry participants that [security futures] 

would directly compete with options and Congress wanted to make sure that 

participants did not migrate between futures and options for regulatory reasons” and 

that “Congress wanted to avoid regulatory arbitrage.”88 It cited the following 

statements in support of this view:

[T]he bill requires that margin treatment of stock futures must be 

consistent with the margin treatment for comparable exchangetraded options. This ensures that margin levels will not be set 

dangerously low and that stock futures will not have an unfair 

competitive advantage vis-a-vis stock options.89

Our bill would also provide for joint jurisdiction with each agency 

maintaining its core authorities over the trading of single-stock 

users. The legislation would further require that margin levels on 

these products be harmonized with the options market.90

 87 The CFMA ended the prohibition on trading security futures in the United States at a 

time when this product was traded in overseas markets. 

88 OneChicago Letter at 30.

89 See 146 Cong. Rec. H12497 (daily ed. Dec. 15, 2000) (Commodity Futures 

Modernization Act of 2000, speech of Rep. Dingell, Dec. 15, 2000) (emphasis added).

90 See S. 2697 – The Commodity Futures Modernization Act of 2000, Joint Hearing 

Before the Committee on Agriculture, Nutrition, and Forestry United States Senate 

and the Committee on Banking, Housing, and Urban Affairs, (June 21, 2000) (“Senate 

Hearing”) at 3, statement of Sen. Lugar (emphasis added).
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The SEC has always been charged with protecting investors and 

providing full and fair disclosure of corporate market information 

and preventing fraud and manipulation. The CFTC regulates 

commercial and professional hedging and speculation in an 

institutional framework. CFTC cannot regulate insider trading.

Margin requirements are different. I hate to see investors shopping 

as to which instrument to use or to buy for that reason. So neither 

regulation nor the lack of it should pick winners and losers among 

products or exchanges and fair competition should.91

OneChicago argued that these statements indicated that “[b]ill sponsors made a 

point to emphasize that they wanted market forces and not margin levels to determine 

winners and losers” and that “[m]argin needed to be set at a level that prevented it 

from impacting a market participant’s decision on what products to trade.”92 

However, the Congressional concerns and statements identified by OneChicago—that 

security futures should not have an unfair competitive advantage over exchange-traded 

options—support a reading of Sections 7(c)(2)(B)(iii)(I) and (II) of the Exchange Act

that is consistent with the approach the Commissions are adopting here, namely that 

the margin levels for security futures must be consistent with and not lower than the 

lowest level of margin for comparable exchange-traded options.

Contrary to OneChicago’s view, the statute does not provide a mechanism that 

would permit the Commissions to recalibrate margin requirements for security futures 

to foster greater use of the product. Rather, it contains restrictions that were designed 

to ensure that the margin requirements for these products were consistent with the 

margin requirements for comparable exchange-traded options, and not lower than the 

 91 See Senate Hearing at 28, statement of Sen. Schumer.

92 OneChicago Letter at 30-31.
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lowest level of margin for comparable exchange-traded options. This reading of the 

statute is supported by the following statement from the legislative history of the 

CFMA that OneChicago did not cite:

A provision in the bill directs that initial and maintenance margin 

levels for a security future product shall not be lower than the 

lowest level of margin, exclusive of premium, required for any 

comparable option contract traded on any exchange registered 

pursuant to section 6(a) of the Exchange Act of 1934. In that 

provision, the term lowest is used to clarify that in the potential 

case where margin levels are different across the options 

exchanges, security future product margin levels can be based off 

the margin levels of the options exchange that has the lowest 

margin levels among all the options exchanges. It does not permit 

security future product margin levels to be based on option 

maintenance margin levels. If this provision were to be applied 

today, the required initial margin level for security future products 

would be 20 percent, which is the uniform initial margin level for 

short at-the money equity options traded on U.S. options 

exchanges.93

 Further, implementing a risk model approach in order to lower the margin 

requirements to levels in the way OneChicago suggested could create an incentive for 

market participants to trade security futures, if security futures trading resumes, rather 

than exchange-traded options precisely because of the more favorable margin

treatment. 

Based on the text of Section 7(c)(2)(B) of the Exchange Act and the legislative 

history (including the legislative history cited by OneChicago), the better reading of 

the statute is that it applies to levels of margin, and requires that initial and 

maintenance margin levels for security futures be: (1) consistent with margin levels 

 93 See 146 Cong. Rec. E1879 (daily ed. Oct. 23, 2000) (Commodity Futures 

Modernization Act of 2000, speech of Rep. Markey, Oct. 19, 2000) (emphasis added). 

As discussed above, the Commissions implemented the CFMA establishing 20% 

initial and maintenance margin levels for security futures.
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for comparable exchange-traded options; and (2) not lower than the lowest level of 

margin for comparable exchange-traded options. Currently, the lowest level of margin 

for an unhedged exchange-traded equity option is 15%. Consequently, a 15% margin 

level is the lowest level of margin permitted for an unhedged security future.94

OneChicago argued further that “the margins have not been harmonized and 

are not consistent” because security futures “have variation pay/collect while options 

do not, which makes a strict comparison of initial margin percentages inappropriate.”95

OneChicago stated that the concept of daily variation margin plays a critical role in the 

margin framework for security futures, and it believed that the failure to take variation 

margin into account biases the Commissions’ margin rule against security futures.96 

OneChicago believed that variation margin rather than minimum initial and 

maintenance margin levels more effectively protects customers.97 OneChicago argued

 94 OneChicago argued that the Commissions could compare unhedged security futures to 

unhedged long option positions. See OneChicago Letter at 35. In its view, the initial 

and maintenance margin requirement for a long option is 0% and, therefore, a margin 

level for security futures that is lower than 15% would be appropriate. As discussed 

earlier, the margin level is 75% for certain long unhedged options with maturities 

greater than 9 months. However, this margin requirement relates to financing the 

purchase of a long option position. Unlike the case with an unhedged short option, the 

margin does not serve as a performance bond to secure the customer’s obligations if 

the option is assigned to be exercised. Initial margin for a security future serves as a 

performance bond. See, e.g., OneChicago Letter at 4. Long options that do not meet 

the requirements to be subject to the 75% margin level must be paid in full. Thus, 

from a financing perspective, they have a 100% margin requirement (i.e., they cannot 

be purchased through an extension of credit by the broker-dealer). For these reasons, 

the margin requirements for unhedged long exchange-traded options are not 

comparable to the margin requirements for security futures. 

95 OneChicago Letter at 31.

96 OneChicago at 4-5; OneChicago Letter 2 at 5-6.

97 OneChicago Letter at 7.
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that “the level of initial and maintenance margin should be considered not lower than 

comparable options when it provides a level of protection against default that is not 

lower than comparable options” and that this “reading would support the Commissions 

considering variation margin when looking at the appropriate level of initial margin.”98

The Commissions, when adopting the margin requirements for security futures

in 2002, modified the proposal to incorporate the concept of daily pay and collect 

variation margining into the final rules.99 Variation settlement is any credit or debit to 

a customer account, made on a daily or intraday basis, for the purpose of marking-tomarket a security future issued by a clearing agency or cleared and guaranteed by a 

DCO.100 Therefore, in prescribing the required initial and maintenance margin levels 

for security futures, the Commissions’ rules also account for daily variation 

margining.

101 

The variation margin component of the futures and security futures margining 

regimes settles the mark-to-market gains or losses on the positions on a daily basis 

with FCMs collecting payments from their customers and DCOs collecting payments 

from FCMs. The margin requirements for exchange-traded equity options also 

 98 OneChicago Letter at 34.

99 See CFTC Rules 41.43(a)(32), 41.46(c)(1)(vi) and (c)(2)(iii), and 41.47(b)(1), and 

SEC Rules 401(a)(32), 404(c)(1)(vi) and (c)(2)(iii), and 405(b)(1). 

100 See CFTC Rule 41.43(a)(32) and SEC Rule 401(a)(32).

101 See 2002 Adopting Release, 67 FR at 53157. See also FRB Letter (“The authority 

delegated by the Board is limited to customer margin requirements imposed by 

brokers, dealers, and members of national securities exchanges. It does not cover 

requirements imposed by clearing agencies on their members.”) and 2019 Proposing 

Release, 84 FR at 36435 at n.6 (describing variation settlement and maintenance 

margin).
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account for daily mark-to-market gains or losses on an option position. In particular, 

margin rules for exchange-traded equity options require that a customer maintain a 

minimum level of equity in the account (i.e., an amount that equals or exceeds the 

maintenance margin requirement). A mark-to-market gain will increase account 

equity and a loss will decrease account equity potentially generating a requirement for 

the customer to post additional collateral to maintain the minimum account equity 

requirement (i.e., the maintenance margin requirement). In this way, the margin 

requirements for exchange-traded equity options cover the broker-dealer’s exposure to 

the credit risk that arises when the customer’s position incurs a mark-to-market loss, 

just as daily pay and collect variation margining protects the security futures 

intermediary.

Further, if a customer’s security futures position has a mark-to-market gain, the 

clearing agency or DCO will pay the amount of the gain to the security futures

intermediary. This is the pay feature of futures-style variation margining. However, if 

that variation margin payment remains in the customer’s account at the security 

futures intermediary, the customer continues to have credit risk exposure to the 

intermediary. Similarly, if a customer’s exchange-traded equity option has a mark-tomarket gain that results in the account having equity above the maintenance margin 

requirement, the customer will have credit exposure to the broker-dealer with respect 

to the excess equity in the account.

For these reasons, the Commissions do not believe that the variation margin 

requirements for futures and security futures are a unique feature that is absent from 

the margin requirements for exchange-traded options insomuch as both requirements 
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address mark-to-market changes in the value of the positions.

102 Further, there is no 

basis to conclude that the variation settlement process for security futures when 

coupled with a risk model approach to calculating required initial and maintenance 

margin levels for security futures would be consistent with the margin requirements 

for exchange-traded equity options. The margin requirements for exchange-traded 

equity options also account for changes in the mark-to-market value of the options, but 

they do not use risk models to calculate initial and maintenance margin levels.

Moreover, as acknowledged by OneChicago, a risk model approach to 

calculating required initial and maintenance margin levels for unhedged security 

futures could result in margin levels that are significantly lower than the 20% margin 

level for exchange-traded equity options held outside a Portfolio Margin Account as 

well as the 15% margin level for exchange-traded equity options held inside a 

Portfolio Margin Account.103 Consequently, given the “not lower than restriction” of 

Section 7(c)(2)(B)(iii)(II) of the Exchange Act, it would not be appropriate to set 

initial and maintenance margin levels for security futures using a risk model approach

insofar as exchange-traded equity options are not permitted to rely upon a risk model 

approach.

As an alternative to the statutory construction argument discussed above, 

OneChicago stated that “the Commissions can recognize that the concern at the time 

 102 See, e.g., SEC, Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 

Order Approving Proposed Rule Change and Amendments Thereto, Exchange Act 

Release No. 22189 (June 28, 1985) at n.10 (“Maintenance margin in the securities 

industry and variation margin in the commodities industry are basically intended to 

serve the same purposes”).

103 See, e.g., OneChicago Letter at 1 and 14.
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of the CFMA, that options and [security futures] would trade interchangeably, was 

unfounded as options and [security futures] are not comparable products.”104 

Consequently, Section 7(c)(2)(B)(iii) – in OneChicago’s view – “was written into the 

Exchange Act in case the products proved comparable; because they have proven to 

not be comparable, it no longer needs to bind upon financial markets.”105 Relatedly, 

OneChicago also argued that there are no exchange-traded options that are comparable 

to security futures and, therefore, the “consistent with” and “not lower than” 

restrictions of Section 7(c)(2)(B)(iii) of the Exchange Act are not implicated.

The Commissions stated a preliminary belief when proposing the reduction of 

the required margin levels from 20% to 15% that an unhedged security future was 

comparable to an unhedged exchange-traded equity option held in a Portfolio Margin 

Account.106 This belief was grounded on the Commissions’ view – when adopting the 

margin requirements for security futures – that an unhedged short at-the-money 

exchange-traded equity option is comparable to a security future.

107

OneChicago stated that security futures products are not comparable to 

exchange-traded equity options because the latter have different risk profiles than 

security futures, including dividend risk, pin risk, and early assignment risk.108 

 104 See OneChicago Letter at 35.

105 Id.

106 See 2019 Proposing Release, 84 FR at 36435, 36438-40.

107 See 2002 Adopting Release, 67 FR at 53157; 2001 Proposing Release 66 FR at 50725-

26.

108 OneChicago Letter at 2, 9; OneChicago Letter 2 at 1-2.
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Further, OneChicago stated that security futures are used for different purposes than 

exchange-traded equity options.109 In this regard, OneChicago noted that security 

futures are delta one derivatives used in equity finance transactions and that they 

compete with other delta one transactions such as total return swaps, master security 

lending agreements, and master security repurchase agreements.110 OneChicago 

commented that equity financing transactions can be used to provide customers with 

synthetic (long) exposure to a notional amount of a security, while the financing 

counterparty pre-hedges the position by accumulating an equivalent position in the 

underlying shares.111

OneChicago also provided statistical data and analysis to support its contention 

that security futures are not comparable to exchange-traded equity options.112 In 

particular, OneChicago provided statistical data comparing trade size (number of 

contacts and notional value) between options and security futures and comparing 

 109 One Chicago Letter at 2-3.

110 Delta one derivatives are financial instruments with a delta that is close or equal to 

one. Delta measures the rate of change in a derivative relative to a unit of change in 

the underlying instrument. Delta one derivatives have no optionality, and therefore, as 

the price of the underlying instrument moves, the price of the derivative is expected to 

move at, or close to, the same rate. See also 2019 Proposing Release, 84 FR 36435, at 

n.14.

111 OneChicago Letter at 2.

112 The Commissions address the statistical data and analysis provided by OneChicago in 

more detail in section IV of this release. In addition to the statistical data and analysis 

discussed below, OneChicago provided statistical data and analysis on possible 

correlations between changes in price of the underlying security and changes in 

trading activity in security futures and equity options (i.e., sensitivity to underlying 

price moves). OneChicago Letter 3 at 12-13. OneChicago stated that the results of 

this analysis were ambiguous. OneChicago Letter 3 Summary at 1.
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security futures delivery rates with options exercise rates.113 OneChicago stated that 

the delivery data makes “clear” that the “markets view and use the products 

differently.”114 OneChicago also provided statistical data on correlations between 

open interest in security futures and equity options.115 OneChicago stated that the data 

results show no correlation between changes in open interest in security futures and 

options.116

After considering these comments, the Commissions note that under Section 

7(c)(2)(b)(iii)(I) of the Exchange Act, customer margin requirements for security 

futures must be consistent with the margin requirements for comparable exchangetraded options. The Commissions recognize that security futures may not be identical 

to exchange-traded equity options and that there are differences between the products 

in terms of their risk characteristics and how they are used by market participants. 

However, the Commissions continue to believe that the approach taken in this release, 

with respect to margin levels, is sound because these products generally share similar 

risk profiles for purposes of assessing margin insofar as both products provide 

exposure to an underlying equity security or narrow-based equity security index.117 

 113 OneChicago Letter 3 at 9-11.

114 OneChicago Letter 3 Summary at 1.

115 OneChicago Letter 3 at 14-15.

116 OneChicago Letter 3 Summary at 1.

117 Derivatives may be broadly described as instruments or contracts whose value is based 

upon, or derived from, some other asset or metric. See also Risk Disclosure Statement 

for Security Futures Contracts, available at 

https://www.nfa.futures.org/members/member-resources/files/security-futures-
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Thus, both products can be used to hedge a long or short position in the underlying 

equity security or narrow-based equity security index. Each product also can be used 

to speculate on a potential price movement of the underlying equity security or 

narrow-based equity security index. Consequently, a financial intermediary’s potential 

exposure to a customer’s unhedged security future or unhedged exchange-traded 

equity option position is based on the market risk (i.e., price volatility) of the 

underlying equity security or narrow-based equity security index. 

In addition, both short security futures positions and certain exchange-traded 

options strategies produce unlimited downside risk. Investors in security futures and 

writers of options may lose their margin deposits and premium payments and be 

required to pay additional funds. In addition, a very deep-in-the money call or put 

option on the same security (with a delta of one) is an option contract comparable to a 

security futures contract. Further, as discussed above, one commenter contends that

synthetic futures strategies are an important segment of today’s options markets, that 

could compete with security futures, if trading in security futures resumes.

The margin requirements for security futures and short unhedged exchangetraded equity options are designed to ensure that the customer can perform on the 

contractual obligations imposed by these products. For these reasons, security futures 

and short exchange-traded equity options can be appropriately considered to be 

comparable products for the purposes of setting appropriate margin levels for security 

 

disclosure.pdf and Characteristics and Risks of Standardized Options, available at

https://www.theocc.com/about/publications/character-risks.jsp.
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futures consistent with the provisions of Section 7(c)(2)(B) of the Exchange Act.118 

OneChicago also argued that the Commissions should compare the customer 

margin requirements for security futures with the margin requirements for over-thecounter total return swaps, equity index futures, and security futures traded 

overseas.119 In response, Section 7(c)(2)(B) of the Exchange Act provides that the 

margin requirements for security futures must be consistent with the margin 

requirements for comparable options traded on any exchange registered pursuant to 

Section 6(a) of the Exchange Act. The statute does not directly contemplate 

comparisons with the margin requirements for the products and markets identified by 

OneChicago. Rather, it requires comparisons to comparable exchange-traded options. 

In this context, an unhedged security future is comparable to an unhedged 

exchange-traded equity option held in a Portfolio Margin Account for the purposes of 

setting margin requirements under Section 7(c)(2)(B) of the Exchange Act.

As an alternative to implementing a risk model approach for all security 

futures, OneChicago suggested implementing it on a more limited basis for security 

futures combinations that result in STARS transactions.120 A STARS transaction 

combines two security futures to form a spread position. The front leg of the spread 

expires on the date of the STARS transaction and the second (or back) leg expires at a 

distant date. OneChicago believed that a STARS transaction would be a substitute for 

 118 See 2019 Proposing Release, 84 FR at 36436.

119 OneChicago Letter at 11.

120 OneChicago Letter at 19; see also Memorandum from the Division of Trading and 

Markets regarding a July 16, 2019, meeting with representatives of OneChicago (July 

29, 2019).
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an equity repo or stock loan transaction with the transfer of stock and cash 

accomplished through a security future transaction.121 OneChicago suggested that it 

would be appropriate to margin STARS transactions at risk-based levels since they are 

exclusively used for equity finance transactions.122 OneChicago also argued that riskbased margin treatment for a STARS transaction would be consistent with the 

Exchange Act and argued that there are no comparable options that trade as a spread 

on a segregated platform and no combinations of options can replicate the mechanics 

of a STARS transaction.123 

The Commissions note that OneChicago has discontinued trading operations

and is no longer offering STARS transactions. However, combining security futures 

into a STARS transaction does not change the fundamental nature of the security 

futures involved in the transaction – they remain security futures. In addition, as noted 

above, the front leg of the spread expires on the date of the STARS transaction, 

leaving only a single security future position in the customer’s account until the 

expiration of the back leg at a later date. Consequently, for the reasons discussed 

above, it would not be consistent with Section 7(c)(2)(B) of the Exchange Act to 

implement a risk margin approach for security futures that are combined to create a 

STARS transaction.

 121 OneChicago Letter at 19-20. OneChicago noted that the expiration of the front leg 

results in a transfer of securities for cash on the next business day following the trade

date (T+1). When the back leg expires, OneChicago noted that a reversing transaction 

takes place that returns both parties to their original positions. OneChicago Letter at 

19.

122 OneChicago Letter at 19-20. 

123 OneChicago Letter at 36.
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To summarize, the Commissions are not persuaded by OneChicago’s 

arguments that, at this time, implementing a risk model approach to calculating margin 

for security futures would be permitted under Section 7(c)(2)(B) of the Exchange Act. 

Moreover, implementing a risk model approach would substantially alter how the 

required minimum initial and maintenance margin levels for security futures are 

calculated. It also would be a significant deviation from how margin is calculated for 

listed equity options and other equity positions (e.g., long and short securities 

positions). It would not be appropriate at this time to implement a different margining 

system for security futures, given their relation to products that trade in the U.S. equity 

markets. Implementing a different margining system for security futures may result in 

substantially lower margin levels for these products as compared with other equity 

products and could have unintended competitive impacts.124 For these reasons, even if 

the Commissions were persuaded at this time that OneChicago’s interpretation was 

permitted by the statute, the Commissions would not agree that it was the appropriate 

interpretation.

Consequently, the Commissions are adopting the amendments to reduce the 

required initial and maintenance margin levels for an unhedged security futures

position from 20% to 15%, as proposed.125

 124 See sections IV.A.6. (CFTC – Discussion of Alternatives) and IV.B.5. (SEC –

Reasonable Alternatives Considered) (each discussing the use of risk-based margin 

models as an alternative to the final rule amendments in this release). 

125 The Commissions continue to believe that these amendments – because they relate to 

levels of margin – do not implicate the requirement in Section 7(c)(2)(B)(iv) of the 

Exchange Act that margin requirements for security futures (other than levels of 

margin), including the type, form, and use of collateral, must be consistent with the 
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The Commissions’ margin requirements continue to permit SRAs and security 

futures intermediaries to establish higher margin levels and to take appropriate action 

to preserve their financial integrity.126 OneChicago advocated for two modifications 

to this provision of the margin rules for security futures.127 First, it suggested that only 

exchanges and clearinghouses that list and clear security futures products be given the 

authority to set higher margin levels, because they control the margin levels and thus 

the competitiveness of the competing venues.128 In support of this suggestion, it 

identified an exchange that has prescribed 20% margin levels for security futures even 

though it does not list any security futures.129 Relatedly, OneChicago recommended 

that the Commissions require that margin levels be set higher than the proposed 15%

minimum level if justified by the risk of the security future and noted that while one 

SRA might set higher levels based on risk, another SRA may maintain the 15% 

levels.

130

After considering these comments, the Commissions are not incorporating 

OneChicago’s suggested modifications regarding establishing higher margin levels. 

The security futures margin rules establish minimum levels and do not set any 

 

requirements of Regulation T. The Commissions did not receive any comments 

objecting to this view.

126 See CFTC Rule 41.42(c)(1) and SEC Rule 400(c)(1). See 2019 Proposing Release, 84 

FR at 36440. 

127 OneChicago Letter at 17.

128 OneChicago Letter at 17.

129 The NYSE has rules related to margin levels for security futures, but it does not list 

any security futures.

130 OneChicago Letter at 17.
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limitations as to maximum levels. SRAs, including clearinghouses, and security 

futures intermediaries are permitted to raise margin requirements above 15% if 

justified by the risk of a security futures position. In addition, security futures 

intermediaries also are subject to rules that require them to raise margin requirements 

where appropriate to manage credit risk in customer accounts.131 These rules provide 

SRAs and security futures intermediaries important flexibility to manage risk as they 

deem appropriate, including the ability to increase margin requirements for specific 

positions or customer accounts. Limiting the ability to increase margin requirements 

only to exchanges and clearinghouses that list and clear security futures would be 

inconsistent with this approach. For these reasons, it would not be appropriate to 

modify the provisions in the security futures margin requirements permitting SRAs 

and security futures intermediaries to set higher margin levels as suggested by 

OneChicago. 

B. Conforming Revisions to the Strategy-Based Offset Table

1. The Commissions’ Proposal

The Commissions’ rules permit an SRA to set margin levels that are lower than 

 131 See e.g., FINRA Rule 4210(d) which requires FINRA members to establish 

procedures to: (1) review limits and types of credit extended to all customers; (2) 

formulate their own margin requirements; and (3) review the need for instituting 

higher margin requirements, mark-to-markets and collateral deposits than are required 

by FINRA’s margin rule for individual securities or customer accounts; see also

FINRA Rule 4210(f)(8) (providing authority for FINRA, if market conditions warrant, 

to implement higher margin requirements). See e.g., CFTC Rule 1.11 (requiring 

FCMs to establish risk management programs that address market, credit, liquidity, 

capital and other applicable risks, regardless of the type of margining offered). See 

also National Futures Association (“NFA”) Rule 2-26 FCM and IB Regulations, 

which states that any member or associate who violates CFTC Rule 1.11 (and other 

rules) shall be deemed to have violated an NFA requirement. 
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20% of the current market value of the security future in the case of an offsetting 

position involving security futures and related positions.

132 The SRA rules must meet 

the four criteria set forth in Section 7(c)(2)(B) of the Exchange Act and must be 

effective in accordance with Section 19(b)(2) of the Exchange Act and, as applicable, 

Section 5c(c) of the CEA.133 In connection with these provisions governing SRA 

rules, the Commissions published the Strategy-Based Offset Table.

134 

The Commissions stated the belief that the offsets identified in the StrategyBased Offset Table were consistent with the strategy-based offsets permitted for 

comparable offsetting positions involving exchange-traded options.135 The 

Commissions further stated the expectation that SRAs seeking to permit trading in 

security futures will submit to the Commissions proposed rules that impose levels of 

required margin for offsetting positions involving security futures in accordance with 

the minimum margin requirements identified in the Strategy-Based Offset Table. 

SRAs have adopted rules consistent with the Strategy-Based Offset Table.

136

 132 See CFTC Rule 41.45(b)(2) and SEC Rule 403(b)(2). See also 2002 Adopting 

Release, 67 FR at 53158-61.

133 Section 19(b)(2) of the Exchange Act governs SRA rulemaking with respect to SEC 

registrants, and Section 5c(c) of the CEA governs SRA rulemaking with respect to 

CFTC registrants.

134 See 2002 Adopting Release, 67 FR at 53158-61.

135 Id. at 53159.

136 See, e.g., FINRA Rule 4210(f)(10) and Cboe Rule 10.3(k).
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The Commissions proposed to re-publish the Strategy-Based Offset Table to 

conform it to the proposed 15% required margin levels.

137 The re-published StrategyBased Offset Table would incorporate the 15% required margin levels for certain 

offsetting positions (as opposed to the current 20% levels) and would retain the same 

percentages for all other offsets.

2. Comments and the Re-Published Strategy-Based Offset 

Table

OneChicago recommended several changes to the Strategy-Based Offset Table, 

as proposed to be revised. First, OneChicago suggested reducing the margin 

requirement for “delta-neutral” positions from 5% to the lower of: (1) the total 

calculated by multiplying $0.375 for each position by the instrument’s multiplier, not 

to exceed the market value in the case of long positions, or (2) 2% of the current 

market value of the security futures contract.138 These recommended changes would 

not be appropriate. The 5% requirement was based on the minimum margin required 

by rules of securities SROs for offsetting long and short positions in the same 

security.139 The 5% margin requirement for this strategy continues to exist in current 

securities SRO rules.140 Accordingly, lowering the requirement as recommended by 

OneChicago would not be consistent with Section 7(c)(2)(B) of the Exchange Act.

 137 See 2019 Proposing Release, 84 FR at 36441-36443. 

138 OneChicago Letter at 15. This recommendation would apply to items 4, 10, 13, 17, 

18, and 19 in the Strategy-Based Offset Table, as proposed to be revised. See 2019 

Proposing Release, 84 FR at 36441-43.

139 See 2002 Adopting Release, 67 FR at 53158, n.187.

140 See, e.g., FINRA Rule 4210(e)(1).
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OneChicago also requested that the Commissions incorporate total return 

equity swaps into the Strategy-Based Offset Table.141 OneChicago stated that total 

return equity swaps are an exact substitute for security futures. OneChicago did not 

specify whether it was referring to cleared or non-cleared total return equity swaps. In 

either case, it would not be appropriate to include them in the Strategy-Based Offset 

Table. Securities SRO margin rules for options do not, at this time, recognize offsets

involving these products. Therefore, adding them to the Strategy-Based Offset Table

would not be consistent with Section 7(c)(2)(B) of the Exchange Act. 

OneChicago further requested that offset positions margined at 10% should be 

lowered to 7.5% to mirror the magnitude of the reduction of minimum required margin 

levels from 20% to 15% for unhedged security futures.

142 This would make the 

margin requirements for offsets recognized in the Strategy-Based Offset Table lower 

than offsets for exchange-traded options currently permitted by securities SRO margin 

rules. Therefore, modifying the Strategy-Based Offset Table in this manner would not 

be consistent with Section 7(c)(2)(B) of the Exchange Act.

Finally, OneChicago suggested that the Commissions could simplify the 

Strategy-Based Offset Table by replacing it with an offset rule.

143 Under the 

suggested rule, offset positions would be margined at the greater of: (1) the total 

calculated by multiplying $0.375 for each position by the instrument’s multiplier, not 

 141 OneChicago Letter at 16.

142 OneChicago Letter at 16. The reduction in margin from 10% to 7.5% would apply to 

items 2, 8, 9, 11,12 14, 15 and 16 in the Strategy-Based Offset Table, as proposed to 

be revised.

143 OneChicago Letter at 16-17.
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to exceed the market value in the case of long positions; or (2) 15% of the delta 

exposed portion of the portfolio. As discussed above, the Strategy-Based Offset Table

is designed to permit offsets that are consistent with offsets recognized for comparable 

exchange-traded options under the securities SRO margin rules. For the reasons 

discussed above, the rule suggested by OneChicago would not be consistent with the 

permitted offsets for exchange-traded options and, consequently, would not be 

consistent with Section 7(c)(2)(B) of the Exchange Act.

For the foregoing reasons, the Commissions are re-publishing the StrategyBased Offset Table with the proposed revisions.

144 The Commissions expect that 

SRAs will submit to the Commissions proposed rules that impose levels of required 

margin for offsetting positions involving security futures in accordance with the 

minimum margin levels identified in the Strategy-Based Offset Table. 

DESCRIPTION OF 

OFFSET

SECURITY 

UNDERLYING 

THE 

SECURITY 

FUTURE

INITIAL MARGIN 

REQUIREMENT

MAINTENANCE 

MARGIN 

REQUIREMENT

1 Long security future or 

short security future

Individual stock 

or narrow-based 

securities index

15% of the current 

market value of the 

security future.

15% of the current 

market value of the 

security future.

2 Long security future (or 

basket of security futures 

representing each 

component of a narrowbased securities index1

)

and

long put option2 on the 

same underlying security 

(or index)

Individual stock 

or narrow-based 

securities index

15% of the current 

market value of the long 

security future, plus pay 

for the long put in full.

The lower of: (1) 10% of 

the aggregate exercise 

price3 of the put plus the 

aggregate put out-of-themoney4 amount, if any; 

or (2) 15% of the current 

market value of the long 

security future.

 144 Item 1 of the revised Strategy-Based Offset Table lists the margin percentages for a 

long security future and a short security future. These percentages are the baseline, 

not offsets, but they are included in the table to preserve consistency with the earlier 

offset table. 
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3 Short security future (or 

basket of security futures 

representing each 

component of a narrowbased securities index1

)

and

short put option on the 

same underlying security 

(or index)

Individual stock 

or narrow-based 

securities index

15% of the current 

market value of the short 

security future, plus the 

aggregate put in-themoney amount, if any. 

Proceeds from the put 

sale may be applied.

15% of the current 

market value of the short 

security future, plus the 

aggregate put in-themoney amount, if any.5

4 Long security future 

and

short position in the same 

security (or securities 

basket1

) underlying the 

security future 

Individual stock 

or narrow-based 

securities index

The initial margin 

required under 

Regulation T for the 

short stock or stocks.

5% of the current market 

value as defined in 

Regulation T of the stock 

or stocks underlying the 

security future.

5 Long security future 

(or basket of security 

futures representing each 

component of a narrowbased securities index1

)

and

short call option on the 

same underlying security 

(or index)

Individual stock 

or narrow-based 

securities index

15% of the current 

market value of the long 

security future, plus the 

aggregate call in-themoney amount, if any. 

Proceeds from the call 

sale may be applied.

15% of the current 

market value of the long 

security future, plus the 

aggregate call in-themoney amount, if any. 

6 Long a basket of narrowbased security futures 

that together tracks a 

broad based index1 and 

short a broad-based 

security index call option 

contract on the same 

index

Narrow-based 

securities index

15% of the current 

market value of the long 

basket of narrow-based 

security futures, plus the 

aggregate call in-themoney amount, if any. 

Proceeds from the call 

sale may be applied.

15% of the current 

market value of the long 

basket of narrow-based 

security futures, plus the 

aggregate call in-themoney amount, if any.

7 Short a basket of narrowbased security futures 

that together tracks a 

broad-based security 

index1 and short a broadbased security index put 

option contract on the 

same index

Narrow-based 

securities index

15% of the current 

market value of the short 

basket of narrow-based 

security futures, plus the 

aggregate put in-themoney amount, if any. 

Proceeds from the put 

sale may be applied.

15% of the current 

market value of the short 

basket of narrow-based 

security futures, plus the 

aggregate put in-themoney amount, if any.

 
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8 Long a basket of narrowbased security futures 

that together tracks a 

broad-based security 

index1 and 

long a broad-based 

security index put option 

contract on the same 

index

Narrow-based 

securities index

15% of the current 

market value of the long 

basket of narrow-based 

security futures, plus pay 

for the long put in full.

The lower of: (1) 10% of 

the aggregate exercise 

price of the put, plus the 

aggregate put out-of-themoney amount, if any; or 

(2) 15% of the current 

market value of the long 

basket of security 

futures. 

9

Short a basket of narrowbased security futures 

that together tracks a 

broad-based security 

index1 and 

long a broad-based 

security index call option 

contract on the same 

index

Narrow-based 

securities index

15% of the current 

market value of the short 

basket of narrow-based 

security futures, plus pay 

for the long call in full.

The lower of: (1) 10% of 

the aggregate exercise 

price of the call, plus the 

aggregate call out-of-themoney amount, if any; or 

(2) 15% of the current 

market value of the short 

basket of security 

futures. 

10 Long security future

and

short security future on 

the same underlying 

security (or index) 

Individual stock 

or narrow-based 

securities index

The greater of: 5% of 

the current market value 

of the long security 

future; or (2) 5% of the 

current market value of 

the short security future. 

The greater of: (1) 5% of 

the current market value 

of the long security 

future; or (2) 5% of the 

current market value of 

the short security future. 

11 Long security future,

long put option 

and

short call option. The 

long security future, long 

put and short call must 

be on the same 

underlying security and 

the put

and call must have the 

same exercise price.

(Conversion)

Individual stock 

or narrow-based 

securities index

15% of the current 

market value of the long 

security future, plus the 

aggregate call in-themoney amount, if any, 

plus pay for the put in 

full. Proceeds from the 

call sale may be applied.

10% of the aggregate 

exercise price, plus the 

aggregate call in the 

money amount, if any.

12 Long security future,

long put option

and

short call option. The 

long security future, long 

put and short call must 

be on the same 

underlying security and 

the put exercise price 

must be below the call 

exercise price. 

(Collar)

Individual stock 

or narrow-based 

securities index

15% of the current 

market value of the long 

security future, plus the 

aggregate call in-themoney amount, if any, 

plus pay for the put in 

full. Proceeds from call 

sale may be applied.

The lower of: (1) 10% of 

the aggregate exercise 

price of the put plus the 

aggregate put out-of-themoney amount, if any; or 

(2) 15% of the aggregate 

exercise price of the call, 

plus the aggregate call 

in-the-money amount, if 

any.

13 Short security future

and

long position in the same 

security (or securities 

basket1) underlying the 

security future 

Individual stock 

or narrow-based 

securities index

The initial margin 

required under 

Regulation T for the long 

stock or stocks.

5% of the current market 

value, as defined in 

Regulation T, of the long 

stock or stocks.
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14 Short security future

and

long position in a security 

immediately convertible 

into the same security 

underlying the security 

future, without 

restriction, including the 

payment of money

Individual stock 

or narrow-based 

securities index

The initial margin 

required under 

Regulation T for the long 

security.

10% of the current 

market value, as defined 

in Regulation T, of the 

long security.

15 Short security future (or 

basket of security futures 

representing each 

component of a narrowbased securities index1

)

and

long call option or 

warrant on the same 

underlying security (or 

index)

Individual stock 

or narrow-based 

securities index

15% of the current 

market value of the short 

security future, plus pay 

for the call in full.

The lower of: (1) 10% of 

the aggregate exercise 

price of the call, plus the 

aggregate call out-of-themoney amount, if any; or 

(2) 15% of the current 

market value of the short 

security future. 

16 Short security future,

Short put option

and

long call option. The 

short security future, 

short put and long call 

must be on the same 

underlying security and 

the put

and call must have the 

same exercise price.

(Reverse Conversion)

Individual stock 

or narrow-based 

securities index

15% of the current 

market value of the short 

security future, plus the

aggregate put in-themoney amount, if any, 

plus pay for the call in 

full. Proceeds from put 

sale may be applied. 

10% of the aggregate 

exercise price, plus the 

aggregate put in-themoney amount, if any.

17 Long (short) a basket of 

security futures, each 

based on a narrow-based 

securities index that 

together tracks the 

broad-based index1

and

short (long) a broad 

based-index future

Narrow-based 

securities index

5% of the current market 

value of the long (short) 

basket of security 

futures.

5% of the current market 

value of the long (short) 

basket of security 

futures.

18 Long (short) a basket of 

security futures that 

together tracks a narrowbased index1

and

short (long) a narrow 

based-index future

Individual stock

and

narrow-based 

securities index

The greater of: (1) 5% of 

the current market value 

of the long security 

future(s); or (2) 5% of 

the current market value 

of the short security 

future(s).

The greater of: (1) 5% of 

the current market value 

of the long security 

future(s); or (2) 5% of 

the current market value 

of the short security 

future(s).

19 Long (short) a security 

future and short (long) 

an identical security 

future traded on a 

different market.6

Individual stock 

and narrowbased securities

index

The greater of: (1) 3% of 

the current market value 

of the long security 

future(s); or (2) 3% of 

the current market value 

of the short security 

future(s).

The greater of: (1) 3% of 

the current market value 

of the long security 

future(s); or (2) 3% of 

the current market value 

of the short security 

future(s).

 
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1 Baskets of securities or security futures contracts replicate the securities that compose the 

index, and in the same proportion.

2 Generally, unless otherwise specified, stock index warrants are treated as if they were index 

options.

3 “Aggregate exercise price,” with respect to an option or warrant based on an underlying 

security, means the exercise price of an option or warrant contract multiplied by the numbers 

of units of the underlying security covered by the option contract or warrant. “Aggregate 

exercise price” with respect to an index option means the exercise price multiplied by the 

index multiplier.

4 “Out-of-the-money” amounts are determined as follows: (1) for stock call options and 

warrants, any excess of the aggregate exercise price of the option or warrant over the current 

market value of the equivalent number of shares of the underlying security; (2) for stock put 

options or warrants, any excess of the current market value of the equivalent number of 

shares of the underlying security over the aggregate exercise price of the option or warrant;

(3) for stock index call options and warrants, any excess of the aggregate exercise price of 

the option or warrant over the product of the current index value and the applicable index 

multiplier; and (4) for stock index put options and warrants, any excess of the product of the 

current index value and the applicable index multiplier over the aggregate exercise price of 

the option or warrant.

5 “In the-money” amounts are determined as follows: (1) for stock call options and warrants, 

any excess of the current market value of the equivalent number of shares of the underlying 

security over the aggregate exercise price of the option or warrant; (2) for stock put options 

or warrants, any excess of the aggregate exercise price of the option or warrant over the 

current market value of the equivalent number of shares of the underlying security; (3) for 

stock index call options and warrants, any excess of the product of the current index value 

and the applicable index multiplier over the aggregate exercise price of the option or warrant; 

and (4) for stock index put options and warrants, any excess of the aggregate exercise price 

of the option or warrant over the product of the current index value and the applicable index 

multiplier.

6 Two security futures are considered “identical” for this purpose if they are issued by the 

same clearing agency or cleared and guaranteed by the same derivatives clearing 

organization, have identical contract specifications, and would offset each other at the 

clearing level.

C. Other Matters
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One commenter urged the Commissions to make clear, where appropriate, that 

margin rules of general applicability do not apply to security futures.145 Specifically, 

this commenter requested clarification about the intersection of the security futures 

rules and CFTC general margin requirements under Part 39 of the CFTC’s regulations 

for DCOs.146 The commenter cited to a CFTC rule proposal related to customer initial 

margin requirements as an example of a rule of general applicability that should be 

addressed by the Commissions. Earlier this year, the CFTC adopted changes to the 

DCO core principles, including CFTC Rule 39.13(g)(8)(ii) relating to customer initial 

margin requirements.147 As the CFTC noted in the 2019 Proposing Release148 and in 

the final rule adopting changes to DCO core provisions,149 the CFTC’s Division of 

Clearing and Risk issued an interpretative letter in September 2012 stating that the 

specific initial margin requirements under CFTC Rule 39.13(g)(8)(ii) do not apply to 

security futures positions.150 CFTC Letter No. 12-08 is still in effect and may be 

relied upon by market participants. The CFTC believes that CFTC Letter No. 12-08 

 

145 See FIA Letter at 2.

146 See FIA Letter at 2; see also CFTC Letter No. 12-08 (Sept. 14, 2012); 2019 Proposing 

Release, 84 FR 36437, at n.40.

147 See Derivatives Clearing Organization General Provisions and Core Principles, 85 

FR 4800 (Jan. 27, 2020) (amending certain CFTC regulations applicable to registered 

DCOs). 

148 2019 Proposing Release, 84 FR 36437, at n.40.

149 Derivatives Clearing Organization General Provisions and Core Principles, 85 FR at 

4812.

150 CFTC Letter No. 12-08 (Sept. 14, 2012) at 10, available at

https://www.cftc.gov/csl/12-08/download. 
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addresses the commenter’s concerns, and the CFTC will not be revising the position 

taken by the CFTC’s Division of Clearing and Risk in this rulemaking. 

III. PAPERWORK REDUCTION ACT 

A. CFTC

The Paperwork Reduction Act of 1995 (“PRA”)

151 imposes certain 

requirements on Federal agencies (including the CFTC and the SEC) in connection 

with their conducting or sponsoring any collection of information as defined by the 

PRA. The final rule amendments do not require a new collection of information on 

the part of any entities subject to these rules. Accordingly, the requirements imposed 

by the PRA are not applicable to these rules.

B. SEC

The PRA152 imposes certain requirements on Federal agencies (including the 

CFTC and the SEC) in connection with their conducting or sponsoring any collection 

of information as defined by the PRA. The final rule amendments do not contain a 

“collection of information” requirement within the meaning of the PRA. Accordingly, 

the PRA is not applicable. 

 151 44 U.S.C. 3501 et seq.

152 Id.
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IV. CFTC CONSIDERATION OF COSTS AND BENEFITS AND SEC 

ECONOMIC ANALYSIS (INCLUDING COSTS AND BENEFITS) OF THE 

PROPOSED AMENDMENTS

A. CFTC

1. Introduction

These final rule amendments will permit customers in security futures to pay a 

lower minimum margin level for an unhedged security futures position. The final 

rules set required initial margin for each long or short position in a security future at 

15% of the current market value. In connection with this change, the Strategy-Based 

Offset Table will be restated so that it is consistent with the reduction in the minimum 

initial margin.

Section 15(a) of the CEA requires the CFTC to consider the costs and benefits 

of its actions before promulgating a regulation under the CEA or issuing certain 

orders.153 Section 15(a) further specifies that the costs and benefits shall be evaluated 

in light of five broad areas of market and public concern: (1) protection of market 

participants and the public; (2) efficiency, competitiveness, and financial integrity of 

futures markets; (3) price discovery; (4) sound risk management practices; and (5) 

other public interest considerations. The CFTC considers the costs and benefits 

resulting from its discretionary determinations with respect to the Section 15(a) factors 

below. Where reasonably feasible, the CFTC has endeavored to estimate quantifiable 

costs and benefits. Where quantification is not feasible, the CFTC identifies and 

describes costs and benefits qualitatively. 

 153 7 U.S.C. 19(a).
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The CFTC requested comments on all aspects of the costs and benefits 

associated with the proposed rule amendments. In particular, the CFTC requested that 

commenters provide data and any other information upon which the commenters relied 

to reach their conclusions regarding the CFTC’s proposed considerations of costs and 

benefits.154 The Commissions received comments that indirectly address the costs and 

benefits of the proposed amendments. Relevant portions of the comments are 

discussed in the analysis below. 

The CFTC’s consideration of costs and benefits includes a brief description of 

the economic baseline against which to compare the rule amendments, a summary of 

the amendments, and separate, detailed discussions of the costs and benefits of the 

amendments. Then, the CFTC examines alternatives offered by commenters. Finally, 

the CFTC considers each of the section 15(a) factors under the CEA. 

2. Economic Baseline

The CFTC’s economic baseline for this analysis is the twenty percent margin 

requirement on security futures positions that was adopted in 2002 and exists today in 

CFTC Rule 41.45(b)(1), along with the offsetting positions table under CFTC Rule 

41.45(b)(2) (Strategy-Based Offset Table). In the 2002 Adopting Release, the 

Commissions finalized a set of security futures margin rules that complied with the 

statutory requirements under Section 7(c)(2)(B) of the Exchange Act. The rules state 

that, “the required margin for each long or short position in a security future shall be 

 154 The CFTC sought “estimates and views regarding the specific costs and benefits for a 

security futures clearing organization, exchange, intermediary, or trader that may 

result from the adoption of the proposed amendment.” 2019 Proposing Release, 84 

FR at 36446-47. 
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twenty (20) percent of the current market value of such security future.”155 The rules

also allow SRAs to set margin levels lower than the 20% minimum requirement for 

customers with “an offsetting position involving security futures and related 

positions.”156 In addition, the rules that were finalized under the 2002 Adopting 

Release permit certain customers to take advantage of exclusions to the minimum 

margin requirement for security futures. 

The CFTC has considered the costs and benefits of the rule amendments as 

compared with the baseline of the current minimum initial and maintenance margin 

levels for unhedged security futures, which is 20% of the current market value of such 

security future. The CFTC notes that OneChicago, the only exchange listing security 

futures in the U.S., discontinued all trading operations on September 21, 2020. At this 

time, there are no security futures contracts listed for trading on U.S. exchanges. This 

release considers the costs and benefits that would occur if OneChicago were to 

resume operations or another exchange were to launch security futures contracts. 

3. Summary of the Final Rules

The final rules lower the required initial and maintenance margin levels for an 

unhedged security futures position from 20% to 15% of the current market value of 

such a security futures position. In addition, the final rules make certain revisions to 

the Strategy-Based Offset Table in line with the revised margin requirement. These 

amendments to the security futures margin rules bring margin requirements for 

 155 CFTC Rule 41.45(b)(1), 17 CFR 41.45(b)(1). See CFTC Rule 41.43(a)(4), 17 CFR 

41.43(a)(4) (defining the term “current market value.”).

156 CFTC Rule 41.45(b)(2), 17 CFR 41.45(b)(2). 
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security futures held in futures accounts, or securities accounts that are not Portfolio 

Margin Accounts, into alignment with the required margin level for unhedged security 

futures held in Portfolio Margin Accounts. The final rules do not make any other 

changes to the security futures margin requirement regime. 

4. Description of Costs

As a general matter, the CFTC believes that if security futures trading resumes, 

the final rules will reduce costs relative to existing CFTC Rule 41.45(b)(1) because the 

final rules decrease the level of margin required for an unhedged security futures 

position from 20% to 15%. The CFTC has determined that, because there is no 

security futures trading at this time, there may be new startup costs such as operational 

or technology costs associated with calculating security futures customer margin if a 

new exchange were to launch security futures trading. Such costs would be less 

significant for OneChicago, if it were to resume operations, given that the 

infrastructure for calculating such margin already exists and would not require major 

reprogramming or changes beyond costs that would be incurred to relaunch security 

futures contracts. One commenter noted that the final rules’ “margin requirements 

will be simpler to administer and risk manage for intermediaries that facilitate trading 

in the market, and better aligns with customer use of these products.”157 The 

Commissions received no other comments regarding this cost.

As set forth in the 2019 Proposing Release, the CFTC identified a number of 

risk-related costs that could result from the final rules and discusses each below. 

 157 See FIA Letter at 2.
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i. Risk-Related Costs for Security Futures Intermediaries 

and Customers

One risk-related cost to consider, if security futures trading resumes, is the 

potential cost to security futures intermediaries and their customers that would result 

from a default of either an intermediary or a customer.158 Reducing margin 

requirements for security futures could expose security futures intermediaries and their 

customers to losses in the event that margin collected is insufficient to protect against 

market moves. Pursuant to the OCC’s bylaws, any security futures intermediary that 

is a clearing member of OCC grants a security interest to OCC for any account it 

establishes and maintains, and therefore a customer’s assets may be obligated to OCC 

upon default.

159 As a result, security futures intermediaries that are FCMs could be 

exposed to a loss if the 15% margin rate for security futures is insufficient, to offset 

losses associated with a customer default. However, this risk is mitigated by the fact 

that if the FCM determines that a 15% margin level is insufficient to cover the inherent 

risk of the customer position, the FCM has the authority to collect additional margin 

from its customers, in excess of the minimum requirement, in order to protect its 

 158 In this context, an intermediary default describes a clearing member that experiences a 

default event under the terms of a clearinghouse’s rules and procedures. Such default 

events generally include a failure to deliver funds in a timely manner (e.g., failure to 

satisfy a margin call). See OCC Rule 1102(a) – Suspension, and OCC’s Clearing 

Member Default Rules and Procedures, available at 

https://ncuoccblobdev.blob.core.windows.net/media/theocc/media/riskmanagement/default-rules-and-procedures.pdf. 

159 See OCC Bylaws, Article VI – Clearance of Confirmed Trades, Section 3 –

Maintenance of Accounts, Interpretations and Policies .07, adopted September 22, 

2003, last accessed on July 27, 2020, available at 

https://www.theocc.com/components/docs/legal/rules_and_bylaws/occ_bylaws.pdf. 
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financial integrity.160 Moreover, the FCM has an incentive to manage the risk of a 

customer’s default and could collect additional margin to do that. 

If security futures trading resumes, a similar risk-related cost might arise where 

an FCM collects only the minimum margin required from customers in order to 

maintain or expand its customer business, when it has determined or should have 

determined that additional margin is required to cover the inherent risk of the customer 

position. Lower margin requirements might facilitate an FCM permitting its 

customers to take on additional risk in their positions in order to increase business for 

the FCM. Such additional risks could put the FCM at risk if one of its customers 

defaulted on its payment obligations, and other customers of the FCM could face 

losses if the FCM or one of its fellow customers defaulted. 

Another risk-related cost could stem from the possibility of increased leverage 

among security futures customers. Customers posting less initial margin to cover 

security futures positions might be able to increase their overall market exposure and 

thereby increase their leverage. Increased leverage in the security futures markets 

could increase risks to overall financial stability and result in costs to the broader 

financial markets insofar as security futures customers, security futures intermediaries, 

and DCOs participate in financial markets other than security futures. 

As discussed in the proposal, the CFTC considered two final potential riskrelated costs (incentives for FCMs to collect less margin and increased leverage at the 

customer level). The Commissions received no comments regarding these costs. The 

 160 See CFTC Rule 41.42(c)(1); SEC Rule 400(c)(1). 
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CFTC believes these theoretical costs are mitigated, to some degree, by regulations 

that apply to security futures intermediaries that are registered as FCMs. For example, 

FCMs are subject to capital requirements under CFTC regulations,161 and in instances 

where the security futures intermediary is jointly registered with the SEC as a brokerdealer FCM, the SEC’s capital rules also apply.162 In addition, FCMs are required to 

establish a system of risk management policies and procedures pursuant to CFTC Rule 

1.11.163 This risk management program is designed to incentivize the FCM to protect 

itself and its customers against a variety of risks, including the risk of inadequate 

margin coverage and increased leverage. The regulatory regime to which FCMs are 

subject is designed to require them to fully account for the potential future exposures 

of their customers’ security futures positions in the form of initial and maintenance 

margin.

Finally, as explained in the 2019 Proposing Release, risk-related costs to the 

security futures intermediary have been further mitigated by the fact that the vast 

majority of OneChicago’s open interest was held by eligible contract participants 

(“ECPs”), as defined in Section 1a(18) of the CEA.164 OneChicago provided data to 

support this statement prior to the issuance of the 2019 Proposing Release. Generally 

 161 See CFTC Rule 1.17, 17 CFR 1.17. 

162 See SEC Rule 240.15c3-1, 17 CFR 240.15c3-1. 

163 Under CFTC Rule 1.11, FCMs are required to establish risk management programs 

that address market, credit, liquidity, capital and other applicable risks, regardless of 

the type of margining offered. See also NFA Rule 2-26 FCM and IB Regulations, 

which states that any member or associate who violates CFTC Rule 1.11 (and other 

rules) shall be deemed to have violated an NFA requirement.

164 See also CFTC Rule 1.3, 17 CFR 1.3. 
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speaking, ECPs are financial entities or individuals with significant financial resources 

or other qualifications that make them appropriate persons for certain investments.165 

The CFTC believes that because ECPs are well capitalized investors, they may be less 

likely to default and transmit risks throughout the financial system. According to the 

data provided by OneChicago, over 99% of the notional value of OneChicago’s 

products was held by ECPs as of March 1, 2016, and March 1, 2017.166 The 

Commissions received no comments regarding this data. However, the CFTC notes 

that an exchange that, in the future, launches security futures may decide to market 

such contracts to retail customers that are not ECPs. 

ii. Appropriateness of Margin Requirements 

If security futures trading resumes, a possible risk-related cost of lowering 

margin requirements for security futures is that a DCO may not have sufficient margin 

on deposit to cover the potential future exposure of cleared security futures positions. 

However, the risk management expertise at security futures intermediaries and DCOs, 

as well as the general applicability of CFTC Rule 39.13 to security futures,167 supports 

 165 For example, an individual can qualify as an ECP if the individual has amounts 

invested on a discretionary basis, the aggregate of which is in excess of: (i) 

$10,000,000; or (ii) $5,000,000 if the individual also enters into an agreement, 

contract, or transaction in order to manage the risk associated with an asset owned or 

liability incurred, or reasonably likely to be owned or incurred, by the individual. 

166 The CFTC sought comments on all aspects of its considerations of costs and benefits 

in the 2019 Proposing Release. In particular, the CFTC requested data and any other 

information and did not receive any comments questioning this data, or updated data 

from OneChicago. As a result, the CFTC continues to refer to the data provided by 

OneChicago relating to time periods in 2016 and 2017.

167 As noted above and elsewhere, the general requirements of CFTC Rule 39.13 (17 CFR 

39.13) are applicable to security futures intermediaries and DCOs with respect to 

security futures, however, the specific provision of CFTC Rule 39.13(g)(8)(ii) relating 
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the conclusion that DCOs and security futures intermediaries will continue to manage 

the risks of these products effectively even with lower minimum margin 

requirements.168 

If security futures trading resumes, the risk security futures customers and/or 

intermediaries would face from reducing initial and maintenance margin would be

addressed at the clearinghouse level because there are additional protections under 

CFTC regulations. For example, CFTC Rule 39.13(g)(2)(i) requires a DCO to 

establish initial margin requirements that are commensurate with the risks of each 

product and portfolio.169 In addition, CFTC Rules 39.13(g)(2)(ii) and (iii) require that 

initial margin models meet set liquidation time horizons and have established 

confidence levels of at least 99%.170 These DCO initial margin requirements are 

distinct from the margin requirements to which customers are subject pursuant to these 

 

to customer initial margin requirements has been addressed separately by CFTC Letter 

No. 12-08 and that remains unchanged by this final rule. 

168 As discussed above, security futures intermediaries are authorized to collect margin 

above the amounts required by the Commissions. However, if security futures trading 

resumes, security futures intermediaries could be incentivized to lower their margin 

rates in order to compete for customer business as for-profit entities. If security 

futures intermediaries were to engage in competition for business based on margin 

pricing, it is possible that security futures intermediaries would collect only the 

required level of margin (i.e., 15% under the final rule change), regardless of the 

market conditions, which could impair their ability to protect against market risk and 

losses. 

169 CFTC Rule 39.13(g)(2)(i) is not addressed in CFTC Letter No. 12-08. 

170 CFTC Rules 39.13(g)(2)(ii) and (iii) are not addressed in CFTC Letter No. 12-08. In 

accordance with these rules, OCC Rules 601(c) and 601(e) provide for initial margin 

for segregated futures customer accounts to be calculated pursuant to the Standard 

Portfolio Analysis of Risk (“SPAN”) on a gross basis, as well as calculating on a net 

basis initial margin requirements for each segregated futures accounts using STANS. 

OCC’s scan ranges for the SPAN margin models provide coverage for a minimum 

99% confidence level. 
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final rules and, along with other risk-reducing measures, serve to mitigate the 

possibility that a DCO may default (possibly resulting in a systemic event). In the 

event that a DCO determined that a 15% margin level for security futures is 

insufficient to satisfy a DCO’s obligation under CFTC Rule 39.13, the DCO would be 

required to collect additional margin from its clearing members.171

The CFTC observes that customer margin requirements for security futures 

held by security futures intermediaries are materially distinct from initial margin 

requirements for DCOs. The initial margin requirements used by DCOs typically are 

risk-based, and CFTC rules are designed to permit DCOs to use risk-based margin 

models to determine the appropriate level of margin to be collected, subject to CFTC 

regulations in Part 39, as applicable. 

 171 The CFTC expects that any difference between the margin charged at the DCO and 

the margin charged by the security futures intermediary will be addressed by 

additional margin calls, if necessary. The DCO can require additional margin from its 

clearing members (which in some cases will be the security futures intermediary), to 

cover changes in market positions. DCOs and clearing members are familiar with 

margin call procedures and have established rules to efficiently transfer funds when 

needed. If a customer’s account has insufficient funds to meet the margin call, its 

clearing member may provide the amount to the DCO and collect it from the customer 

at a later time. In this scenario, the clearing member may take on a liability or 

additional risk on the customer’s behalf for a short period of time. The CFTC notes 

that this practice is the same for security futures as it is for other products subject to 

clearing and it does not view this temporary shifting of risk between the clearing 

member and the customer as a unique source of risk to security futures. Furthermore, 

this amendment lowering the required margin from 20% to 15% does not alter the 

relationship between DCOs and their clearing members, or the relationship between 

clearing members and their customers. The CFTC acknowledges that it is possible 

that DCOs and security futures intermediaries will collect different levels of margin, 

but it is not necessarily a result of the final rules. Moreover, the difference in margin 

collected is not an unmitigated source of risk for the security futures intermediaries 

because they have the authority to collect additional funds from their customers in the 

event of a margin call and can choose to set margin levels higher than the minimum 

level required by the Commissions. 
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In addition to the initial margin requirements at the DCO level, clearing 

members are required to satisfy certain financial resources requirements, including a 

“capital” requirement, to demonstrate that they can withstand certain risks under 

“extreme but plausible market conditions.”172 Furthermore, the DCO is required to 

maintain its own financial resources, which may include its own capital, guaranty fund 

deposits by clearing members, default insurance, assessments for additional guaranty 

fund contributions, and other financial resources, as permitted.173 In combination, 

financial resource requirements for clearing members, initial margin contributions, 

guaranty fund contributions, and other resources provide additional protections at the 

DCO level against the risk that a default by a customer or security futures intermediary 

will create systemic risk. 

In the event that a clearing member defaults on its obligations to the DCO, the 

DCO has a number of ways to manage associated risks, including transferring (or 

porting) the positions of the defaulted clearing member and using the defaulting 

clearing member’s margin and other collateral on deposit to cover any losses. In order 

to cover the losses associated with a clearing member default, the DCO would 

typically draw from (in order): (1) the initial margin posted by the defaulting clearing 

member; (2) the guaranty fund contribution of the defaulting clearing member; (3) the 

DCO’s own capital contribution; (4) the guaranty fund contribution of non-defaulting 

 172 CFTC Rule 39.12(a)(2) (defining the capital requirement for clearing members with 

cross-references to the CFTC’s Part 1 rules for FCMs and the SEC’s rules for brokerdealers). 

173 See generally CFTC Rule 39.11(a) through (e). See also CFTC Rule 1.12 (setting 

forth minimum financial requirements for FCMs and IBs).
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clearing members; and (5) an assessment on the non-defaulting clearing members. In 

the event that a DCO could not transfer the positions of the defaulted clearing member, 

it could liquidate those positions. Taken together, these mutualized risk mitigation 

capabilities are largely unique to clearinghouses, and help to ensure that they remain 

solvent when dealing with defaults of their members, their members’ customers, 

and/or other periods of stressed market conditions.

As noted in the 2019 Proposing Release, the CFTC reviewed data from 

security futures markets under normal market conditions and concluded that a 15% 

level of margin would be sufficient to cover daily price moves in most instances (i.e., 

more than 99.5%).174 This is consistent with what the CFTC expects from risk-based 

margin regimes at DCOs. The Commissions received no comments regarding this 

data analysis. In addition, no commenters provided any quantitative data in support or 

refutation of the CFTC’s risk analysis. Therefore, the CFTC continues to believe that 

the final rules will not have a substantial negative impact on (1) the protection of 

market participants or the public, (2) the financial integrity of security futures markets

in the United States, if trading resumes, or (3) sound risk management practices of 

DCOs or security futures intermediaries. 

 174 Conducting a value-at-risk analysis of 74 of the most liquid security futures contracts 

during a limited time-frame (November 2002 – June 2010), CFTC staff found that 

there were 195 instances where a 15% margin was insufficient and 99 instances where 

a 20% margin was insufficient. For all observations, a 15% margin was sufficient for 

99.81% of all observations while a 20% margin was sufficient for 99.91% of all 

observations. While the period covered by this study does include the high volatility 

exhibited in 2008, it does not include the comparably high volatility exhibited in early 

spring 2020.
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iii. Potential Costs Related to Competition and Market 

Arbitrage 

One commenter responded to the 2019 Proposing Release with concerns that a 

change in margin requirements for security futures would provide an advantage to 

security futures and create a competitive disadvantage for exchange-traded equity 

options.175 This commenter explained that exchange-traded equity options are 

regularly used to establish synthetic long and short exposures that produce exposures 

that are nearly identical to exposure created by security futures.

176 According to this 

commenter, there exists the possibility that the lower margin requirements for security 

futures could result in customers shifting from trading in equity options to security 

futures, which in turn, could result in decreased liquidity and less price discovery in 

the equity options markets. 

However, another commenter argued there may be reason to doubt that 

changes in trading behavior would be precipitated by the lower margin levels set forth 

in these final rules. OneChicago provided data to support its view that security futures 

(referred to as “single stock futures” in OneChicago Letter 3) and equity options did 

not trade interchangeably.177 The five analyses that OneChicago conducted were 

valuable to the CFTC’s consideration of costs and benefits. 

 175 Cboe/MIAX Letter at 2.

176 Cboe/MIAX Letter at 6.

177 OneChicago Letter 3 at 2. 
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In particular, OneChicago provided analysis comparing SPX (S&P 500) 

options to E-mini S&P 500 futures contracts.178 This analysis indicates that the 

products do not trade interchangeably and that the ratios of SPX options open interest

to E-mini futures open interest, and SPX options volume to E-mini futures volume are 

not correlated with the margin rate on the E-mini S&P 500 futures contracts.179 The 

CFTC recognizes that there are many reasons why customers decide to trade in one 

product over another (including tax ramifications), and that security futures and equity 

options are not perfect substitutes. The CFTC acknowledges that if security futures 

trading resumes, lower margin requirements could increase trading in security futures 

above their historical volumes (and some of that activity could be from customers that 

previously traded equity options). However, a customer’s choice of trading instrument 

is not determined solely by margin requirements. 

Another reason to doubt the negative competitive impact of these final rules on 

exchange-traded equity options is that the 2008 adoption of Portfolio Margin Rules for 

exchange-traded equity options did not cause security futures customers to migrate 

their positions to those products, even though it arguably provided those options with a 

competitive advantage over security futures because of the lower minimum margin 

 178 The CFTC notes that the E-mini futures contracts are not security futures, but are 

futures regulated solely by the CFTC (i.e., they are not jointly regulated by the CFTC 

and SEC). The comparison between E-mini futures contracts and SPX options is still 

helpful to understand the interplay between the futures and equity options markets.

179 According to OneChicago’s analysis, there is a statistically significant negative 

correlation between SPX options and E-mini futures. OneChicago Letter 3 at 6.
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rate.

180 Moreover, the vast majority of security futures customers would have been 

eligible for lower margin requirements but did not move their positions from futures 

accounts to Portfolio Margin Accounts, which were margined under the Portfolio 

Margin Rules (i.e., margin required was equal to 15% for an unhedged position). The 

CFTC believes that, if trading in security futures resumes, the final rules’ amendments 

are unlikely to create a competitive disadvantage for exchange-traded equity options, 

as the 15% margin rate is already in effect for positions held in a Portfolio Margin 

Account.

OneChicago’s closure after years of much lower trading activity than in 

exchange-traded equity options suggests that security futures in the U.S. may have 

been operating at a competitive disadvantage to related markets. However, based on 

publicly available Eurex volume data,181 security futures trading on U.S. stocks in 

other jurisdictions is lower than trading in security futures on European companies, 

even on the Eurex exchange in Germany where margin requirements are calculated 

using risk-based methodologies.182 Therefore, factors other than margin requirements 

 180 A competitive advantage for options may have existed because options are held in a 

securities account by default. In contrast, most security futures positions were held in 

futures accounts, and in order for a trader to take advantage of the lower margin rate 

for a security futures position, such a trader would have to move those positions into a 

different type of account (i.e,. from a futures account to a securities account) with 

associated costs. 

181 See Eurex statistics published daily, last accessed on Aug. 17, 2020, available at 

https://www.eurexchange.com/exchange-en/data/statistics.

182 Trading by U.S. persons in security futures contracts listed on Eurex is subject to 

certain conditions under an SEC order and a CFTC staff advisory. Provided that a 

number of conditions are met, only qualified U.S. persons are permitted to trade 

security futures on a single security issued by a foreign private issuer or a narrowbased security index that is listed on a non-U.S. exchange that is not required to 
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may be influencing demand for security futures (e.g., tax ramifications or availability 

of competing products). Nonetheless, the CFTC expects that lowering the security 

futures margin requirement to 15% from 20% will help mitigate this competitive 

disadvantage and could encourage a resumption of security futures trading in the U.S. 

iv. Costs and Benefits Associated with Requested Changes 

to the Margin Offsets Table

The Commissions are updating and restating the table of offsets for security 

futures to reflect the new (15%) minimum margin requirement. The CFTC believes 

that if security futures trading resumes, lowering the margin requirements for certain 

offsets will not increase costs to customers, security futures intermediaries, or DCOs. 

The categories of permissible offsets will remain the same and there is no change to 

the inputs used to calculate the offset, other than to decrease the initial and 

maintenance margin on all security futures from 20% to 15%. Moreover, the same 

risk to the customers and security futures intermediaries will exist if the Commissions 

decrease the margin required for security futures trading combinations eligible for 

offsets as it will with security futures without an offset.

 

register with the SEC. See SEC’s Order under Section 36 of the Securities Exchange 

Act of 1934 Granting an Exemption from Exchange Act Section 6(h)(1) for Certain 

Persons Effecting Transactions in Foreign Security Futures and under Exchange Act 

Section 15(a)(2) and Section 36 Granting Exemptions from Exchange Act Section 

15(a)(1) and Certain Other Requirements, Exchange Act Release No. 60194 (June 30, 

2009), 74 FR 32200 (Jul. 7, 2009), and Division of Clearing and Intermediary 

Oversight Advisory Concerning the Offer and Sale of Foreign Security Futures 

Products to Customers Located in the United States, available at 

https://www.cftc.gov/idc/groups/public/@internationalaffairs/documents/ssproject/fsf

padvisory.pdf (June 8, 2010).
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As discussed above, OneChicago suggested that the Commissions make a 

number of changes to the Strategy-Based Offset Table.183 OneChicago asked that the 

Offset Table be amended to account for customers holding delta-neutral positions 

(e.g., a customer holds an equal and opposite position in stock and/or a security 

future).184 Although the CFTC agrees that it would make sense to account for a 

neutral position when setting margin levels, the CFTC believes the revised margin 

offset table included in this release balances the efficiencies of offsetting positions 

against the outstanding risks associated with these financial products in light of the 

fact that equity markets and security futures markets are subject to separate regulatory 

oversight. In addition, as explained above, the Commissions determined that lowering 

the offset table requirements further is inconsistent with current securities SRO rules, 

and thus would be inconsistent with the Exchange Act. For this reason, the 

Commissions are not adopting OneChicago’s requested amendments to the StrategyBased Offset Table.

OneChicago also asked that the Commissions add total return equity swaps to 

the Strategy-Based Offset Table.185 Total return equity swaps serve a similar, if not 

identical, economic function to security futures contracts as commonly used at 

OneChicago. Providing an offset for swaps could incentivize customers to trade in 

 183 OneChicago Letter at 15-17.

184 According to OneChicago’s suggestion, margin for delta-neutral positions should be 

equal to the lower of: (1) the total calculated by multiplying $0.375 for each position 

by the instrument’s multiplier, not to exceed the market value in the case of long 

positions, or (2) 2% of the current market value of the security futures contract. 

OneChicago Letter at 15. 

185 OneChicago Letter at 16.
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either product, or this combination of products, and could result in increased liquidity. 

Adding a new product to the offset table would provide a benefit to customers trading 

in total return equity swaps and security futures because those customers would be 

subject to lower margin requirements. However, as stated above, the Commissions 

have determined that adding a total return swap offset to the Strategy-Based Offset 

Table would be inconsistent with securities SRO rules at this time and thus would be 

inconsistent with the Exchange Act. For this reason, the Commissions are not 

adopting this suggested change to the Strategy-Based Offset Table.

In addition, OneChicago recommended that the Commissions reduce the 

maintenance margin required for certain types of positions from 10% to 7.5%.186 A 

lower margin requirement under the offset table would provide an individual customer 

with an offsetting position a small benefit. However, as stated above, the 

Commissions have determined that lowering the margin requirement for certain 

strategies from 10% to 7.5% in the Strategy-Based Offset Table would be inconsistent 

with securities SRO rules at this time and thus would be inconsistent with the 

Exchange Act. For this reason, the Commissions are not adopting this suggested 

change to the Strategy-Based Offset Table.

Finally, OneChicago requested that the Commissions simplify the StrategyBased Offsets Table overall by replacing the table with a rule. The CFTC has not 

identified specific benefits associated with adopting a rule rather than updating the 

 186 OneChicago Letter at 16. As suggested by OneChicago, the reduction in margin from 

10% to 7.5% would apply to items 2, 8, 9, 11,12 14, 15, and 16 in the Strategy-Based 

Offset Table.
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Strategy-Based Offsets Table. However, the CFTC believes that any structural change 

to the offset table that is adopted for the security futures regime but not for the equity 

options regime could introduce uncertainty and confusion in the markets, and could 

inhibit customers seeking the reduced margin benefits of offsetting positions. 

OneChicago stated that the rule change it identified would not result in margin levels 

that are lower than margin levels required under the Strategy-Based Offset Table for

exchange-traded equity options under Portfolio Margin Rules. As stated above, the 

Commissions have determined that replacing the Strategy-Based Offsets Table with a 

rule would be inconsistent with the securities SRO rules at this time and thus would be 

inconsistent with the Exchange Act. For this reason, the Commissions are not 

adopting this suggested change to the Strategy-Based Offset Table.

Although the Commissions are not revising the Strategy-Based Offset Table as 

requested by OneChicago, the CFTC believes the offsets described in this release will, 

if security futures trading resumes, offer certain benefits and will not increase costs by 

materially decreasing protections or increasing risks. Again, as added assurance that 

there are multiple levels of risk protection for security futures, the CFTC notes that 

security futures intermediaries and customers will continue to be required to comply 

with daily mark-to-market and variation settlement procedures applied to security 

futures, as well as the large trader reporting regime that applies to futures accounts.187

 187 Under the CFTC’s large trader reporting regime, clearing members and FCMs (as well 

as foreign brokers) file reports with the CFTC containing futures and options position 

information for traders that have positions at or above certain reporting thresholds. 

See Part 17 of the CFTC’s regulations and CFTC Rule 15.03(b). 
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5. Description of Benefits Provided by the Final Rules

The CFTC believes that the final rules will, if security futures trading resumes,

produce significant benefits by reducing minimum margin requirements for security 

futures positions to levels equal to margin levels for exchange-traded options. The 

amendment to CFTC Rule 41.45(b)(1) will align customer margin requirements for 

security futures held in a futures or a securities account with those that are held in a 

Portfolio Margin Account. The CFTC believes this alignment may increase 

competition by establishing a level playing field between security futures carried in a

Portfolio Margin Account and security futures carried in a futures account or a 

securities account that is not subject to Portfolio Margin Rules should OneChicago 

begin offering these products again or new market entrants emerge. 

This benefit is expected to apply most directly to customers with security 

futures positions held in futures accounts because they cannot be margined under 

Portfolio Margin Rules. According to OneChicago, because of operational issues, 

almost all security futures positions were carried in futures accounts.

188 As a result, 

almost all, if not all, security futures were held in futures accounts and subject to the 

CFTC’s customer account requirements. Therefore, any reduction in customer initial 

and maintenance margin requirements, if security futures trading resumes, would be 

expected to benefit all or close to all security futures customers because they 

historically held positions in futures accounts and did not benefit from Portfolio 

Margin Rules.

 188 Letter from Donald L. Horwitz, Managing Director and General Counsel, 

OneChicago, to David Stawick, Secretary, CFTC, and Nancy M. Morris, Secretary, 

SEC, dated Aug. 1, 2008, at 2. 
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Additionally, the reduced minimum margin level could, if security futures 

trading resumes, facilitate more trading in security futures than would otherwise occur, 

which could enhance the likelihood a revival would succeed and increase market 

liquidity to the benefit of market participants and the public.

189 Increased liquidity 

could contribute to the financial integrity of security futures markets overall. For 

example, market liquidity may be particularly beneficial in the context of a customer 

default at an FCM, when the FCM must manage the defaulting customer’s security 

futures positions through transferring or liquidating those positions.

190 

The lower minimum margin requirement also could, if security futures trading 

resumes, decrease the direct cost of trading in security futures. In response to the 

Commissions’ request for comments providing data, OneChicago estimated that for 

the time period between September 1, 2018, and August 1, 2019, the notional value of 

margin collected on OneChicago positions would be reduced by $130 million if the 

lower 15% margin requirement had been in place.191 This would have represented 

significant savings in the amount of margin required to be paid by and collected from 

customers in satisfaction of the CFTC’s Part 41 margin requirements. A decrease in 

 189 OneChicago represented that one of its customers (Jurrie Reinders, Societe General) 

believed that the “uncompetitive” margin requirements for security futures have 

reduced trading volumes. OneChicago Letter at 29.

190 As noted above, the FIA Letter stated that the final rules would help FCMs manage 

their risk. See FIA Letter, at 2. See also discussion of CFTC rules under Part 1 and 

Part 39, above.

191 OneChicago estimated that between September 1, 2018, and August 1, 2019, the 

notional value of margin collected on OneChicago positions was approximately $540 

million (under a 20% minimum margin requirement) compared to $410 million that 

would have been collected under the final rules (under a 15% minimum margin 

requirement). OneChicago Letter at 14. 
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trading costs, through lower minimum margin requirements should OneChicago begin 

offering these products again or new market entrants emerge, also may increase capital 

efficiency because additional funds would be available for other uses. 

As noted above, the final rules may have beneficial competitive effects vis-àvis domestic markets. In addition, lowering the minimum margin requirement may

enable a U.S. security futures exchange to better compete in the global marketplace, 

where security futures traded on foreign exchanges are subject to risk-based margin 

model requirements that are generally lower than those applied to security futures 

traded in the U.S.192 Apart from OneChicago’s letters and a comment from one of its 

customers, the Commissions received no comments regarding benefits associated with 

increased domestic or global competition.

The final rules restate the table of offsets for security futures to reflect the 

proposed 15% minimum margin requirement. As discussed in detail above, these 

offsets will, if security futures trading resumes, provide the benefits of capital 

efficiency to customers because offsets recognize the unique features of certain 

specified combined strategies and would permit margin requirements that better reflect 

the risk of these strategies. Moreover, the same benefits of lowering margin costs for 

customers and increasing business in security futures could result from lowering 

margin requirements for offsetting security futures positions. 

 192 OneChicago stated that the Eurex exchange lists futures on U.S. stocks with risk-based 

margins that are lower than the 20% margin for futures on the same stocks that were 

listed at OneChicago (OneChicago Letter at 13). However, based on publicly 

available data, the volume on Eurex for futures on U.S. stocks is much lower than 

occurred at OneChicago even as security futures volume is high for stocks in 

European companies. 
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6. Discussion of Alternatives

Although the CFTC did not identify any alternatives in the proposal,193

commenters suggested a number of alternative security futures margin options, along 

with other suggestions for the Commissions to consider. This discussion of those 

alternatives includes certain commenter proposals that the Commissions still do not 

believe are viable at this time for the reasons discussed by the Commissions in more 

detail above. 

i. Reducing Contract Sizes for Security Futures

One commenter, citing a statement by SEC Commissioner Jackson, indicated 

that the Commissions failed to consider reasonable alternatives such as reducing the 

contract size for security futures.194 According to Commissioner Jackson’s Statement, 

“reducing contract size could also increase access to single-stock futures for the most 

popular securities and improve efficiency.”195 The CFTC agrees that changing the 

contract size for security futures might make the products more attractive to a wider 

group of market participants, resulting in increased liquidity,196 but would not change 

 193 See 2019 Proposing Release, 84 FR at 36446. In the proposal, the CFTC stated that it 

did not believe that there were any reasonable alternatives to consider given statutory 

constraints tied to current practices in the exchange-traded equity options market. Id. 

at n. 92.

194 Letter from the Jeffrey Mahoney, General Counsel, Council of Institutional Investors 

(Aug. 26, 2019) (“CII Letter”) at 4. See also Commissioner Robert J. Jackson Jr., 

Public Statement, Statement on Margin for Security Futures (July 3, 2019), available 

at https://www.sec.gov/news/public-statement/jackson-statement-margin-securityfutures (“Commissioner Jackson’s Statement”).

195 Commissioner Jackson’s Statement.

196 A security futures exchange could change the contract size for security futures by 

amending terms of the security futures contract such that one security futures contract 

represents only 50 shares of the underlying stock instead of 100.
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the overall amount of margin required for a given position. Thus, the CFTC believes 

that this alternative would be less effective at increasing liquidity than lowering 

margin requirements. Reducing the security futures contract size would lower the 

initial capital expenditure for a customer and could attract wider participation, but 

could possibly increase transaction costs, as a percentage of overall initial costs in 

putting on the position.197 As explained above, the Commissions anticipate that these 

final rules may produce greater liquidity in security futures, as well as create more 

efficient capital distribution. Market participants will be able to reallocate funds that 

are saved on lower margin levels. Under this alternative, market participants would 

not benefit from any increased capital efficiencies. Because reducing contract sizes 

does not provide the same capital efficiency opportunities to customers, the CFTC 

does not believe it offers as many benefits as the final rules. 

ii. Rules-Based Margin with Flexible Margin Collection 

Intervals

One commenter agreed with Commissioner Jackson’s concern that the 

proposal did not consider other reasonable alternatives such as a rules-based margin 

regime that includes flexible margin collection, or settlement intervals, which is an 

idea proposed by former SEC economists.198 According to the economists’ research 

paper on this topic, security futures that are subject to strategy-based margining may 

 197 The increase in transaction costs would be the result of the fixed cost staying the same, 

but the initial expenditure being lower.

198 See Commissioner Jackson’s Statement; see also CII Letter at 4.
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be less sensitive to changes in market conditions.199 The economists analyzed 

different margin collection time periods to determine whether risks to customers 

would be affected by the length of time that passed between contract execution and 

settlement. The economists found that a 1-day margin collection period (i.e., initial 

and maintenance margins are required to be collected within 1 day of the trade) likely 

would lead to higher margin requirements than would otherwise be required under a 

risk-based margin regime. As a comparison, they also studied a 4-day collection 

period (i.e., initial and maintenance margins are required to be collected within 4 days 

of the trade) and found that the additional time could lead to both significant over- and 

under-margining relative to a risk-based margin model regime. 

This research explores how changes in the date on which margin is collected 

could provide different levels of protection for customer positions in security 

futures.200 The paper suggests that such a rule change could produce adequate margin 

coverage, if calibrated correctly, to protect against default. On the other hand, one 

commenter opposed the alternative of changing the margin collection period, arguing 

that this could “build up exposures” and would remove one of the critical futures 

 199 Hans R. Dutt & Ira L. Wein, On the Adequacy of Single-Stock Futures Margining

Requirements, 10 J. Futures Markets 989 (2003).

200 The CFTC notes that this research paper was published in 2003, before significant 

changes to the CFTC’s regulatory regime were adopted pursuant to the Dodd-Frank 

Wall Street Reform and Consumer Protection Act. It is uncertain whether the 

alternatives considered and discussed in the research paper would comply with current 

CFTC requirements. Additionally, there are no programs offering this alternative, and 

whether such a program could comply with the statutory constraints under the 

Exchange Act is uncertain. 
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market protections (e.g., paying and collecting margin to prevent customers from 

accumulating large exposures).201 

The CFTC has not analyzed a particular program offered by an exchange or 

security futures intermediary, nor examined any rulebooks outlining how such a 

program would be implemented. However, if such a change were submitted for 

review, the CFTC would consider, among other things, how a change in the date of 

margin collection would affect how FCMs manage margin funds. CFTC rules govern 

FCM practices and require that FCMs take certain precautions with customer funds.202 

In some cases, customers may benefit from a more prompt payment of margin funds to 

FCMs because those funds will be subject to certain protections, and FCMs would 

encourage prompt payment of margin funds to protect against customer position risk. 

The CFTC also observes that changes to the collection period would depend on 

changes in contractual provisions between clearinghouses and their clearing members, 

and between the clearing members and their customers, as well as rule changes for 

exchange operating procedures. 

The Commissions are adopting the final rules because they produce a desired 

policy outcome of aligning the minimum margin requirements for security futures held 

in non-Portfolio Margin Accounts with the margin required for security futures in a 

Portfolio Margin Account, for the reasons discussed above. The CFTC believes that 

any changes to the date of margin collection period are distinct from this policy 

 201 OneChicago Letter at 6.

202 See CFTC Rules 1.20 through 1.30. 
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objective, may not be uniformly adopted by security futures markets, and may result in 

an accumulation of risk for customers and security futures intermediaries. 

Accordingly, changing the margin collection period is not a viable alternative to the 

final rules adopted in this release.

iii. Use of Risk-Based Margin Models

In the 2019 Proposing Release, the Commissions specifically requested 

comment on “any other risk-based margin methodologies that could be used to 

prescribe margin requirements for security futures.” In response, a number of 

commenters expressed a preference for using risk-based models to margin security 

futures and argued that such a regime would be consistent with the Exchange Act.203

As discussed in section II.A. above, implementing a risk model approach to calculate 

margin for security futures would be inconsistent with how margin is calculated for 

exchange-traded equity options at this time and may result in margin levels for 

unhedged security futures positions that are lower than the lowest level of margin 

applicable to unhedged exchange-traded equity options (i.e., 15%). Consequently, 

because no exchange-traded equity options are subject to risk-based margin 

requirements, adopting a risk model approach at this time for security futures would 

conflict with the requirements of Section 7(c)(2)(B) of the Exchange Act.204

 203 See La Botz Letter (“I request the Commission to please correct the margin 

discrepancy placed upon the [security futures] products by going to a risk based 

margining as utilized by clearinghouses on other [security futures] products 

worldwide.”). See also Ianni Letter, and OneChicago Letter.

204 See section II.A. above (discussing a risk model approach and Section 7(c)(2)(B) of 

the Exchange Act).
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The CFTC is considering a risk-based model alternative solely for purposes of 

analyzing the potential costs and benefits of the final rules under a hypothetical future 

scenario. The CFTC has extensive familiarity and experience with overseeing entities 

that use risk-based margin model regimes for derivatives clearing.205 Risk-based 

margin models produce efficiencies because the initial margin is calculated using 

certain macro-economic risk factor inputs that change with market conditions. DCOs 

successfully manage the initial margin requirements for clearing members using riskbased margin models. Risk-based margin model regimes also provide effective 

protection against default for customers, intermediaries, and clearinghouses. While 

the CFTC is broadly supportive of risk-based margin models and believes there are 

benefits to those regimes, in the context of security futures, the costs and benefits 

require careful attention. 

As seen in some of the data provided by OneChicago, risk-based margin does 

not necessarily mean that the margin collected will be lower than under current margin 

requirements for security futures or the amended final rules under Part 41 of the 

CFTC’s regulations. In fact, there may be reason to believe that it could be higher. 

OneChicago provided an example from the 2008-2010 financial crisis. During that 

time period, margin requirements on SPX options remained constant at 8% (the 

maximum initial margin), if held in a Portfolio Margin Account.206 However, during 

 205 As a market regulator with jurisdiction over derivatives clearinghouses, one of the 

CFTC’s primary functions is to supervise the derivatives clearing activities of DCOs,

their clearing members, and any entities using the DCOs’ services. The CFTC 

supervisory program takes a risk-based approach.

206 OneChicago Letter 3 at 3.
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that same time period, E-mini futures contracts were charged margin at levels higher 

than 8% because they were subject to risk-based margin and the volatility at the time 

required greater margin levels.207 In this instance, the margin required under a riskbased model would be higher than the maximum initial margin that is set at a constant 

percentage rate. The CFTC observes that this comparison is informative, but not 

dispositive.

Importantly, because the security futures margin regime includes a minimum 

margin requirement only, it is less likely that there would be an instance in which a 

risk-based model results in greater margin levels than the margin charged to a 

customer under the final rules. As the Commissions have emphasized throughout this 

release, FCMs and DCOs may, if security futures trading resumes, charge additional 

margin above the 15% minimum level required, if it would be prudent to protect 

against increased risk. In practice, this means that in a period of market volatility a 

risk-based model may require higher margin levels to account for that volatility, but an 

FCM and/or DCO likely would require higher margin during such periods of market 

volatility under the current rules. Even under the initial and maintenance margin 

requirements today, FCMs and DCOs provide a backstop for margin purposes by 

being required to collect higher margins if market conditions or other circumstances 

 207 As noted above, E-mini futures contracts are not jointly regulated by the CFTC and 

SEC because they are broad-based equity index futures and do not fall under the 

definition of “security futures” under the CEA. However, for purposes of examining 

the relationship between futures contracts and options, the comparison may be 

relevant.
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change.208 Use of a risk-based margin model would sometimes result in higher 

margins than the 15% minimum margin level adopted in this release, but it would not 

necessarily change the margin amount posted by a customer.

The CFTC recognizes there may be savings that can accrue under risk-based 

margin models for purposes of initial and maintenance margin, but notes that variation 

margining practices will not change for security futures.209 Taken together, the overall 

margin regime for security futures under a risk-based margin model regime ultimately 

may at various times be equal to, greater than, or less than, the margin requirements 

set forth under the final rules. 

However, as discussed in section II.A. above, the CFTC is not persuaded by 

commenters’ arguments that, at this time, implementing a risk model approach to 

calculating margin for security futures would be permitted under Section 7(c)(2)(B) of 

the Exchange Act. Moreover, implementing a risk model approach would 

substantially alter how the required minimum initial and maintenance margin levels 

for security futures are calculated. It also would be a significant deviation from how 

 208 For example, OneChicago provided a sample dataset that compares the margin level 

required under the current security futures margin rule (20%), the new rule (15%), and 

under a risk-based margin approach used by OCC. Out of the 20 security futures, 17 

security futures would be subject to lower margin requirements under risk-based 

margining. One contract would be subject to a 17.7% margin requirement under the 

new rule and the risk-based model, because that contract is exposed to higher market 

risks. One contract would continue to be margined at a 20% level, even under the new 

rule and risk-based margining. Finally, one contract would continue to be margined at 

a 23% level regardless of the approach taken to determine margin requirements. Thus, 

the idea that risk-based margining would produce lower margin levels for all contracts 

at all times is incorrect. OneChicago Letter at 27. 

209 In the context of security futures, FCMs are required to continue daily mark-to-market 

valuations and exchange of variation margin.
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margin is calculated for listed equity options and other equity positions (e.g., long and 

short securities positions). It would not be appropriate at this time to implement a 

different margining system for security futures, given their relation to products that 

trade in the U.S. equity markets. Further, implementing a different margining system 

for security futures may result in substantially lower margin levels for these products 

as compared with other equity products and could have unintended competitive 

impacts. For this reason, the suggested alternative to permit risk-based margin models 

to determine customer margin requirements for security futures is not viable.

iv. Risk-Based Margin for STARS Transactions

Recognizing that the Commissions may not be able to adopt risk-based margin 

for all security futures, OneChicago asked the Commissions to consider the alternative 

of adopting risk-based margin for its STARS transactions only. The CFTC notes that 

OneChicago has shut down and is no longer offering STARS transactions. For 

purposes of this discussion of suggested alternatives, the CFTC will examine whether 

subjecting STARS transactions or similar products that may be offered in the future to 

risk-based margin requirements would provide additional costs or benefits when 

compared to the final rules. 

STARS transactions represented a combination of two security futures 

contracts that formed a spread position. After combining the two legs of the spread in 

the customer’s account, one leg expired, and a single security future position remained 

in the account. A STARS transaction resulted in a hedged transaction that involved 

two customers transferring either a stock position or a security futures position, and 

once the back leg of the transaction expired the parties returned to their original 
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positions. According to OneChicago, there would be cost savings to structuring the 

transaction this way for purposes of facilitating equity repo or stock loan transactions. 

As stated above, the Commissions have determined that because no exchangetraded equity options are subject to risk-based margin requirements, adopting a risk 

model approach at this time for STARS transactions would conflict with the 

requirements of Section 7(c)(2)(B) of the Exchange Act.

210 For this reason, as well as 

the recent announcements by OneChicago, this alternative is not viable.

7. Consideration of Section 15(a) Factors

This section analyzes the expected results of amending CFTC Rule 41.45(b)(1) 

to reduce the minimum initial and maintenance margin levels for each security future 

from 20% to 15% of the current market value of such contract, and adopting the 

Margin Offset Table changes as proposed, in light of the five factors under Section 

15(a) of the CEA.

i. Protection of Market Participants and the Public 

The CFTC believes that the final rules maintain the protection of market 

participants and the public from the risks of a default in the security futures market, if 

trading in that market resumes. The CFTC continues to believe that a 15% minimum 

initial and maintenance margin requirement in combination with other protections, 

such as certain provisions of CFTC Rule 39.13, applicable to DCOs that offer to clear 

security futures products,211 will protect U.S. market participants, including security 

 210 See section II.A. above (discussing a risk model approach and Section 7(c)(2)(B) of 

the Exchange Act).

211 As discussed above, in response to the FIA Letter, under CFTC Letter No. 12-08, the 

CFTC’s Division of Clearing and Risk interpreted certain sections of CFTC Rule 
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futures customers and security futures intermediaries, from the risk of a default in 

security futures markets. 

In addition, security futures intermediaries, such as FCMs, are authorized to 

collect additional margin from their customers if the FCM believes a customer’s 

positions may pose unmanaged risk.212 In addition, any DCOs offering to clear 

security futures are required to maintain certain risk management procedures, which 

include measures to prevent potential losses from clearing member defaults and 

methods to limit risks to the DCO’s financial resources.213 The objective is that DCOs 

will always have sufficient financial resources to manage the risks presented by

security futures. 

One commenter expressed a concern that, based on the statutory criteria 

prescribed in the Exchange Act for determining security futures’ margin requirements, 

lowering margin requirements for security futures could result in “potential significant 

risks to the capital markets and investors.”214 Further, this commenter cited to the 

Commissions’ discussions in the 2019 Proposing Release regarding margin’s role in 

risk mitigation and the potential costs associated with reducing margin levels. As 

 

39.13 and stated that the customer margin rule under CFTC Rule 39.13(g)(8)(ii) does 

not apply to customer initial margin collected as a performance bond for customer 

security futures positions. CFTC Letter No. 12-08 at 10 (Sept. 14, 2012). However, 

there are other aspects of CFTC Rule 39.13 that offer protections such as other risk 

controls like risk limits that may prevent a clearing member from carrying positions 

with potential exposures above certain thresholds. See CFTC Rule 39.13(h)(1).

212 See CFTC Rule 41.42(c)(1) and SEC Rule 400(c)(1). See 2019 Proposing Release, 84 

FR at 36440. 

213 See CFTC Rule 39.13(f) and (h).

214 CII Letter at 2. 
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stated above, the CFTC continues to believe that the reduction in margin requirements 

under the final rules will not decrease the protection to market participants or the 

public because, although margin requirements are a critical component of any risk 

management program for cleared financial products, they are not the only risk 

management technique in place for DCOs or their clearing members. 

ii. Efficiency, Competitiveness, and Financial Integrity of 

the Markets

The final rules are intended to enhance the efficiency and competitiveness of 

the security futures market in the United States by bringing the initial and maintenance 

margin requirements for security futures in line with requirements for security futures 

subject to Portfolio Margin Rules. Market participants trading in security futures will 

benefit from lower margin requirements. Furthermore, a decrease in initial and 

maintenance margin requirements from 20% to 15% of the current market value of 

each security futures contract may increase the attractiveness of security futures and 

help facilitate the revival of the security futures markets, whether at OneChicago, or at 

another exchange. However, even with lower margin requirements, customer 

decisions to trade in security futures would still be influenced by hedging demands and 

competition with substitutes or similar products. 

The final rules also are expected to improve the competitiveness of security 

futures as compared to exchange-traded options. The final rules’ amendments to 

reduce margin requirements also may facilitate a more competitive security futures 
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market in the United States as compared with international markets.215 Overall, the 

CFTC believes that the final rules will have a positive effect on competition in the 

U.S. security futures market without providing an undue competitive advantage to 

security futures over comparable exchange-traded equity options.216 

The CFTC continues to believe that a 15% margin requirement for security 

futures will, if security futures trading resumes, be sufficient to protect customers and 

DCOs against the risk of default in greater than 99% of cases. According to economic 

data reviewed by CFTC staff, the CFTC believes that a 15% margin requirement for 

security futures will protect other customers and DCOs against most risks of default. 

Furthermore, the final rules could enhance the financial integrity of any 

potential security futures market in the United States. Lowering the amount of initial 

and maintenance margin required for customers trading in security futures may 

facilitate the revival of security futures markets, and if that revival occurs, increase the 

number of customers trading in security futures and/or increase the amount of trading. 

An increase in the number of customers in the security futures market also could 

increase the number of FCMs offering to clear for such customers, which could lead to 

more efficient transfers of customer positions by a DCO in the event of a clearing 

member or customer default. Furthermore, a larger and more diversified customer 

base could reduce risks in the security futures market overall. For all of these reasons, 

 215 Data from OneChicago indicates that the risk-based margining system applied by 

Eurex (a non-U.S. security futures exchange), is consistently lower than the 15% 

margin requirement adopted in the final rules. See e.g., Figure 2 – Margin Levels for 

Dow Components at Eurex and OneChicago. OneChicago Letter at 25. 

216 See also the CFTC’s analysis of anti-trust considerations in section VII. below. The 

CFTC has identified no anticompetitive effects of the final rules. 
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enhanced liquidity would serve to strengthen the financial integrity of the security 

futures market. 

Again, the CFTC notes that the DCOs that may clear security futures would be 

subject to CFTC regulations requiring the DCO to maintain adequate risk management 

policies and overall financial resources. DCOs may require additional margin, in an 

amount that is greater than 15%, on certain security futures positions or portfolios if 

the DCO notes particular risks associated with the products or portfolios. 

Accordingly, the CFTC believes that the final rules will maintain, or possibly improve, 

the financial integrity of the security futures markets in the U.S. 

The CFTC believes that the final rules effectively address the need for market 

efficiency, competition, and financial integrity with the statutory requirements under 

Section 7(c)(2)(B)(iii) of the Exchange Act. The CFTC also considered alternatives 

presented by commenters, as discussed above, but does not believe that there are any 

viable alternatives to the final rules at this time. 

iii. Price Discovery 

The lower margin requirements adopted under the final rules may facilitate the 

revival of security futures markets, and if that revival occurs, could increase 

competition and result in some new customers entering the security futures market 

along with increased trading by previously existing customers. In addition, trading 

from foreign markets could shift to the U.S. security futures market as a result of the 

change in margin requirements. All things being equal, this increased activity in the 

U.S. security futures market could have a positive effect on price discovery in the 

security futures market, if trading resumes. However, as the CFTC has noted before, 
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price discovery in security futures markets most likely has occurred in the liquid and 

transparent security markets underlying previously existing security futures contracts, 

rather than the relatively low-volume security futures themselves.217 

One commenter, citing to SEC Commissioner Jackson’s Statement, shared the 

view that a serious economic analysis would have considered whether reducing margin 

requirements improves price discovery or, instead, incentivizes a shift toward futures 

markets in order to seek out leverage.218 SEC Commissioner Jackson’s Statement 

noted that if market participants shifted toward futures markets, it could result in less 

liquidity in related markets (i.e., equity markets) without contributing to any additional 

price discovery. Although some portion of increased trading in security futures may 

be the result of customers switching from equity markets to security futures markets, 

the lower margin requirements for security futures may, if security futures trading 

resumes, facilitate arbitrage between the underlying security and security futures 

markets. This arbitrage between the two markets may enhance price discovery and 

provide a benefit to customers. 

The CFTC notes that changes in price discovery may be difficult to measure.219 

However, the CFTC believes that the final rules’ amendments are unlikely to harm 

 217 See Position Limits and Position Accountability for Security Futures Products, 84 FR 

51020. 

218 CII Letter at 4.

219 One commenter shared SEC Commissioner Jackson’s view that the effects of a lower 

margin requirement on price discovery in financial markets could be studied by 

looking at relevant data. CFTC staff reviewed trading volume data at OneChicago to 

determine whether a change to increase the default maximum level of equity security 

futures products’ position limits resulted in a change in trading activity in security 
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price discovery and indeed may improve price discovery in the security futures market 

in the United States if security futures trading resumes. 

iv. Sound Risk Management Practices 

The final rules’ amendments will lower the minimum initial and maintenance 

margin required for security futures positions. If security futures trading resumes, this 

may encourage potential hedgers or other risk managers to increase their use of 

security futures for risk management purposes. Moreover, a lower margin requirement 

could encourage new market participants to enter the security futures markets for 

potential hedging and risk management purposes. The final rules’ amendments are 

consistent with sound risk management practices, especially to the extent that there is 

an increased liquidity in potentially revived security futures markets. 

In addition, as discussed in detail above, margin requirements are a critical 

component of any risk management program for cleared derivatives. Security futures 

have been risk-managed successfully through central clearing and initial and 

maintenance margin requirements for almost twenty years (including time periods of 

historic market volatility.)220 Current minimum margin requirements for security 

futures (20%) are higher than minimum margin requirements for comparable 

exchange-traded equity options held in a Portfolio Margin Account. 

 

futures products, but without additional data on related equity contracts it is not 

possible to draw a definitive conclusion about effects on price discovery. 

220 The CFTC staff notes that the VIX, which measures market expectations of near term 

volatility as conveyed by stock index option prices, has recently approached peak 

levels due to increased market volatility in March 2020 (the VIX measurement on 

March 16, 2020, was close to 83). Previously high volatility was measured in October 

and November 2008 during the financial crisis (when the VIX measurement reached 

the 80s). See, e.g., VIX data available from the Federal Reserve Bank of Saint Louis 

at https://fred.stlouisfed.org/series/VIXCLS. 
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The CFTC recognizes the necessity of sound initial and maintenance margin 

requirements for DCO and FCM risk management programs. Initial and maintenance 

margin collected addresses potential future exposure, and in the event of a default, 

such margin protects non-defaulting parties from losses. The final rules maintain 

those protections. As noted above, based on past data, the 15% margin level is likely 

to cover more than 99% of the risks of default associated with security futures 

positions, if trading resumes.

v. Other Public Interest Considerations

The CFTC has not identified any additional public interest considerations 

related to the costs and benefits of the final rules.

B. SEC

1. Introduction

In the following economic analysis, the SEC considers the benefits and 

costs, as well as the effects on efficiency, competition, and capital formation that 

the SEC anticipates will result from the SEC’s final rules.221 The SEC evaluates 

these benefits, costs, and other economic effects relative to a baseline, which the 

SEC takes to be the current state of the markets for security futures products and 

 

221 The Exchange Act states that when the SEC is engaging in rulemaking under the 

Exchange Act and is required to consider or determine whether an action is necessary 

or appropriate in the public interest, the SEC shall consider, in addition to the 

protection of investors, whether the action will promote efficiency, competition, and 

capital formation. 15 U.S.C. 78c(f). In addition, Exchange Act Section 23(a)(2) 

requires the SEC, when making rules or regulations under the Exchange Act, to 

consider, among other matters, the impact that any such rule or regulation would have 

on competition and states that the SEC shall not adopt any such rule or regulation 

which would impose a burden on competition that is not necessary or appropriate in 

furtherance of the Exchange Act. See 15 U.S.C. 78w(a)(2).
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the regulations applicable to those markets. The economic effects the SEC 

considered in adopting these rule amendments are discussed below and have 

informed the policy choices described throughout this release.

The final rule amendments will lower the required initial and maintenance 

margin levels for unhedged security futures from the current level of 20% to 15%. 

Furthermore, in connection with the SEC’s rules which permit an SRA to set margin 

levels that are lower than 15% of the current market value of the security future in the 

presence of an offsetting position involving security futures and related positions, the 

SEC is re-publishing the Strategy-Based Offset Table with the proposed revisions, 

to conform it to the adopted 15% required margin levels.

222

The SEC received a number of comments on the proposal. Some 

commenters supported the proposal,223 while other commenters raised concerns.224 

The SEC has considered these comments, as discussed in detail in the sections that 

follow. This adopting release also revisits the benefits, the costs, and other 

economic effects identified in the 2019 Proposing Release.225 Much of the 

discussion below on the costs, benefits, and other effects is qualitative in nature. 

Wherever possible the SEC has attempted to quantify potential economic effects, 

 222 Conforming reductions to minimum margin percentages on hedged security futures 

positions will be reflected in a restatement of the table of offsets published in the 2002 

Adopting Release. The Strategy-Based Offset Table is not part of the Code of Federal 

Regulations. 

223 See FIA Letter.

224 See OneChicago Letter; OneChicago Letter 2; OneChicago Letter 3; Cboe/MIAX 

Letter; CII Letter; Bost/Davis Letter; Moran/Tillis/Rounds Letter.

225 See 2019 Proposing Release, 84 FR at 36447.
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incorporating data and other information provided by commenters in its analysis

of the economic effects of the final rules. In addition to more detailed information 

on current activity in the security futures market, the SEC considered information 

supplied by commenters on the potential reduction in margin required to support 

security futures positions based on current levels of market activity and on the 

likelihood that investors migrated to the security futures market from related 

markets. However the SEC generally lacks the data necessary to estimate, among 

other things, the potential impact of the final rule amendments on overall investor 

participation in the security futures markets and bid-ask spreads in that market and 

related markets.

2. Baseline

The SEC evaluates the impact of final rules relative to a baseline that 

includes the regulatory regime applicable to the markets for security futures, as 

well as the current state of these markets. As discussed above, the term “security 

future” refers to a futures contract on a single security or on a narrow-based security

index.226 More generally, “security futures product” refers to security futures as 

well as any put, call, straddle, option, or privilege on a security future.227 

Unlike futures markets on commodities or “broad-based” equity indexes, 

security futures have had a limited role in U.S. financial markets, which may be 

 226 See supra note 1. 

227 See Section 1a(45) of the CEA and Section 3(a)(56) of the Exchange Act (both 

defining the term “security futures product”).
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due in part to uncertainty relating to tax treatment228 and competition from the 

more developed equity, equity swap, and options markets.229 Incentives to 

participate in the security futures markets (rather than the markets for the 

underlying security, options, or swap markets) may stem from reduced market 

frictions (e.g., short sale constraints), lower cost of establishing a short position 

compared to the equity market, and reduced counterparty risk due to daily 

resettlement, relative to comparable OTC instruments (e.g., equity swaps). 

As with other types of futures, both the buyer and seller in a security 

futures transaction can potentially default on his or her respective obligation. 

Because of this, an intermediary to a security futures transaction will typically 

require a performance bond (“initial and maintenance margin”) from both parties 

to the transaction. The clearing organization will also require such performance bonds 

from its clearing members (i.e., the clearing intermediary of the security futures 

transaction). Higher margin levels imply lower leverage, which reduces risk. 

Private incentives encourage a broker-dealer that intermediates security futures 

transactions to require a level of margin that adequately protects its interests. 

However, in the presence of market frictions, private incentives alone may 

lead to margin levels that are inefficient. For example, intermediaries may set 

 228 Specifically, the proposition that exchange-for-physical single stock security futures 

qualify for the same tax treatment as stock loan transactions under Section 1058 of the 

Internal Revenue Code has not been tested. See e.g., Exchange Act Release No. 

71505 (Feb. 7, 2014).

229 Security futures markets face competition from equity and options markets because in 

principle, the payoff from a security futures position is readily replicated using either 

the underlying security, or through options on the underlying security.
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margin levels that, while privately optimal, do not internalize the cost of the 

negative externalities caused by the potential high leverage level associated with 

low margins. Moreover, even when all parties are fully aware of the risks of 

leverage, privately negotiated margin arrangements may be too low. For example, 

the risk resulting from higher leverage levels can impose negative externalities on 

financial system stability, the costs of which would not be reflected in privately

negotiated margin arrangements. To the extent that such market failures are not 

ameliorated by existing market institutions,230 they provide an economic rationale 

for regulatory minimum margin requirements.231

i. The Security Futures Market

Security futures can provide a convenient means of obtaining delta 

exposure to an underlying security.232 To effectively compete with other 

venues for obtaining similar exposures (e.g., equity and equity options 

markets), security futures markets must reduce market frictions or provide 

more favorable regulatory treatment. Security futures markets may reduce 

market frictions by providing a lower cost means of financing equity exposures. 

They can simplify taking short positions by eliminating the need to “locate” 

 230 For centrally cleared markets, including the security futures market, CCPs may 

impose membership and minimum margin requirements that cause clearing members 

to internalize a greater share of the costs associated with customers’ higher leverage.

231 Monetary authorities may also rely on regulatory margin requirements as a policy tool. 

The SEC does not consider such motives here.

232 The derivative of the theoretical price of a futures contract with respect to the price of 

the underlying (i.e., the “delta”) is 1. For a $1 increase (decrease) in the price of an 

underlying security, the theoretical price of its security future increases (decreases) by 

$1.
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borrowable securities.233 Security futures can also be used to create synthetic 

equity repurchase agreements or equity loans, which carry similar terms as 

their over-the-counter counterparts.234 Finally, security futures can also 

provide an opportunity for customers to gain greater leverage through lower 

margin requirements (relative to margin in securities or options transactions). 

The one U.S. exchange that provided trading in security futures, 

OneChicago, discontinued all trading operations on September 21, 2020. As of 

the end of 2019, 13,792 security futures contracts235 on 1,638 symbols were traded 

on the exchange. Of these 13,792 contracts, 343 had open interest at the end of 

the year. Total open interest at the end of the year was 602,276 contracts. Annual 

trading volume in 2019 was close to 7.4 million contracts, an increase of 

approximately 4% from the prior year. At this time, however, no security futures 

contracts are listed for trading on U.S. exchanges. 

According to OneChicago, prior to the cessation of trading almost all

security futures positions were carried in futures accounts of CFTC-regulated 

FCMs.236 Consequently, the SEC believes only a small fraction of security 

 233 In these respects, a security future functions like a cleared total return swap.

234 This can be achieved by simultaneously entering into a security futures position that 

expires at the end of the trading day and another security futures position of the same 

size and on the same underlying security but in the opposite direction and expiring at a

future date, compared to the other position. See also Memorandum from the SEC’s 

Division of Trading and Markets regarding a July 16, 2019, meeting with 

representatives of OneChicago (including OneChicago’s presentation on STARS as 

synthetic equity repos or equity loans)

235 The typical contract is written on 100 shares of underlying equity.

236 See OneChicago Petition.
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futures accounts previously fell under the SEC’s customer margin 

requirements for security futures. The SEC believes that none of the accounts 

that were subject to the SEC’s security future margin rules used the Portfolio 

Margin Rules.237 Therefore, the SEC believes that all of the securities accounts 

that previously fell under the SEC’s margin rules would have been subject to the 

general initial and maintenance margin requirement of 20% and the associated 

Strategy-Based Offset Table. 

ii. Regulation

In the U.S., a security future is considered both a security and a future, so 

customers who wish to buy or sell security futures must conduct the transaction 

through a person registered both with the CFTC as either an FCM or an IB and the 

SEC as a broker-dealer.238 In addition, an investor can trade securities futures using 

either a futures account or a customer securities account.

As discussed in section I, Section 7(c)(2)(B) of the Exchange Act provides that 

the customer margin requirements must satisfy four requirements. First, they must 

preserve the financial integrity of markets trading security futures products.239 

Second, they must prevent systemic risk.240 Third, they: (1) must be consistent with 

 237 If security futures positions were held in a Portfolio Margin Account they would be 

included in the risk-based portfolio margin calculation and thus effectively subject to a 

lower (i.e., 15%) margin requirement under the baseline. Based on an analysis of 

FOCUS filings from year-end 2019, no broker-dealers had collected margin for 

security futures accounts in a Portfolio Margin Account.

238 See supra note 12.

239 See Section 7(c)(2)(B)(i) of the Exchange Act.

240 See Section 7(c)(2)(B)(ii) of the Exchange Act.
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the margin requirements for comparable options traded on any exchange registered 

pursuant to Section 6(a) of the Exchange Act;241 and (2) the initial and maintenance 

margin levels must not be lower than the lowest level of margin, exclusive of 

premium, required for any comparable exchange-traded equity options.242 Fourth, 

excluding margin levels, they must be, and remain consistent with, the margin 

requirements established by the Federal Reserve Board under Regulation T.243

Under existing SEC rules, the minimum initial and maintenance margin 

requirement for a customer’s unhedged security futures position, not subject to an 

exemption is 20% of its current market value.244 SRAs may allow margin levels 

lower than 20% for accounts with “strategy-based offsets” (i.e., hedged 

positions).245 Strategy-based offsets can involve security futures as well as one or 

more related securities or security futures position, consistent with the StrategyBased Offset Table.246 

Accounts subject to the Portfolio Margin Rules are also exempt from the 

customer margin requirements for security futures.247 Under currently approved 

Portfolio Margin Rules, the effective margin requirement for an unhedged security 

 241 See Section 7(c)(2)(B)(iii)(I) of the Exchange Act. 

242 See Section 7(c)(2)(B)(iii)(II) of the Exchange Act. 

243 See Section 7(c)(2)(B)(iv) of the Exchange Act. 

244 See SEC Rule 403(b)(1). 

245 See SEC Rule 403(b)(2).

246 See section II.B. above (discussing the Strategy-Based Offset Table).

247 See CFTC Rule 41.42(c)(2)(i), 17 CFR 41.42(c)(2)(i); SEC Rule 400(c)(2)(i), 17 CFR 

242.400(c)(2)(i).
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futures position or an exchange-traded option on a narrow-based index or an 

individual equity is 15%.248 Under current rules, only customer securities 

accounts held through SEC-regulated broker-dealers could potentially be subject 

to the Portfolio Margin Rules; however, the SEC is not aware of any brokerdealers offering such accounts. Margin requirements for security futures positions 

of clearing members (i.e., their accounts at a clearing agency or DCO) are also 

exempt from the security futures margin requirements.249

3. Considerations of Costs and Benefits

Under the final rule amendments being adopted in this release, the initial and 

maintenance margin requirements for a security futures position will be reduced from 

20% to 15% of the current market value of the position. This section discusses both

the likely economic effects of the final rule amendments conditional on the resumption 

of trading in security futures, and the extent to which the final rule amendments may 

affect the likelihood that trading in security futures contracts resumes.

One commenter expressed concern that the SEC did not present any 

substantive analysis of the proposed amendment’s possible benefits.250 In response to 

this comment, as stated in the 2019 Proposing Release, the SEC cannot quantify the 

benefits to investors from the potential effects of the final rule amendments on investor 

 248 This follows from the methodology of current SRO Portfolio Margin Rules as applied 

to delta one securities. There is no comparable portfolio margining system for 

security futures held in a futures account and, therefore, these positions, if unhedged, 

are subject to the required 20% initial and maintenance margin levels.

249 See SEC Rule 400(c)(2)(i) through (v), 17 CFR 242.400(c)(2)(i) through (v). Clearing 

members are instead subject to margin rules of the clearing organization as approved 

by the SEC pursuant to Section 19(b)(2) of the Exchange Act, 15 U.S.C. 78s(b)(2).

250 See CII Letter at 3.
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demand, investor participation, price discovery and liquidity.251 As discussed in more 

detail below, OneChicago provided information about the likely reduction in initial 

margin requirements it expected from the proposed rule amendments. Although this 

information supports the SEC’s view that the final rule amendments could increase 

investor participation in the security futures market if trading resumes, it is not 

possible to meaningfully estimate the magnitude of any such increase, and related 

implications for the market for exchange-traded equity options without additional 

information about investors’ sensitivity of demand for security futures and exchangetraded equity options positions with respect to changes in margin levels.252 This 

sensitivity is difficult to estimate because it requires historical data on positions and 

associated margins from customer securities accounts, which broker-dealers currently 

do not report to the SEC.253 While the SEC’s analysis of the costs and benefits of the 

final rule amendments are qualitative in nature, the inability to quantify certain 

benefits and costs does not mean that the overall benefits and costs of the final rule 

amendments are any less significant.

Security futures prices reflect the aggregate demand for security futures of all 

participating investors, including those that are subject to margin requirements and 

those that are not. Among other things, this demand depends on the costs associated 

with margin requirements, such as the opportunity cost of the margin collateral. All 

 251 See 2019 Proposing Release, 84 FR at 36449.

252 This sensitivity is more formally known as the margin elasticity of demand.

253 While the minimum margin requirements are set by regulation and therefore known, 

the actual margin associated with a position is set by a broker-dealer and may be 

different from the regulatory minimum. 
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else equal, higher margin levels may reduce individual demand because of potential 

higher trading costs. 

As stated above, at the end of 2019, open interest in the U.S. security futures 

markets was 602,276 contracts. SEC staff understands that approximately 2% of these 

contracts were held in securities accounts subject to SEC margin requirements.254

None of these accounts is believed to have been subject to Portfolio Margin Rules. 

This information, in combination with information supplied by commenters, can be 

used to construct a hypothetical estimate of the effect of the final rules on initial 

margin collected were security futures to continue to trade at OneChicago. According 

to OneChicago, the total reduction in margin collected (including margin collected on 

security futures held in futures accounts,) would have been $130 million.255 Because 

the SEC estimates approximately 2% of these contracts were held in securities 

accounts, the margin reduction attributable to securities accounts would have been

approximately $2.6 million.256 The SEC expects this may overestimate the impact of 

the final rule, as broker-dealers may currently impose initial margin requirements 

exceeding 20% on certain security futures if they deem higher margin amounts 

necessary for risk management.257

 254 See 2019 Proposing Release, 84 FR at 36449. 

255 OneChicago Letter at 14.

256 Calculated as $130 million x 0.02 = $2.6 million.

257 See OneChicago Letter at 14 (stating that as of August 26, 2019, 92% of OneChicago 

security futures had a risk level above 20%).
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i. Impact on Investor Participation

By lowering the minimum margin requirement for unhedged security futures 

positions held outside Portfolio Margining Accounts, the final rule amendments may 

affect participation in the security futures market, in the event that trading in security 

futures resumes in the United States. Reducing the trading costs for investors that hold 

these positions outside of Portfolio Margin Accounts may increase demand for 

security futures and may benefit investors by reducing the costs of taking on or laying 

off risk exposures. 

The potential trading cost savings associated with the final rule amendments 

may also increase the competitiveness of security futures relative to certain potential 

close substitutes that are not directly affected by the margin requirements of the final 

rule amendments. As a result, if security futures trading resumes, the final rule 

amendments may encourage higher investor participation in the security futures 

market relative to what was previously observed under current initial margin 

requirements, to the benefit of financial intermediaries that offer security futures to 

their customers and exchanges that list security futures for trade, while potentially 

reducing fees earned by intermediaries and exchanges from services provided in 

related markets.

In addition to margin requirements, individual demand for security futures 

depends on the availability of other financial instruments (or strategies based on these 

instruments) that may be viewed by an investor as close substitutes to security futures. 

For example, certain OTC instruments that offer delta one exposure to the underlying 
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security and certain security futures positions may be viewed as close substitutes.258 

Furthermore, certain option spread positions and certain futures positions may be 

viewed by some investors as close substitutes.259 These potential substitutes exist on a 

continuum, and some alternative strategies have risk profiles and cash flows more 

similar to security futures than others.260 In the presence of these alternatives, 

individual demand for a security futures position depends on the relative cost of 

alternative strategies, including the cost of financing the alternative position (e.g., 

margin requirements) and the cost of bearing risk exposures that are incremental to the 

desired risk exposure obtainable through security futures.

The final rule amendments will also result in more consistent margining for 

identical unhedged security futures positions held within or outside Portfolio 

Margining Accounts. This will promote regulatory parity of security futures 

margin requirements between Portfolio Margin Accounts and securities accounts 

that do not offer portfolio margining, as well as between securities and futures 

accounts. To the extent that customers are currently unwilling to bear the costs of 

opening Portfolio Margin Accounts, they may decline opportunities to participate in 

the security futures market or may instead bear the costs of holding security futures in 

their securities accounts. If trading resumes, parity in margin requirements could 

 258 See OneChicago Letter (describing these OTC instruments, including equity swaps 

and stock loans). 

259 See section IV.B.4.ii.a infra (discussing comparability of exchange-traded options and 

security futures).

260 One commenter specifically argued that that single stock futures and equity options 

are sufficiently distinct that they do not trade interchangeably, and supplied data to 

support its claim. See section IV.B.4.ii.a infra.
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result in efficiencies for customers who might otherwise open separate accounts to 

obtain security futures exposure in response to differing margin requirements 

across account types. 

ii. Impact on use of Leverage and Investor Behavior

If security futures trading resumes, the final rule amendments may provide 

investors with opportunities to take on additional leverage. Because securities futures 

allow investors to acquire 100% exposure in the underlying security (also known as 

“delta-one” exposure) for a fraction of the cost of funding a position in the cash 

market, the final rule amendments may reduce the cost of financing leveraged 

exposures through security futures. In particular, the final rule amendments may 

increase the attractiveness of security futures as means to finance delta one exposure. 

Increased leverage can result in larger investor losses, and may exacerbate the 

potential costs to investors from trading patterns that reflect behavioral biases. For 

example, in equity markets, retail investors may be subject to costs from certain 

trading patterns that are consistent with the so-called “disposition effect” – an aversion 

to realize losses. To the extent that the final rule amendments lower the cost that retail 

investors bear when they participate in the security futures market and encourage more 

participation, the potential costs associated with the “disposition effect” and other 

behavioral biases could be exacerbated. 

However, the potential costs associated with retail investors’ behavioral biases 

are likely to be limited in aggregate, because (i) under the baseline, retail investors 

are believed to represent a very small fraction (less than 1%) of open interest in 

security futures; and (ii) broker-dealers may still impose higher initial margin 
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requirements and other measures to manage risk exposures to their customers and 

meet clearing organization requirements.

One commenter noted that the daily variation settlement in the futures market 

would counter the disposition effect as it relates to security futures, while the current 

margining system in the options markets exacerbate the effect.261 The SEC 

appreciates the analysis provided by this commenter. However, contrary to the 

conclusion of this analysis, both the margin on a futures position and the margin on an 

options position move in the same direction (as compared to opposite directions, as 

suggested by the commenter), because in the exchange-traded equity options market,

the initial and maintenance margin generally applies to the short position only.262

iii. Impact on Financial Intermediaries

The final rule amendments may also provide benefits to financial 

intermediaries that facilitate trading in security futures, thereby providing incentives to 

list security futures. Broker-dealers and exchanges generally charge fees for purchases 

and sales of listed securities and derivatives contracts. To the extent that the final rule 

amendments increase future participation in security futures markets if trading 

resumes, security futures exchanges and broker-dealers that offer customers the ability 

to trade security futures in securities accounts may earn higher fees from security 

futures activity, than would be the case in the absence of the final rule amendments, 

 261 See OneChicago Letter, Appendix A.

262 Thus, when the option position increases in value for the long investor, the 

maintenance margin assessed to the short investor (the seller of the position) increases 

proportionally. Customers who buy long exchange-traded options generally must pay 

for them in full. See supra note 94 (discussing margin requirements for long 

exchange-traded options).
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although an increase in revenues in the security futures market may reduce fees earned 

from activity in related markets. In turn, opportunities to earn higher fees from 

enabling transactions in security futures may encourage exchanges to list security 

futures. As a result, the final rule amendments could incrementally increase the 

likelihood that trading in security futures contracts resumes.

Lowering the regulatory minimum margin requirements for security futures 

margin could also impose costs on broker-dealers, their customers, and 

counterparties. To the extent that lower regulatory margin requirements cause

some broker-dealers to impose lower margin requirements on customers if trading 

resumes, the final rule amendments could increase the default risk of the brokerdealer, and a broker-dealer default would likely impact the defaulting brokerdealer’s customers and counterparties. However, broker-dealers participating in 

security futures markets would be subject to clearing organizations’ margin 

requirements and the SEC’s broker-dealer financial responsibility rules (including 

minimum capital requirements).263 Such requirements are reasonably designed to 

mitigate the risk of a broker-dealer’s default. In addition, in the event of such a 

default, the SEC’s customer protection rule would protect customers’ assets held 

in a securities account.264

 263 17 CFR 240.15c3-1. 

264 17 CFR 240.15c3-3. The SEC acknowledges that any security futures held in futures 

accounts would benefit from the CFTC’s customer protection rules found in part 1 of 

the CFTC’s regulations. 
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iv. Resumption of Trading in the U.S. Security Futures 

Market

The final amendments may increase investors’ willingness to participate in 

the security futures markets to an extent that is sufficient to result in resumption in 

exchange trading of security futures in the U.S. Although we expect the final 

amendments to have, at most, an incremental effect on the likelihood that trading 

resumes, the potential revitalization of the U.S. security futures market could 

produce economic consequences for investors, intermediaries, and financial 

markets. 

A liquid U.S. security futures market could result in both costs and benefits 

for investors. Access to security futures could benefit investors by reducing the 

costs that investors incur to obtain risk exposures or finance other transactions. As 

discussed earlier, security futures can allow investors to obtain low-cost exposure 

to underlying securities.265 In particular, security futures can simplify the process 

of taking short positions by eliminating the need to locate borrowable securities. 

Moreover, security futures can be combined to produce synthetic equity loans or 

equity repurchase agreements.266 These activities, however, have attendant risks. 

As discussed above, an investor that uses security futures to obtain leveraged 

exposure to underlying securities also is exposed to the risk of larger losses.

Resumption of trade in the U.S. security futures market could permit 

intermediaries to earn additional revenues by serving investors that participate in 

 265 See section IV.B.2.i.

266 Id.
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the security futures market. Whether revenues from transaction services increase 

depends on whether investors transact in security futures in addition to cash 

market securities rather than simply reallocating their cash market activities to 

security futures markets.

v. Effects of Revisions to Strategy-Based Offset Table 

As discussed in section II.B. above, the revised Strategy-Based Offset Table is 

being re-published as proposed.267 The re-published Strategy-Based Offset Table 

incorporates the 15% required margin levels for certain offsetting positions and retains 

the same percentages for all other offsets. The revisions to the Strategy-Based Offset 

Table would promote consistency with the lower margin levels on unhedged 

security futures positions of the final rule amendments. If security futures trading 

resumes, the revisions would generally benefit investors from lower cost of 

carrying offset positions. The SEC also expects any additional costs incurred by 

broker-dealers to incorporate the revised Strategy-Based Offset Table into their 

existing policies and procedures to be similarly insubstantial.

4. Effects on Efficiency, Competition, and Capital Formation

In addition to the specific costs and benefits discussed above, the

reductions to minimum margin requirements on unhedged security futures that 

the SEC is adopting may have broader effects on efficiency, competition, and 

capital formation.

 267 See 2019 Proposing Release, 84 FR at 36441-43. 
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i. Efficiency

Should trading in security futures resume, the SEC expects the final rule 

amendments to result in incremental improvements in efficiency to the extent 

that they permit investors to obtain the risk exposures they desire at lower cost. 

The final rule amendments may also improve liquidity in the security futures 

market and impact the informational efficiency of security futures prices, as 

well as the prices for related financial instruments. Reducing minimum 

margin requirements could also impact the financial system more broadly 

though, as discussed below, we do not expect such effects to be substantial.

a. Efficiency and Transactions Costs

Under the current minimum margin requirements two identical security futures 

positions may be subject to different margin levels because they are held in different 

types of accounts. A potential concern with the current margin requirements in these 

situations, and more generally, is whether they can result in price distortions or 

introduce inefficiencies in how investors allocate funds. 

Current margin requirements may not necessarily result in price distortions. 

This is because certain participating investors, such as market makers,268 are exempt 

from the current margin requirements (which would still apply to any positions held on 

behalf of a customer), and they may step in to become the “marginal investor” in 

situations where current margin requirements might otherwise distort prices.269 For 

 268 Market makers are subject to exemptions from margin requirements. See CFTC Rule 

41.42(c)(2)(v); SEC Rule 400(c)(2)(v). 

269 A market participant or investor is considered “marginal” if they are willing to buy or 

sell security futures even for small deviations between the price of a security futures 
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example, if security futures trading resumes investors trading from outside a Portfolio 

Margin Account, who are not exempt from margin requirements, would face trading 

costs associated with margin requirements that may hinder their ability to trade with 

each other. A seller and a buyer who agree on the value of a security futures product 

may nevertheless fail to agree on a transaction price because the buyer demands a 

discount to compensate herself for the cost of meeting margin requirements, while the 

seller demands a premium to compensate herself for the same costs. On their own, 

these distortions would result in wider bid-ask spreads in security futures markets. 

However, because market participants such as market makers, who are exempt from 

margin requirements, bear minimal costs to transact, these investors have the ability to 

provide quotes that are generally more competitive than the quotes provided by other 

types of investors, reducing uncertainty in the value of security futures.

Nevertheless, current margin requirements may result in potential allocative 

inefficiencies. Trading costs associated with the current margin requirements may 

impact investor demand, and therefore willingness to take on or lay off risk exposures 

using security futures. In particular, risk sharing under the regulatory minimum 

margin requirements may be different relative to the case where margin levels are 

optimally determined to reflect the risks of security futures positions. The difference 

between the allocation of financial risk that result from current margin requirements 

and the allocation associated with the margin requirements that are optimally 

 

contract and the contract’s fundamental value and thus sets the price of the contract. 

Such activities may be more profitable for market makers if they encounter lower 

trading frictions (including margin requirements) relative to other market participants.
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determined may be viewed as an allocative inefficiency. Allocative inefficiency may 

also manifest if trading costs in security futures drive investors to use alternative 

products to obtain financing or manage risk, which are less suited to their needs.

If security futures trading resumes, certain investors could reduce these 

potential allocative inefficiencies by trading out of a Portfolio Margin Account,270

where margin requirements can result in much lower margin levels compared to those 

that apply outside such accounts. However, as of the fourth quarter of 2019, no 

investors appeared to be trading in security futures out of Portfolio Margin Accounts, 

despite the fact that they did trade significantly in exchange-traded equity options out 

of these accounts. This observation may indicate that investors that qualify for 

Portfolio Margin Accounts have not traded security futures.271 Alternatively, such 

investors may have chosen to trade security futures outside of Portfolio Margin 

accounts, implying that the costs they faced as a result of the current margin 

requirements were not sufficiently large to discourage their participation or to 

persuade them to open a Portfolio Margin Account. 

 270 Not all investors are eligible to open a Portfolio Margin Account. See Cboe/MIAX 

Letter at 4.

271 With the exception of investors that are exempt from margin requirements, the 

investors that hold or are eligible to open a Portfolio Margin Account are best 

positioned to trade security futures at margin levels that could be substantially below 

the current minimum margin requirements. The extent to which they face low margin 

levels on a new security futures position depends on any offsetting positions – either 

security futures or exchange-traded options positions – that they hold in their Portfolio 

Margin Account at that time when they seek to enter the new security future position.
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Nevertheless, because opening Portfolio Margin Accounts entails costs, not all 

investors can trade out of these accounts,272 therefore some investors may face barriers 

to participation in the security futures market, if trading resumes. The potential 

inefficiencies associated with these barriers arise when the margin levels associated 

with current minimum margin requirements for security futures are larger than the 

margin levels associated with margin requirements that are optimally determined, and 

not because similar positions are margined differently in other markets. 

The final rule amendments will lower the minimum initial margin requirements 

for certain security futures positions, and in turn reduce the trading costs for these 

positions. To the extent trading costs result in inefficiencies, the final rule 

amendments, by lowering trading costs, may reduce potential inefficiencies associated 

with the current initial margin requirements. 

Furthermore, as discussed above, lower trading costs in certain security futures 

positions may increase investor demand for security futures, and may encourage 

greater market participation in this market if trading in security futures resumes. 

Greater participation may increase competition over prices, which in turn may result in 

improved price discovery and liquidity in the security futures market. However, the 

effect of the final rule amendments on price discovery and liquidity may be limited 

because, as discussed above, the marginal participant in this market is likely one that is 

currently exempt from the customer margin requirements for security futures and 

therefore, able to supply liquidity at relatively low cost.

 272 See CBOE/MIAX Letter (describing potential costs and requirements associated with 

opening a Portfolio Margining Account). 
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One commenter stated that the lower minimum margin requirements combined 

with investors’ search for sources of leverage, may increase liquidity in the security 

futures market while simultaneously reducing liquidity and price efficiency in other 

related markets.273 The SEC acknowledges that the final rule amendments may

encourage resumption of trading in the U.S. security futures market and, if trading 

resumes, may encourage arbitrageurs to rely more on the security futures market to 

take advantage of potential mispricing compared to other markets, or may increase the 

risk of adverse selection in equity markets if it encourages less-informed investors to

migrate to the security futures market to obtain leveraged equity exposure at low 

cost.274 However, the SEC does not believe that the resumption of trading in security 

futures or heightened focus on the security futures market would necessarily reduce 

informational efficiency or liquidity in aggregate across related markets. Markets that 

support trade in financial instruments that reference the same underlying security tend 

to be interconnected to a high degree.275 Furthermore, investors may access security

futures quotes and post-trade information. As such, even if trading in security futures 

 273 See CII Letter at 3.

274 See Stewart Mayhew, Atulya Sarin & Kuldeep Shastri, The Allocation of Informed 

Trading Across Related Markets: An Analysis of the Impact of Changes in EquityOption Margin Requirements, 50 J. FIN. 1635 (1995) (showing that a reduction in 

options margin requirements decreased options market bid/ask spreads and increased 

option market depth-of-book, while increasing equity market bid/ask spreads and 

decreasing equity market depth-of-book).

275 See, e.g. Sugato Chakravarty, Huseyin Gulen & Stewart Mayhew, Informed Trading 

in Stock and Option Markets, 59 J. FIN. 1253 (2004) (showing that price discovery 

takes place both in the equity market and the equity options market, with the latter 

contributing by about 17%). Similarly, another study documents informational flows 

between credit default swap markets, equity options markets and equity markets. See 

Antje Berndt & Anastaysia Ostrovnaya, Do Equity Markets Favor Credit Market 

News over Options Market News?, 4(2) Q. J. FIN. 1 (2014).
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resumes and the final rule amendments shift price discovery from related markets to 

the security futures market, information impounded in security futures prices may 

inform trading in those related markets.276 

b. Systemic Considerations

The final rule amendments may also impact efficiency through their impact on 

risk management. As discussed above, broker-dealers likely weigh the costs 

associated with customer defaults against the benefits of lower margin 

requirements when setting margin requirements for their customers. Although 

such private considerations would produce market-determined margin levels that 

were optimal from a broker-dealer’s perspective, market imperfections could lead 

broker-dealers to impose margin requirements on customers that are not efficient 

for the financial system as a whole. The relevant market imperfections in the 

context of margin requirements relate to externalities on financial stability arising 

from excessive leverage.277

 276 See, e.g. David Easley, Maureen O’Hara & P. S. Srinivas, Option Volume and Stock 

Prices: Evidence on Where Informed Traders Trade, 53 J. FIN. 431 (1998) and Jun 

Pan & Allen Poteshman, The Information in Option Volume for Future Stock Prices, 

19 REV. FIN. STUD. 871 (2006) (both showing that equity options trading provide 

valuable information for equity markets).

277 The SEC acknowledges that other market imperfections (e.g., asymmetric 

information, adverse selection) may also play a role, although the SEC believes

these to be less relevant to this context. Asymmetric information about market 

participants’ quality can lead privately negotiated margin levels to be inefficient. 

For example, competition among broker-dealers may lead to a ‘‘race to the 

bottom’’ in margin requirements when customers’ “quality” is not perfectly

observable. See e.g., Tano Santos & Jose A. Scheinkman, Competition among 

Exchanges, 116 Q. J. ECON. 1027 (2001). Alternatively, problems of adverse 

selection (e.g., potential to re-invest customer margin in risky investments) or

moral hazard (e.g., expectations of government rescue) may also create 

incentives for broker-dealers to offer margin requirements that are too low. 

Asymmetric information about broker-dealer quality may make it impossible 
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Historically, a key aspect of the rationale for regulatory margin 

requirements on securities transactions was the belief that such requirements 

could improve efficiency by limiting stock market volatility resulting from 

“pyramiding credit.” 278 Leveraged exposures built up during price run-ups could 

lead to the collapse of prices when a small shock triggers initial and maintenance 

margin calls and a cascade of de-leveraging. The utility of such margin 

requirements in limiting such “excess” volatility and the contribution of 

derivatives markets to such volatility have been a perennial topic of debate in the 

academic literature, rekindled periodically by crisis episodes.279 Most recently, 

the 2007–2008 financial crisis saw similar concerns (i.e., procyclical leverage, 

margin call-induced selling spirals) raised in the securitized debt markets.280

While lower margin requirements can increase the risk and severity of market 

dislocations—given the current limited scale of the security futures markets and 

the limited role played by SEC registrants in these markets—the adopted 

 

for customers to provide sufficient market discipline, leading to a problem 

similar to that faced by bank depositors. See Mathias Dewatripont & Jean 

Tirole, Efficient Governance Structure: Implications for Banking Regulation, 

in CAPITAL MARKETS AND FINANCIAL INTERMEDIATION 12 (Colin 

Mayer & Xavier Vives eds., 1993).

278 See Thomas Gale Moore, Stock Market Margin Requirements, 74 J. POL. 

ECON. 158 (1966).

279 See id. See also Stephen Figlewski, Futures Trading and Volatility in the 

GNMA Market, 36 J. FIN. 445 (1981). See also Franklin R Edwards, Does 

Futures Trading Increase Stock Market Volatility?, 44 FIN. ANALYSTS J. 63

(1988). See also Paul H Kupiec, Margin Requirements, Volatility, and Market

Integrity: What Have We Learned Since the Crash?, 13 J. FIN. SERVICES

RES. 231 (1998).

280 See e.g., Tobias Adrian & Hyun Song Shin, Liquidity and Leverage, 19 J. FIN.

INTERMEDIATION 418 (2010).
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reductions to minimum margin requirements are unlikely to present a material 

financial stability concern.

One commenter expressed concern that the criteria for prescribing margin 

requirements under the Exchange Act to preserve the financial integrity of markets 

trading security futures products and preventing systemic risk appear to indicate 

potential significant risks to the capital markets and investors by lowering margin 

requirements.281 This commenter noted that the 2019 Proposing Release specifically 

acknowledged that margin requirements are a critical component of any risk 

management program for cleared financial products and that higher margin levels 

imply lower leverage, which reduces risk.282 As described in the baseline, the vast 

majority of security futures positions were held in futures accounts at CFTC-regulated 

entities, and, consequently, only a small fraction of the security futures accounts were

be subject to the SEC’s margin rules. Therefore, even if trading in security futures 

resumes and participation in security futures markets were to increase modestly as a 

result of the final rule amendments, the adopted reductions to minimum margin 

requirements are unlikely to have a significant impact on the financial integrity of the 

security futures market and are unlikely to lead to systemic risk.283

ii. Competition

The SEC has considered the potential impact of the final rule amendments on 

competition. This section discusses those impacts in detail and considers the views of 

 281 See CII Letter at 2.

282 See CII Letter at 2.

283 See 2019 Proposing Release, 84 FR at 36348, and 36449-50.
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commenters on the extent to which reducing minimum margin requirements for certain 

accounts introduces or eliminates competitive disparities between markets for different 

types of financial instruments and markets in different jurisdictions.

a. Competition Among Related Markets

The 2019 Proposing Release stated that the proposed initial and maintenance 

margin requirements would establish a more level playing field between options

exchanges and security futures exchanges, and between broker-dealers/securities 

accounts and FCMs/futures accounts.

284 Although the SEC continues to expect the 

final rule amendments to place these exchanges and account types on a more level 

footing, some commenters took issue with this view. One commenter argued that the 

final rule amendments would give unhedged security futures a competitive advantage 

over exchange-traded equity options when held outside a Portfolio Margining 

Account.285 This commenter suggested that subjecting security futures and exchangetraded equity options to different margin requirements in this way may disrupt the 

regulatory parity that currently exists between security futures and exchange-traded 

equity options as the proposal would create preferential margin levels for unhedged 

security futures held outside of a Portfolio Margin Account.286 This commenter also 

believed that the proposal implies that exchange-traded equity options and security 

futures are not competing products, stating that currently there is significant trading in 

 284 See 2019 Proposing Release, 84 FR at 36451.

285 See Cboe/MIAX Letter at 6-8.

286 See Cboe/MIAX Letter at 2.
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option spread positions that “replicate long and short security futures” outside 

Portfolio Margin Accounts.287

The SEC agrees that security futures and exchange-traded equity options can 

have similar economic uses. Nevertheless, for the reasons discussed in section II.A.2 

of this release, reducing the margin levels for an unhedged security future held outside 

of a Portfolio Margin Account to 15% is unlikely to result in a competitive 

disadvantage for exchange-traded equity options in practice if trading in security 

futures resumes. 

The SEC acknowledges that because the adopted margin requirements apply 

only to unhedged security futures positions held outside Portfolio Margining 

Accounts, the final rule amendments may result in different margin requirements 

across security futures positions and exchange-traded equity options positions held in 

this type of account. To the extent some investors view a security futures position and 

an option spread position that replicates the contractual payoffs of the security futures 

position as close substitutes, the final rule amendments may result in different costs for 

these positions when held outside of a Portfolio Margining Account and may cause 

these investors to prefer the security futures position to the option spread position. 

From this perspective, the final rule amendments may potentially have an adverse 

competitive effect on exchange-traded equity options if trading in security futures 

resumes in the U.S. However, this potential adverse competitive impact likely would 

 287 See Cboe/MIAX Letter at 6-8.
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be small as a substantial portion of exchange-traded equity options are traded in 

Portfolio Margin Accounts where the margin requirement for an unhedged exchangedtraded option on a narrow-based index or single-equity is 15%.288 

OneChicago disagreed with the notion that security futures and exchangetraded equity options strategies could be comparable, noting that because security 

futures provide an investor with 100% exposure (i.e., delta-one exposure) to the 

underlying security, security futures should instead be compared to other financial 

instruments that offer delta-one exposure, such as uncleared OTC equity swaps and 

cleared OTC stock loans.289

OTC total return equity swaps and stock loans may compete with security 

futures to provide delta-one exposure at lower cost compared to outright acquisition of 

the underlying security. From this perspective, to the extent that security futures 

compete with these OTC instruments, the final rule amendments would increase the 

competitiveness of security futures relative to these OTC instruments. However, this 

potential competitive effect is limited, because, as OneChicago noted, under certain 

conditions, the costs of financing delta one exposure through OTC equity swaps and 

stock loans can be substantially smaller compared to the cost of security futures.290 

 288 See 2019 Proposing Release, 84 FR 36450.

289 OneChicago Letter.

290 OneChicago Letter. In addition, as discussed in section II.A. of this release, Section 

7(c)(2)(B) of the Exchange Act provides that the margin requirements for security 

futures must be consistent with the margin requirements for comparable exchangetraded options. The Exchange Act does not directly contemplate comparisons with the 

margin requirements for the products and markets identified by OneChicago. Rather, 

it requires comparisons to comparable exchange-traded options.
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OneChicago further argued that the risk profile of a security futures position 

cannot be replicated with exchange-traded equity options, and on this basis challenged 

the argument that lower margin requirements for security futures would reduce the 

competitiveness of exchange-traded equity options.291 OneChicago stated that security 

futures products are not comparable to exchange-traded equity options because they 

have different risk profiles; exchange-traded equity options are subject to dividend 

risk, pin risk, and early assignment risk, while security futures are not.292 Further, 

OneChicago challenged the concerns raised by other commenters that the proposed 

margin requirements would result in “regulatory arbitrage,” arguing that the many 

salient differences between security futures and exchange-traded equity options make 

it virtually impossible to replicate a security futures position using exchange-traded 

equity options.293 OneChicago suggested that the comparison between a security 

futures position and an option spread position that “replicates” the security futures 

cannot be limited to a comparison between the contractual payoffs of these two 

positions. In particular, this commenter argued that a proper comparison should 

include payoffs that may occur throughout the life of the position, including payoffs 

from the security future’s daily settlement of variation margin (i.e., marking-to-market 

 291 See OneChicago Letter; One Chicago Letter 2.

292 OneChicago Letter at 2, 9; OneChicago Letter 2 at 1-2.

293 See OneChicago Letter 2.
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and paying or collecting variation margin) that differs from initial and maintenance 

margin requirements in options markets.294

The SEC acknowledges that even if the contractual payoffs of a security 

futures position could be perfectly replicated with the payoffs of an option spread 

position, 295 the risk profiles of the two positions may still be different.296 For 

 294 See also OneChicago Letter (providing a more in depth analysis of these issues 

together with some data that outlines various payoff structures for different strategies 

based on currently traded contracts). 

295 It is well known that in theory a long security futures position can be perfectly 

replicated with an option spread position consisting of a long European call and a 

short European put. Both options have the same expiration, and each has a strike price 

equal to the futures price. This result is also known as the put-call parity. See, e.g.

JOHN C. HULL, FUNDAMENTALS OF FUTURES AND OPTIONS MARKETS, 

(Pearson Prentice Hall, 2017).

296 A number of practical factors challenge the extent to which security futures can be 

perfectly replicated using an options spread position. First, most stock options 

currently trading are American style rather than European style. American style 

options typically sell at a premium relative to European style options because of the 

value of exercising early. Second, if the strike price of these options (which is set to 

equal the futures price) falls outside the range currently trading, liquidity may be 

limited and these options may sell at a premium (or at discount if short). Third, 

certain features of the futures and options markets may introduce payoffs throughout 

the life of these positions that may further complicate the replication strategy. For 

example, the daily settlement process in the futures market may result in additional 

payments or payouts to the holder of the futures position, relative to the contractual 

payoffs of the position. Similarly, the practice of exchanging variation margin in the 

options market may result in additional payments/payouts to the holder of the options 

positions. These additional payments generally help reduce the potential loss due to a 

counterparty failure, but may also expose a counterparty to funding risk. Finally, the 

option spread position may be subject to a number of risks that reflect potential 

strategic behavior that is commonplace in the options markets, including dividend 

risk, assignment risk, and pin risk (for definitions of dividend risk, assignment risk 

and pin risk, see OneChicago Letter 3, at n.23, 24, and 25). The futures position may 

also be exposed to some of these risks through the daily settlement process (for 

example, the price of a futures contract on a dividend-paying stock would reflect an 

unanticipated change in the dividend policy at the time when this change in policy is 

made public). The factors outlined above point to potential price disparities between 

the security futures and the option spread positions that cannot be arbitraged away. 

The last two factors also point to sources of potential risks, and therefore sources of 

potential losses, that may impact the two positions differently. In general, these 
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example, the daily variation margin settlement of the security futures position may 

give rise to payoffs throughout the life of the positions that could expose the holders of 

the position to funding risk. Similarly, the exchange of variation margin for the 

options spread position also exposes investors to funding risk, but to a lesser degree 

compared to a security futures position.297 As noted by OneChicago, unlike a security 

futures position, an option spread position may be subject to a number of risks that 

reflect potential strategic behavior that is commonplace in the options markets, 

including dividend risk, assignment risk, and pin risk.298 Because funding risks and 

the risks that reflect strategic behavior in options markets may affect the security 

futures and the option spread positions differently, the two positions may not have the 

same risk profile. 

Notwithstanding these differences, under certain conditions, the risk profiles of 

the two positions may be sufficiently similar for some investors, and may be viewed 

by these investors as close (but not necessarily perfect) substitutes. These strategies

are economic equivalents to a certain degree because both provide exposure to an 

underlying equity security or narrow-based equity security index outside the cash 

equity market.299 Thus, both strategies can be used to hedge, at least partially, a long 

 

factors may cause the risk profile of the security futures and the risk profile of the 

option spread positions to drift apart.

297 The margin on the security futures position is calculated on the current market value 

of the position, while the margin on the option spread position is generally calculated 

on the value of the short leg of the position, outside of a Portfolio Margin Account.

298 See supra note 296 (describing what these risks are). See also OneChicago Letter 3, at 

n.23-25.

299 See supra note 117. 
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or short position in the underlying equity security or narrow-based equity security 

index. Similarly, each strategy can also be used to speculate on a potential price 

movement of the underlying equity security or narrow-based equity security index.

Furthermore, both short security futures positions and certain exchange-traded equity 

options strategies produce unlimited downside risk. Investors in security futures and 

writers of options may lose their initial and maintenance margin on deposit and 

premium payments and be required to pay additional funds in the event of a default of 

a broker-dealer or clearinghouse. 

In addition, a deep-in-the money call or put option on the same security can 

have a delta approaching one if the underlying security takes values in a certain range 

of outcomes. Over such a range of outcomes, equity option contracts may be 

comparable to a security futures contract. Further, as stated by one commenter, 

synthetic futures strategies are an important segment of today’s options markets 

competing everyday with security futures.300

OneChicago provided empirical analyses to support its claim that changes to 

security futures margin rates would not impact exchange-traded equity options. In one 

analysis, OneChicago observed data inconsistent with a statistically positive 

correlation between the E-mini margin rates and either the ratio of SPX (S&P 500) 

options open interest to E-mini S&P 500 futures open interest or the ratio of SPX 

trading volume to E-mini trading volume.301 In another analysis, OneChicago 

 300 See Cboe/MIAX Letter at 6-7.

301 OneChicago Letter 3 at 12-15.
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provided statistical data on the correlation in open interest between security futures 

and exchange-traded equity options. This analysis shows that there is no significant 

correlation between the two types of open interest, and OneChicago saw this finding 

as supporting their conclusion that market participants have discrete uses for security 

futures and “equity options and that the derivatives are not interchangeable.”302 

The SEC appreciates the empirical analyses provided by OneChicago, while 

also noting that the inferences in these analyses are subject to multiple limitations that 

make it difficult to conclude on the basis of these analyses that reducing minimum 

initial and maintenance margin requirements for security futures would not reduce the 

use of comparable options strategies. It is unclear to what degree results from the SPX 

options market and the E-mini futures market can be generalized to exchange-traded 

equity options and security futures. Unlike their single-stock counterparts, derivatives 

that are based on broad-based indices can be used by a wide range of institutional and 

retail investors for purposes broader than obtaining exposure to individual equities or 

obtaining cash to finance other positions. Participants in these markets may seek to 

efficiently hedge market risk or express views on the direction or volatility of equity 

indices. Moreover, the markets for futures and options that track the S&P 500 index 

or track an investable portfolio of S&P 500 equities include more than just the 

products that OneChicago analyzed. This makes it difficult to extrapolate results from 

these markets to the markets for exchange-traded options and security futures.

Furthermore, OneChicago’s analysis of security futures and exchange-traded equity 

 302 OneChicago Letter 3 at 15.
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options compares security futures to all equity options contracts, without focusing on 

those segments of the equity options market most comparable to security futures, such 

as strategies that approximate delta one exposure. 

The final rule amendments may improve the ability of security futures 

intermediaries and exchanges to compete in the market for other financial services. 

Certain analyses submitted by OneChicago to the comment file support this view with 

evidence that security futures would be used for different purposes than exchangetraded equity options.303 For example, OneChicago compared trade size (number of 

contacts and notional value) in security futures with trade size in options markets and 

security future delivery rates with options exercise rates,304 and concluded that the 

higher trade size and higher delivery rates in security futures markets indicated 

that investors use the security futures market for financing purposes. When 

summarizing their findings, OneChicago stated that the delivery data makes “clear” 

that the “markets view and use the products differently.”305 OneChicago further 

asserted that certain security futures strategies represent exchange-traded substitutes 

for securities lending and equity repo transactions.306

b. Foreign Markets for Security Futures

Finally, OneChicago noted that U.S. security futures markets faced 

competition from foreign markets that rely on risk-based initial margin that, in contrast 

 303 One Chicago Letter at 2-3.

304 OneChicago Letter 3 at 9-12.

305 OneChicago Letter 3, Summary at 1.

306 OneChicago Letter 3, at 22.
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to Portfolio Margin Accounts, do not have a strategy-based floor and in which “naked 

positions are margined at risk-based levels.”307 OneChicago supplied initial margin 

requirements for security futures written on Dow Jones Industrial Average 

components at Eurex on July 25, 2019, ranging from 6.64% to 14.71%. The SEC 

acknowledges that other jurisdictions may choose to implement initial margin 

requirements for security futures under local legal regimes that differ from those of the 

United States. To the extent that customers may access a number of different markets, 

higher initial margin requirements in one jurisdiction may place intermediaries and 

exchanges regulated by that jurisdiction at a competitive disadvantage relative to 

others.308 However, as discussed above, the SEC is not persuaded by arguments that 

implementing a risk model approach to calculating margin for security futures would 

at this time be permitted under U.S. law and, furthermore, notes that the final rule 

amendments may reduce the degree of competitive disadvantage if trading resumes in 

the U.S., at least insofar as foreign markets would draw away customers that would 

otherwise trade security futures outside of Portfolio Margin Accounts.309

 307 OneChicago Letter, at n.54 and accompanying text.

308 OneChicago submitted a customer letter supporting this point. See OneChicago 

Letter, Appendix C.

309 See supra note 182 in section IV.A.4. (CFTC – Description of Costs) (noting that 

trading by U.S. persons in security futures contracts listed on Eurex is subject to 

certain conditions under an SEC order and a CFTC staff advisory). 
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iii. Capital Formation

As discussed above, the potential benefits to investors that flow from the final 

rule amendments including a lower cost of obtaining underlying securities, the 

opportunity to take on more leverage (relative to the baseline), and the potential 

increase in price competitiveness may increase investor demand for access to security 

futures contracts. To the extent security futures trading resumes in the U.S., and

investor participation causes the market for security futures to grow, the final rule 

amendments would have an impact on capital formation. An active security futures 

market can reduce the frictions associated with shorting equity exposures (making 

it easier for negative information about a firm’s fundamentals to be incorporated 

into security prices) or financing securities exposures. This could promote more 

efficient capital allocations by facilitating the flow of financial resources to their 

most productive uses.

5. Reasonable Alternatives Considered

In the 2019 Proposing Release, the SEC stated it did not believe there are 

reasonable alternatives to the proposal to reduce minimum margin levels for 

unhedged security futures.310 Two commenters took issue with this observation 

and suggested several alternatives for the SEC to consider.311 One commenter 

suggested two alternatives: 1) reduce the size of security futures contracts; and 2) 

rule-based margin with flexible settlement intervals.312 The other commenter 

 310 2019 Proposing Release, 84 FR at 36451.

311 See CII Letter at 4; OneChicago Letter.

312 See CII Letter at 4; see also Commissioner Jackson’s Statement.
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suggested two additional alternatives: 1) risk-based margins for all security futures 

products; and 2) risk-based margins for select security futures products involving 

STARS transactions.313

The SEC addresses the suggested alternatives below. The discussion of 

those alternatives includes certain commenter proposals that the Commissions still do 

not believe are viable at this time for the reasons discussed by the Commissions in 

more detail above. 

i. Reduce the size of the security futures contract

One commenter suggested that an alternative to lowering the margin on 

security futures could be to reduce the size of a security futures contract.314 This 

commenter noted that a similar reduction in the size of the S&P e-mini futures 

contract that led to the creation of S&P micro e-mini futures could increase access 

to single-stock futures for the most popular securities and improve efficiency.315

The SEC acknowledges that one way to reduce the dollar value of margin required 

for a position in a given contract is to reduce the size of the contract. However, an 

investor is more likely to determine her optimal exposure in terms of notional 

value or as a proportion of her available financial resources, rather than as a 

number of contracts. This alternative would not change the amount of margin that 

would be assessed on such an investor’s optimal exposure. For example, if the 

 313 See OneChicago Letter; OneChicago Letter 2; One Chicago Letter 3; see also Ianni 

Letter; La Botz Letter.

314 See CII Letter at 4; see also Commissioner Jackson’s Statement

315 See CII Letter at 4.
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size of the contract were reduced by half, so would the value of margin required, 

subject to certain caveats,316 but the investor would need twice as many contracts 

to establish her optimal exposure. Thus, the total margin for this exposure would 

not change significantly from the baseline. However, a reduction in contract size 

is known to encourage market participation, and therefore, this alternative may 

spur demand for security futures.317

ii. Rule-based margins with flexible margin settlement 

intervals

The same commenter suggested another alternative that would maintain the 

current minimum margin requirements and reduce margins by changing the 

margin settlement intervals for security futures.318 This alternative is based on the 

findings of one study, which quantifies the extent to which current margin 

requirements overmargin or undermargin a futures position relative to a risk-based 

margin requirement (e.g., traditional futures).319 This study finds that current 

margin requirements are overly conservative, and that increasing the length of the 

margin settlement interval may help alleviate the problem. The study further 

 316 There may be other factors that may affect whether the margin scales up or down with 

the size of the contract, in a linear fashion. 

317 See, e.g., Lars Nordén, Does an Index Futures Split Enhance Trading Activity and 

Hedging Effectiveness of the Futures Contract, 26 J. FUTURES MAKETS 1169 

(2006).

318 See CII Letter at 4.

319 Hans R. Dutt & Ira L. Wein, On the Adequacy of Single-Stock Futures Margining 

Requirements, 10 J. FUTURES MARKETS 989 (2003).
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suggested that exchanges should be allowed to set the length of the margin 

settlement interval as a means of competing with one another.

While changing the length of the margin settlement interval may provide 

another way of reducing margins, it is not clear how feasible this method would be 

in practice. Allowing exchanges to set different margin settlement intervals for 

different products and update these over time would increase complexity and 

potentially impose operation costs on market participants. Because this alternative 

is not used currently in any equity markets (to the SEC’s knowledge), and because 

there is uncertainty about how to calibrate the mechanism to deliver margin 

requirements in this context, the operational costs of this alternative could be 

large. 

Moreover, the SEC recognizes that daily margin settlement is an important 

risk management tool in the markets for security futures, especially in light of

recent market volatility. OneChicago ― the only exchange trading security futures

at the time the rule amendments were proposed – also cited risk management 

concerns, arguing that such an approach would remove a critical protection in 

futures markets.320 

Finally, the Commissions are adopting the final rules because they produce a 

desired policy outcome of aligning the minimum margin levels for security futures 

held in non-Portfolio Margin Accounts with the margin levels for security futures in a 

 320 OneChicago Letter at 6.
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Portfolio Margin Account, for the reasons discussed in section II.A. above. Modifying 

margin settlement intervals would not accomplish this policy outcome.

For these reasons, the SEC is not adopting an approach that includes rulesbased margin requirements with flexible settlement intervals in this release.

iii. Risk-based margin for all security futures products

OneChicago suggested the alternative of using risk-based margin 

requirements for security futures products. OneChicago stated that risk-based 

margin requirements would give security futures the best chance to compete with 

other products that provide delta-one exposure to an underlying security, including 

products traded in overseas markets and that are subject to similar risk-based 

margin requirements.321 According to OneChicago’s analysis, the Commissions’ 

proposal to lower the required margin levels from 20% to 15% would have resulted in 

a 25% reduction in the value of initial margin collected (from $540 million to $410 

million); whereas using a risk-based margin model would have resulted in a 61% 

reduction (from $540 million to $210 million).322 This suggests that the margin 

savings to investors from risk-based margin requirements may be economically 

significant. 

OneChicago also supported its position that the Commission should permit 

risk-based margin for security futures, presenting analysis that estimated that 92% of 

OneChicago products were “overmargined” (in the sense that the minimum margin 

 321 See OneChicago Letter at 12-13.

322 OneChicago Letter at 14.
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requirement was greater than the level that would result from a risk-based margin

calculation) at a 20% minimum margin requirement and 84% of OneChicago products 

would be “overmargined” at a 15% minimum margin requirement. This analysis 

suggests that the final rule amendments would set margin requirements for 8% of 

OneChicago products equal to the margin levels that would arise from risk-based 

margining but that a substantial majority of OneChicago products would have 

minimum margin requirements above risk-based levels, if security futures trading at 

OneChicago resumes.

323

The SEC acknowledges that risk-based initial margin requirements may 

result in more efficient levels of margin being collected compared with margin 

requirements based on fixed margin levels. Moreover, moving to risk-based 

margin requirement would likely achieve a larger reduction in competitive 

frictions between security futures and alternative means of financing delta one 

exposure (e.g., use of OTC equity swaps and stock loans) than the final rules. 

However, as discussed in section II.A. above, the SEC is not persuaded by 

OneChicago’s arguments that, at this time, implementing a risk model approach to 

calculating initial margin for security futures would be permitted under Section 

7(c)(2)(B) of the Exchange Act given that such risk-based margin models are not 

currently used to set initial margin for customers in the equity options markets. 

Moreover, implementing a risk model approach would substantially alter how the 

required minimum initial and maintenance margin levels for security futures are 

 323 Id.
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calculated. It also would be a significant deviation from how margin is calculated for 

listed equity options and other equity positions (e.g., long and short securities 

positions). It would not be appropriate at this time to implement a different margining 

system for security futures, given their relation to products that trade in the U.S. equity 

markets. Further, implementing a different margining system for security futures may

result in substantially lower margin levels for these products as compared with other 

equity products and could have unintended competitive impacts. For these reasons, 

this suggested alternative to permit risk-based margin models to determine customer 

margin requirements for security futures is not viable.

iv. Risk-based margin for a subset of security futures 

products

OneChicago suggested the alternative of using risk-based margin 

requirements for STARS transactions.324 OneChicago stated that risk-based 

margin requirements would allow STARS transactions to compete with other 

transactions that market participants currently use to finance their activities. 

The SEC’s consideration of this alternative is similar to the alternative of 

permitting risk-based initial margin requirements for all security futures 

transactions. While the SEC acknowledges that risk-based initial margin 

requirements may be more efficient than margin requirements based on fixed 

margin levels, the SEC is not persuaded by OneChicago’s arguments that, at this time, 

implementing a risk model approach to calculating initial margin for STARS 

 324 OneChicago Letter at 19; see also Memorandum from the SEC’s Division of Trading 

and Markets regarding a July 16, 2019, meeting with representatives of OneChicago.
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transactions would be permitted under Section 7(c)(2)(B) of the Exchange Act. For 

this reason, as well as the recent announcements by OneChicago, this suggested 

alternative for STARS transactions is not viable.

V. REGULATORY FLEXIBILITY ACT 

A. CFTC

The Regulatory Flexibility Act (“RFA”) requires that Federal agencies, in 

promulgating rules, consider the impact of those rules on small entities.325 The final 

rules would affect designated contract markets, FCMs, and customers who trade in 

security futures, if security futures trading resumes. The CFTC has previously 

established certain definitions of “small entities” to be used by the CFTC in evaluating 

the impact of its rules on small entities in accordance with the RFA.326

In its previous determinations, the CFTC has concluded that contract markets 

are not small entities for purposes of the RFA, based on the vital role contract markets 

play in the national economy and the significant amount of resources required to 

operate as SROs.327 The CFTC also has determined that notice-designated contract 

 325 5 U.S.C. 601 et seq.

326 Policy Statement and Establishment of Definitions of “Small Entities” for Purposes of 

the Regulatory Flexibility Act, 47 FR 18618, 18618-21 (Apr. 30, 1982).

327 Id. at 18619.
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markets are not small entities for purposes of the RFA.328

The CFTC has previously determined that FCMs are not small entities for 

purposes of the RFA, based on the fiduciary nature of FCM-customer relationships as 

well as the requirements that FCMs meet certain minimum financial requirements.329 

In addition, the CFTC has determined that notice-registered FCMs,330 for the reasons 

applicable to FCMs registered in accordance with Section 4f(a)(1) of the CEA,331 are 

not small entities for purposes of the RFA.332

Finally, the CFTC notes that according to data from OneChicago, 99% of all 

customers that transacted in security futures as of March 1, 2016, and March 1, 2017,

qualified as ECPs. The CFTC has found that ECPs should not be considered small 

entities for the purposes of the RFA.333 Based on this information, an overwhelming 

majority of the customers that traded security futures in the past were ECPs and not 

small entities. Although it is possible that an exchange that launches security futures 

trading in the future may market these contracts to retail customers that are not ECPs, 

the CFTC believes that it is still unlikely that the final rules will affect small entities. 

 328 Designated Contract Markets in Security Futures Products: Notice-Designation 

Requirements, Continuing Obligations, Applications for Exemptive Orders, and 

Exempt Provisions, 66 FR 44960, 44964 (Aug. 27, 2001).

329 Supra note 326 at 18619.

330 A broker or dealer that is registered with the SEC and that limits its futures activities 

to those involving security futures products may notice register with the CFTC as an 

FCM in accordance with Section 4f(a)(2) of the CEA (7 U.S.C. 6f(a)(2)).

331 7 U.S.C. 6f(a)(1).

332 2002 Adopting Release, 67 FR at 53171.

333 Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 25, 2001). 
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Therefore, a change in the margin level for security futures is not anticipated to affect 

small entities. 

Accordingly, the CFTC Chairman, on behalf of the CFTC, hereby certifies 

pursuant to 5 U.S.C. 605(b), that the final rules will not have a significant economic 

impact on a substantial number of small entities.

B. SEC

The RFA requires that Federal agencies, in promulgating rules, consider the 

impact of those rules on small entities.334 Section 3(a)335 of the RFA generally

requires the SEC to undertake a regulatory flexibility analysis of all proposed rules to

determine the impact of such rulemaking on small entities unless the SEC certifies that

the rule amendments, if adopted, would not have a significant economic impact on a 

substantial number of small entities.336

Pursuant to Section 605(b) of the RFA,337 the SEC certified in the 2019 

Proposing Release, that the proposed amendments to reduce the required margin for 

security futures from 20% to 15% would not have a significant economic impact on 

 334 5 U.S.C. 601 et seq.

335 5 U.S.C. 603.

336 5 U.S.C. 605(b). The final rule amendments are discussed in detail in section II. 

above. The SEC discusses the economic consequences of the amendments in section 

IV. (Economic Analysis) above. As discussed in section III. (Paperwork Reduction 

Act) above, the final rule proposed amendments do not contain a “collection of 

information” requirement within the meaning of the Paperwork Reduction Act.

337 See 5 U.S.C. 605(b).
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any “small entity” for purposes of the RFA.338 The SEC solicited comment on the 

RFA analysis in the 2019 Proposing Release. 339 The SEC received no comments in 

response to this request. The SEC is adopting the amendments in this release, as 

proposed.

For purposes of SEC rulemaking in connection with the RFA,340 a small entity 

includes a broker-dealer that had total capital (net worth plus subordinated liabilities) 

of less than $500,000 on the date in the prior fiscal year as of which its audited 

financial statements were prepared pursuant to SEC Rule 17a-5(d) (under the 

Exchange Act),

341 or, if not required to file such statements, a broker-dealer with total 

capital (net worth plus subordinated liabilities) of less than $500,000 on the last day of 

the preceding fiscal year (or in the time that it has been in business, if shorter); and is 

not affiliated with any person (other than a natural person) that is not a small business 

or small organization.

342 The final rule amendments will reduce the required margin 

for security futures from 20% to 15%. The final rule amendments will affect brokers, 

dealers, and members of national securities exchanges, including FCMs required to 

 338 See 2019 Proposing Release, 84 FR at 36452.

339 Id.

340 Although Section 601 of the RFA defines the term “small entity,” the statute permits 

agencies to formulate their own definitions. The SEC has adopted definitions for the 

term “small entity” for the purposes of SEC rulemaking in accordance with the RFA. 

Those definitions, as relevant to this rulemaking, are set forth in SEC Rule 0-10 (under 

the Exchange Act), 17 CFR 240.0-10. See Statement of Management on Internal 

Accounting Control, Exchange Act Release No. 18451 (Jan. 28, 1982), 47 FR 5215 

(Feb. 4, 1982).

341 17 CFR 240.17a-5(d).

342 See 17 CFR 240.0-10(c). 
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register as broker-dealers under Section 15(b)(11) of the Exchange Act, relating to 

security futures.343 

IBs and FCMs may register as broker-dealers by filing Form BD-N.344 

However, because such IBs may not collect customer margin they are not subject to 

these rules. In addition, the CFTC has concluded that FCMs are not considered small 

entities for purposes of the RFA.345 Accordingly, there are no IBs or FCMs that are 

small entities for purposes of the RFA that would be subject to the final rule 

amendments. 

In addition, all members of national securities exchanges registered under 

Section 6(a) of the Exchange Act are registered broker-dealers.346 The SEC estimates 

that as of December 31, 2019, there were approximately 873 broker-dealers that were 

“small” for the purposes of SEC Rule 0-10. Of these, the SEC estimates that there are 

approximately ten broker-dealers that are carrying broker-dealers (i.e., can carry 

customer margin accounts and extend credit).347 However, based on December 31, 

 343 See SEC Rule 400(a), 17 CFR 242.400(a).

344 These notice-registered broker-dealers are not included in the 873 small broker-dealers 

discussed below, because they are not required to file FOCUS Reports with the SEC. 

See SEC Rule 17a-5(m)(4), 17 CFR 240.17a-5(m)(4).

345 See 47 FR 18618, 18618-21 (Apr. 30, 1982). See also 66 FR 14262, 14268 (Mar. 9, 

2001).

346 National securities exchanges registered under Section 6(g) of the Exchange Act –

notice registration of security futures product exchanges – may have members who are 

floor brokers or floor traders who are not registered broker-dealers; however, these 

entities cannot clear securities transactions or collect customer margin, and, therefore, 

the final rule amendments will not apply to them.

347 These small broker-dealers file a FOCUS Report Part II on a monthly basis, which is 

required to be filed by broker-dealers that clear transactions or carry customer 
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2019, FOCUS Report data, none of these small carrying broker-dealers carried debit 

balances.

348 This means these “small” carrying firms are not extending margin credit 

to their customers, and therefore, the final rule amendments rules likely will not apply 

to them. Finally, OneChicago was the only U.S. national securities exchange listing 

security futures until it discontinued all trading operations on September 21, 2020. 

Therefore, while some small broker-dealers could be affected by the final rule

amendments, the amendments will not have a significant impact on a substantial 

number of small broker-dealers. 

Accordingly, the SEC certifies that the final rule amendments will not have a 

significant economic impact on a substantial number of small entities for purposes of 

the RFA. 

VI. OTHER MATTERS

Pursuant to the Congressional Review Act,349 the Office of Information and 

Regulatory Affairs has designated these rules as not a “major rule,” as defined by 5 

U.S.C. 804(2). 

If any of the provisions of these final rules, or the application thereof to any 

person or circumstance, is held to be invalid, such invalidity shall not affect other 

 

accounts and do not use models to calculate net capital. See 17 CFR 240.17a5(a)(2)(ii).

348 In addition, based on December 31, 2019, FOCUS Report data, none of these small 

broker-dealers posted margin to a clearing agency/DCO related to security futures 

positions written, purchased or sold in customer accounts (FOCUS Report, Line 

4467).

349 5 U.S.C. 801 et seq.
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provisions or application of such provisions to other persons or circumstances that can 

be given effect without the invalid provision or application.

VII. ANTI-TRUST CONSIDERATIONS

Section 15(b) of the CEA requires the CFTC to “take into consideration the 

public interest to be protected by the antitrust laws and endeavor to take the least 

anticompetitive means of achieving the purposes of [the CEA], in issuing any order or 

adopting any [CFTC] rule or regulation (including any exemption under Section 4(c) 

or 4c(b)), or in requiring or approving any bylaw, rule, or regulation of a contract 

market or registered futures association established pursuant to Section 17 of [the 

CEA].”350 The CFTC believes that the public interest to be protected by the antitrust 

laws is generally to protect competition. 

The CFTC has determined that the final rules are not anticompetitive and have 

no anticompetitive effects. In the proposal, the CFTC requested comment on whether 

there are less anticompetitive means of achieving the relevant purposes of the CEA. 

The objective of the proposal was to bring margin requirements for security futures 

held in futures accounts or securities accounts that are not Portfolio Margin Accounts, 

into alignment with the required margin level for unhedged security futures held in 

Portfolio Margin Accounts. 

 350 7 U.S.C. 19(b).
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One commenter argued that the final rules could create a competitive 

disadvantage for exchange-traded equity options.351 As explained in more detail 

above, if security futures trading resumes, these final rules will reduce the margin level 

for an unhedged security future held outside of a Portfolio Margin Account to 15% 

and should not result in a competitive disadvantage for exchange-traded equity 

options, as the 15% margin rate is already in effect for exchange-traded options held in 

a Portfolio Margin Account.

A different commenter argued that the current strategy-based margin regime 

does not level the playing field with options, but rather, acts as a barrier to entry for 

competition and puts security futures at a competitive disadvantage.352 The CFTC 

notes that, given the statutory constraints that require the margin requirements for 

security futures to be consistent with the margin requirements for comparable 

exchanged-traded equity options, the CFTC has not identified any less anticompetitive 

means of achieving the purposes of the CEA.

VIII. STATUTORY BASIS

The SEC is amending SEC Rule 403(b)(1) pursuant to the Exchange Act, 

particularly Sections 3(b), 6, 7(c), 15A and 23(a). Further, these amendments are 

adopted pursuant to the authority delegated jointly to the SEC, together with the 

CFTC, by the Federal Reserve Board in accordance with Exchange Act Section 

7(c)(2)(A). 

 351 Cboe/MIAX Letter at 2 and 6.

352 OneChicago Letter at 2.
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TEXT OF RULES

List of Subjects

17 CFR Part 41

Brokers, Margin, Reporting and recordkeeping requirements, Security futures 

products.

17 CFR Part 242

Brokers, Confidential business information, Reporting and recordkeeping 

requirements, Securities.

Commodity Futures Trading Commission

17 CFR Part 41

For the reasons discussed in the preamble, the Commodity Futures Trading 

Commission amends 17 CFR part 41 as set forth below:

PART 41 -- SECURITY FUTURES PRODUCTS

1. The authority citation for part 41 continues to read as follows: 

Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat. 2763; 7 U.S.C. 

1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).

2. Subpart E of part 41 to be amended by revising paragraph (b)(1) of Section

41.45 to read as follows:

§ 41.45 Required margin.

* * * * *

(b) Required margin.
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(1) General rule. The required margin for each long or short position in a 

security future shall be fifteen (15) percent of the current market value of such security 

future.

* * * * *

Securities and Exchange Commission

17 CFR Part 242

In accordance with the foregoing Title 17, chapter II, part 242 of the Code of 

Federal Regulations is amended as follows:

PART 242 -- REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND 

CUSTOMER MARGIN REQUIREMENTS FOR SECURITY FUTURES

3. The authority citation for part 242 continues to read as follows:

Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 78i(a), 78j, 78k-1(c), 

78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 

80a-23, 80a-29, and 80a-37.

4. Section 242.403 is amended by revising paragraph (b)(1) to read as follows:

§ 242.403 Required margin.

* * * * *

(b) Required margin. (1) General rule. The required margin for each long 

or short position in a security future shall be fifteen (15) percent of the current market 

value of such security future.

* * * * *

By the Securities and Exchange Commission.
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Date: October 22, 2020.

Vanessa A. Countyman

Secretary.

By the Commodity Futures Trading Commission. 

Christopher Kirkpatrick, 

Secretary of the Commission.