Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Provide Relief Relating to Specified Option Transactions Under FINRA Rule 4210 (Margin Requirements)

The U.S. Securities and Exchange Commission, SEC, has published in the Federal Registered proposed rule changes of FINRA (Financial Industry Regulatory Authority) in connection with margin requirements regarding certain options or warrants on indices. The purpose of the publication is to seek feedback from the public on the proposal and whether or not the SEC should approve the proposed changes. Specifically, FINRA is proposing revisions to its Rule 4210 to exempt from margin requirements short positions in index call or put options or warrants – the so-called protected option – when there is a corresponding long or short position in an underlying stock basket, non-leveraged index mutual fund, or non-leveraged ETF that is based on the same index as the option or warrant. The exemption would only apply, if the following conditions are met – as cited from our previous EventID# 21988:
1. The value of the protection at the time of creating the protected option or warrant position must be equal to or greater than 100 percent of the current aggregate underlying index value associated with that position.
2. The value of the protection should never fall below 95 percent of the current aggregate underlying index value associated with the protected option or warrant position.
3. Margin must be maintained at an amount equal to the greater of either the difference between the aggregate current underlying index value and the aggregate exercise price of the protected call or put option or the amount by which the value of the protection falls below 100 percent of the aggregate current underlying index value.
Minor revisions to the rule would also be made to align certain paragraphs of Rule 4210 with new terminology introduced in the context of the rule change.
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Comments may be submitted to the SEC up to August 9, 2023.