Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove 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 Register a notice relating to a proposed rule amendment by the Financial Industry Regulatory Authority (FINRA) – please see EventID #21988 in this context for more information. Specifically, the Commission announced that it is launching proceedings to determine „whether to approve or disapprove a proposed rule change to provide relief relating to specified option transactions under FINRA Rule 4210 (margin requirements)“.
To recall, FINRA seeks to revise 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 Event:
– The value of the protection at the time of creating the protected option or warrant position must be equal to or greater than 100% of the current aggregate underlying index value associated with that position.
– The value of the protection should never fall below 95% of the current aggregate underlying index value associated with the protected option or warrant position.
– 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% 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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The SEC now seeks comments on whether or not it shall approve this proposed rule change. Comments are to be submitted up to October 25, 2023 or November 8, 2023, depending upon whether or not the commentator supports to the proposed rule change as noted in the above event timeline.