New portfolio margin account rules will go into effect in April 2007

Margin requirements--what's changing? The new portfolio margining rules relax requirements that have been in place for decades. Existing rules base initial margin requirements on set percentages for specific types of securities or strategies. For example, to buy stocks on margin, an investor would have to deposit 50% of the value of that stock in the margin account. These percentages do not take into account whether the risk of one type of investment helps offset the risk of a related security. By permitting portfolio margin requirements to be applied across multiple types of assets and tying initial margin requirements to a security's historical price performance, the new rules should make trading on margin more accessible to a broader range of investors.

On December 12, 2006, the Securities and Exchange Commission (SEC) approved a new method of calculating margin requirements for options trading in brokerage accounts. These new so-called portfolio margining rules, scheduled to take effect on April 2, 2007, will give broker-dealers greater flexibility in setting those requirements. The new rules should make trading on margin more accessible. Individual firms will determine whether they choose to offer portfolio margining to their clients.

Portfolio margining, which has been available in Europe for some time, allows a broker to group into one portfolio all of a client's investments that are tied to a single index or company--for example, an individual stock such as GE, or the S&P 500 Index--and set a collective margin requirement based on the potential gain or loss for that portfolio of securities.

The new regulations also:

• Designate a broad range of securities that qualify for portfolio margining
• Permit brokers to tie margin requirements to a portfolio margin account's volatility
• Give investors more time to remedy margin deficiencies in portfolio margin accounts
• Expand the availability of portfolio margin accounts by eliminating the $5 million minimum account threshold required by the Chicago Board of Options Exchange's pilot program
• Regulate daytrading in portfolio margin accounts of less than $5 million

For more details about the new portfolio margining rules, please see New Portfolio Margin Account Rules Approved by SEC