Nine months have passed since 12 broker-dealers received regulatory approval to offer portfolio margining to eligible customers. By all measures, the new margining rules have been a resounding success.
Simply put, portfolio margining is the application of risk-based margining to a group of equity and equity index positions tied to an individual equity or index. Under risk-based margining, the group of related positions is stress-tested using an approved theoretical model and a maximum loss is calculated according to the values of the positions; for stock-only positions, the projected gain or loss is a simple math calculation, but for options or convertible bonds, a model must be used to calculate theoretical values to determine the anticipated profit and loss.
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