For the first time in more than 75 years, the Securities and Exchange Commission is preparing to change its margin rules, and hedge funds couldn’t be more delighted. Hedgies and other traders have long complained that the current so-called “Reg T” margining system, introduced after the stock market crash of 1929, makes multi-asset transactions in the U.S. difficult and European markets more attractive and limit hedge fund leverage by tying up funds with margins currently up to 50%. Already, the SEC staff has OK’d a proposal by the New York Stock Exchange to figures margins based on the types of assets held in the portfolio margining account. Under the existing system, margin levels are said to be arbitrary, regardless of type of assets and trading strategies involved. The current rule does not recognize enough hedging strategies between options and stocks, Grace Vogel, the NYSE’s executive v.p. of member firm regulation, told Financial Times. Reg T, she added, has served us well over the years but we’re ready to take step in the direction of having more risk-based margining. Under the proposal, says Vogel, margins could be cut to 15% in some instances. The SEC’s five commissioners reportedly may see the proposal within the next several weeks. If portfolio margining is approved, general counsel Gary de Wall of Fimat said in an FT interview, it would be a major milestone, bringing the U.S. in line with similar rules in Europe.
