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Under SEC approved Portfolio Margin rules and using our real-time margin system, Interactive Brokers customers are able in certain cases to increase their leverage beyond Reg T margin requirements. For decades margin requirements for securities (stocks, options, and single stock futures) accounts have been calculated under a Reg T rules-based policy. This calculation methodology applies fixed percents to pre-defined combination strategies. With Portfolio Margin, margin is based on the largest potential loss found by valuing the portfolio over a range of underlying prices, and volatilities. It is available for all US stocks, OCC stock and index options, and US single stock futures positions. At this time, it is not available for US commodities futures and futures options, US bonds, or forex positions, but US regulatory bodies may consider inclusion of these products at a future date.

Portfolio or risk based margin has been employed for many years in both commodities and many non-US securities markets, with great success. Depending on the composition of your trading account, Portfolio Margin can require less margin than under Reg T rules, which translates to greater leverage. Trading with greater leverage involves greater risk of loss. Of course for some accounts with risky positions, Portfolio Margin can require more margin than under Reg T. That’s the point of Portfolio Margin, for margin requirements to more accurately reflect the actual risk of the positions in an account. It should be noted that for customers with highly concentrated accounts, Portfolio Margin may calculate higher margin requirements under Reg T. One of the main goals of Portfolio Margin is to reflect the lower risk inherent in a balanced portfolio of hedged positions. Conversely, Portfolio Margin must assess proportionately larger margin for accounts whose positions are concentrated in a relatively small number of stocks.

IB Canada customers are not eligible for Portfolio Margin accounts due to IDA restrictions. In addition, all Canadian stock, stock options, index options, European stock, and Asian stock positions will be calculated under standard rules-based margin rules so Portfolio Margin will not be available for these products.

Under Portfolio Margin, trading accounts are broken into three component groups; Class groups, which are all positions with the same underlying; Product groups, which are closely related classes; and Portfolio groups, which are closely related products. Examples of classes would include IBM, SPX, and OEX. A product example would be a Broad Based Index composed of SPX, OEX, etc. A portfolio could include such products as Broad Based Indices, Growth Indices, Small Cap Indices, and NASD Indices.

The portfolio margin calculation begins at the lowest level, the class. All positions with the same class are grouped and stressed (underlying price and implied volatility are changed) together with the following parameters:

• A standardized stress of the underlying.
  • For stock, equity options, narrow based indices, and single stock futures the stress parameter is plus 15%, minus 15% as well as eight other points in-between.
  • For US market small caps and NASD market indices the stress parameter is plus 10%, minus 10% as well as eight other points in-between.
  • For Broad Based Indices and Growth indices the stress parameter is plus 6%, minus 8% as well as eight other points in-between.
• A market-based stress of the underlying. A five standard deviation historical move is computed for each class. This five standard deviation move is based on 30 days of high, low, open, and close data from Bloomberg excluding holidays and weekends. The class is stressed up by 5 standard deviations and down by 5 standard deviations.
• An implied volatility stress for options. Each options class’s implied volatility is increased by 15% and decreased by 15%.

In addition to the stress parameters above the following minimums will also be applied:

• Classes with large single concentrations will have a margin requirement of 30% applied to the concentrated position.
• A $0.375 multiplied by the index per contract minimum is computed.
• The same special margin requirements for OTCBB, Pink Sheet, and low cap stocks that apply under Reg T, will still apply under Portfolio Margin.

All of the above stresses are applied and the worst case loss is the margin requirement for the class. Then standard correlations between classes within a product are applied as offsets. As an example, within the Broad Based Index product 90% offset is allowed between SPX and OEX. Lastly standard correlations between products are applied as offsets. An example would be a 50% offset between Broad Based Indices and Small Cap Indices. For stocks and Single Stock Futures offsets are only allowed within a class and not between products and portfolios. After all the offsets are taken into account all the worst case losses are combined and this number is the margin requirement for the account. For a complete list of products and offsets, see the Appendix-Product Groups and Stress Parameters section at the end of this document.

Interactive Brokers’ real-time margining system enables us to qualify for an exemption to the Day Trading Rules and so no Day Trading Rules will apply for Portfolio Margin accounts (these rules will still apply for Reg T margin accounts).

Because of the complexity of Portfolio Margin calculations it would be extremely difficult to calculate margin requirements manually. We encourage those interested in Portfolio Margin to use our TWS Portfolio Margin Demo to understand the impact of Portfolio Margin requirement under different scenarios.

An account must have at least USD 100,000 (or USD equivalent) in Net Liquidation Value to be eligible for a Portfolio Margin account. Existing customers may apply for a Portfolio Margin account through Account Management/Trading Permissions at any time and your account will be upgraded upon approval. New Interactive Brokers customers can apply for a Portfolio Margin account during the registration system process. It should be noted that if your account drops below USD 100,000 you will be restricted from doing any margin-increasing trades. Therefore if you do not intend to maintain at least USD 100,000 in your account, you should not apply for a Portfolio Margin account.

New IB customer accounts requesting Portfolio Margin will have Reg T rules in effect until their accounts are approved for Portfolio Margin. This may take up to 2 business days (under normal business circumstances) after initial account approval. Existing IB customer accounts will also need to be approved and this may take up to two business days after the request. Both new and existing IB customers will receive an email confirming approval.

Those institutions who wish to execute some trades away from Interactive Brokers and use us as a prime broker will be required to maintain at least USD 500,000 (or USD equivalent).