Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 400 -- Customer Margin Requirements for Security Futures--Authority, Purpose, Interpretation, and Scope

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1. Authority and purpose. Rules 400 through 406 and 17 CFR 41.42 through 41.49 ("this Regulation, 17 CFR ß ß 242.400 through 242.406") are issued by the Securities and Exchange Commission ("Commission") jointly with the Commodity Futures Trading Commission ("CFTC"), pursuant to authority delegated by the Board of Governors of the Federal Reserve System under section 7(c)(2)(A) of the Securities Exchange Act of 1934 ("Act"). The principal purpose of this Regulation (17 CFR ß ß 242.400 through 242.406) is to regulate customer margin collected by brokers, dealers, and members of national securities exchanges, including futures commission merchants required to register as brokers or dealers under section 15(b)(11) of the Exchange Act, relating to security futures.
   
   
2. Interpretation. This Regulation shall be jointly interpreted by the Commission and the CFTC, consistent with the criteria set forth in clauses (i) through (iv) of section 7(c)(2)(B) of the Exchange Act and the provisions of Regulation T (12 CFR part 220).
   
   
3. Scope.
   
   
   1. This Regulation does not preclude a self-regulatory authority, under rules that are effective in accordance with section 19(b)(2) of the Exchange Act or section 19(b)(7) of such Act and, as applicable, section 5c(c) of the Commodity Exchange Act ("CEA") (7 U.S.C. 7a-2(c)), or a security futures intermediary from imposing additional margin requirements on security futures, including higher initial or maintenance margin levels, consistent with this Regulation, or from taking appropriate action to preserve its financial integrity.
      
      
   2. This Regulation does not apply to:
      
      
      1. Financial relations between a customer and a security futures intermediary to the extent that they comply with a portfolio margining system under rules that meet the criteria set forth in section 7(c)(2)(B) of the Exchange Act and that are effective in accordance with section 19(b)(2) of such Act and, as applicable, section 5c(c) of the CEA (7 U.S.C. 7a-2(c));
         
         
      2. Financial relations between a security futures intermediary and a foreign person involving security futures traded on or subject to the rules of a foreign board of trade;
         
         
      3. Margin requirements that clearing agencies registered under section 17A of the Exchange Act or derivatives clearing organizations registered under section 5b of the CEA (7 U.S.C. 7a-1) impose on their members;
         
         
      4. Financial relations between a security futures intermediary and a person based on a good faith determination by the security futures intermediary that such person is an exempted person; and
         
         
      5. Financial relations between a security futures intermediary and, or arranged by a security futures intermediary for, a person relating to trading in security futures by such person for its own account, if such person:
         
         
         1. Is a member of a national securities exchange or national securities association registered pursuant to section 15A(a) of the Exchange Act; and
            
            
         2. Is registered with such exchange or such association as a security futures dealer pursuant to rules that are effective in accordance with section 19(b)(2) of the Exchange Act and, as applicable, section 5c(c) of the CEA (7 U.S.C. 7a-2(c)), that:
            
            
            1. Require such member to be registered as a floor trader or a floor broker with the CFTC under Section 4f(a)(1) of the CEA (7 U.S.C. 6f(a)(1)), or as a dealer with the Commission under section 15(b) of the Exchange Act;
               
               
            2. Require such member to maintain records sufficient to prove compliance with this paragraph (c)(2)(v) and the rules of the exchange or association of which it is a member;
               
               
            3. Require such member to hold itself out as being willing to buy and sell security futures for its own account on a regular or continuous basis; and
               
               
            4. Provide for disciplinary action, including revocation of such member's registration as a security futures dealer, for such member's failure to comply with this Regulation or the rules of the exchange or association.
               
               
4. Exemption. The Commission may exempt, either unconditionally or on specified terms and conditions, financial relations involving any security futures intermediary, customer, position, or transaction, or any class of security futures intermediaries, customers, positions, or transactions, from one or more requirements of this Regulation, if the Commission determines that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors. An exemption granted pursuant to this paragraph shall not operate as an exemption from any CFTC rules. Any exemption that may be required from such rules must be obtained separately from the CFTC.
   
   

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