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

Rule 404 -- Type, Form and Use of Margin

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1. When margin is required. Margin is required to be deposited whenever the required margin for security futures and related positions in an account is not satisfied by the equity in the account, subject to adjustment under paragraph (c) of this section.
   
   
2. Acceptable margin deposits.
   
   
   1. The required margin may be satisfied by a deposit of cash, margin securities (subject to paragraph (b)(2) of this section), exempted securities, any other asset permitted under Regulation T to satisfy a margin deficiency in a securities margin account, or any combination thereof, each as valued in accordance with paragraph (c) of this section.
      
      
   2. Shares of a money market mutual fund may be accepted as a margin deposit for purposes of this Regulation (17 CFR ß ß 242.400 through 242.406), provided that:
      
      
      1. The customer waives any right to redeem the shares without the consent of the security futures intermediary and instructs the fund or its transfer agent accordingly;
         
         
      2. The security futures intermediary (or clearing agency or derivatives clearing organization with which the shares are deposited as margin) obtains the right to redeem the shares in cash, promptly upon request; and
         
         
      3. The fund agrees to satisfy any conditions necessary or appropriate to ensure that the shares may be redeemed in cash, promptly upon request.
         
         
3. Adjustments.
   
   
   1. Futures accounts. For purposes of this section, the equity in a futures account shall be computed in accordance with the margin rules applicable to the account, subject to the following:
      
      
      1. A security future shall have no value;
         
         
      2. Each net long or short position in a listed option on a contract for future delivery shall be valued in accordance with the margin rules applicable to the account;
         
         
      3. Except as permitted in paragraph (e) of this section, each margin equity security shall be valued at an amount no greater than its Regulation T collateral value;
         
         
      4. Each other security shall be valued at an amount no greater than its current market value reduced by the percentage specified for such security in Exchange Act Rule 15c3-1(c)(2)(vi);
         
         
      5. Freely convertible foreign currency may be valued at an amount no greater than its daily marked-to-market U.S. dollar equivalent;
         
         
      6. Variation settlement receivable (or payable) by an account at the close of trading on any day shall be treated as a credit (or debit) to the account on that day; and
         
         
      7. Each other acceptable margin deposit or component of equity shall be valued at an amount no greater than its value under Regulation T.
         
         
   2. Securities accounts. For purposes of this section, the equity in a securities account shall be computed in accordance with the margin rules applicable to the account, subject to the following:
      
      
      1. A security future shall have no value;
         
         
      2. Freely convertible foreign currency may be valued at an amount no greater than its daily mark-to-market U.S. dollar equivalent; and
         
         
      3. Variation settlement receivable (or payable) to an account at the close of trading on any day shall be treated as a credit (or debit) by the account on that day.
         
         
4. Satisfaction restriction. Any transaction, position or deposit that is used to satisfy the required margin for security futures or related positions under this Regulation, including a related position, shall be unavailable to satisfy the required margin for any other position or transaction or any other requirement.
   
   
5. Alternative collateral valuation for margin equity securities in a futures account.
   
   
   1. Notwithstanding paragraph (c)(1)(iii) of this section, a security futures intermediary need not value a margin equity security at its Regulation T collateral value when determining whether the required margin for the security futures and related positions in a futures account is satisfied, provided that:
      
      
      1. The margin equity security is valued at an amount no greater than the current market value of the security reduced by the lowest percentage level of margin required for a long position in the security held in a margin account under the rules of a national securities exchange registered pursuant to section 6(a) of the Exchange Act;
         
         
      2. Additional margin is required to be deposited on any day when the day's security futures transactions and related transactions would create or increase a margin deficiency in the account if the margin equity securities were valued at their Regulation T collateral value, and shall be for the amount of the margin deficiency so created or increased (a "special margin requirement"); and
         
         
      3. Cash, securities, or other assets deposited as margin for the positions in an account are not permitted to be withdrawn from the account at any time that:
         
         
         1. Additional cash, securities, or other assets are required to be deposited as margin under this section for a transaction in the account on the same or a previous day; or
            
            
         2. The withdrawal, together with other transactions, deposits, and withdrawals on the same day, would create or increase a margin deficiency if the margin equity securities were valued at their Regulation T collateral value.
            
            
   2. All security futures transactions and related transactions on any day shall be combined to determine the amount of a special margin requirement. Additional margin deposited to satisfy a special margin requirement shall be valued at an amount no greater than its Regulation T collateral value.
      
      
   3. If the alternative collateral valuation method set forth in paragraph (e) of this section is used with respect to an account in which security futures or related positions are carried:
      
      
      1. An account that is transferred from one security futures intermediary to another may be treated as if it had been maintained by the transferee from the date of its origin, if the transferee accepts, in good faith, a signed statement of the transferor (or, if that is not practicable, of the customer), that any margin call issued under this Regulation has been satisfied; and
         
         
      2. An account that is transferred from one customer to another as part of a transaction, not undertaken to avoid the requirements of this Regulation, may be treated as if it had been maintained for the transferee from the date of its origin, if the security futures intermediary accepts in good faith and keeps with the transferee account a signed statement of the transferor describing the circumstances for the transfer.
         
         
6. Guarantee of accounts. No guarantee of a customer's account shall be given any effect for purposes of determining whether the required margin in an account is satisfied, except as permitted under applicable margin rules.
   
   

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