For Release: December 17, 1997
Commodity Futures Trading Commission Proposes Repealing Commission Regulation 33.4(a)(2) in Order to Permit the Futures-Style Margining of Commodity Options Traded on Regulated Futures Exchanges
Washington, D.C. -- The Commodity Futures Trading Commission
(Commission) on December 15, 1997, issued a Notice of Proposed
Rulemaking requesting public comment on a proposal to repeal
Commission Regulation 33.4(a)(2) to permit the
"futures-style" margining of commodity options. Regulation
33.4(a)(2) requires the purchaser (long) of a commodity option to pay
the full option premium at the initiation of the transaction. The
Commission's proposal responds to industry requests to permit the
futures-style margining of option premiums in order to improve cash
flows in futures and options markets. If the Commission were to repeal
Regulation 33.4(a)(2), exchanges that wish to adopt a futures-style
margining system would have to submit appropriate rule changes to the
Commission pursuant to Section 5a(a)(12)(A) of the Commodity Exchange
Act and Commission Regulation 1.41.
A futures-style margining system would include two components: original margin, set according to the underlying risk, and variation margin, reflecting the daily change in the value of the option premium. Consistent with the current treatment of futures positions, long and short option positions would be marked-to-market, and gains and losses would be paid and collected daily. The long's liability, however, would continue to be limited to the option premium.
The Notice of Proposed Rulemaking will appear in the Federal Register shortly and will be posted on the Commission's home page (www.cftc.gov). Comments on the Proposed Rulemaking must be filed within 45 days of its publication in the Federal Register. Copies of the Notice of Proposed Rulemaking may be obtained by contacting the Office of Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100.