For Release: June 11, 1998
CFTC Repeals Commission Regulation 33.4(a)(2)
to Permit the Futures-Style Margining of Commodity Options Traded on
Regulated Futures Exchanges
Washington, D.C. -- The Commodity Futures Trading Commission
(Commission) today approved the repeal of regulation 33.4(a)(2), 17
CFR § 33.4(a)(2), to permit the "futures-style"
margining of commodity options. The Commission also approved several
technical amendments to an option risk disclosure statement and its
net capital rules in order to reflect the permissibility of
futures-style margining. The approval of futures-style margining for
commodity options is consistent with the Commission's ongoing
commitment to implement regulatory reforms that reduce unnecessary
burdens on the futures industry while preserving important customer
protections and market safeguards.
Previously, regulation 33.4(a)(2) required the purchaser of a
commodity option to pay the full option premium at the initiation of
the transaction. Under a futures-style margining system, both the
purchaser (long) and seller (short) of a commodity option will be
required to post risk-based, original margin upon entering into an
option position. During the life of the option, the option value is
marked to market daily, and gains and losses are posted to the
accounts of the long and short position holders.
The repeal of regulation 33.4(a)(2) does not impose an obligation on
exchanges to adopt futures-style margining. Exchanges may continue to
use their current option margining system and any exchange wishing to
implement futures-style margining must submit proposed rules for
Commission review pursuant to section 5a(a)(12)(A) of the Commodity
Exchange Act and Commission regulation 1.41.
The final rulemaking will become effective thirty days after it is published in the Federal Register. Copies of the final rulemaking may be obtained by writing the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, by calling (202) 418-5100, or by accessing the Commission's website, www.cftc.gov.