Release: #4155-98
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.