The following rules apply for Margin and Portfolio Margin accounts. Bonds must be paid-in-full in a Cash account.
FINRA and the NYSE have imposed rules to limit small investor day trading. Customers that these organizations classify as Pattern Day Traders are subject to special Day Trading Restrictions for US securities.
|US Treasury Securities||Initial Margin Requirements||Maintenance Margin Requirements|
|Less than six months to maturity||1% * Market Value||Same as Initial Margin|
|Less than one year to maturity||2% * Market Value||Same as Initial Margin|
|One year but less than three years to maturity||3% * Market Value||Same as Initial Margin|
|Three years but less than five years to maturity||4% * Market Value||Same as Initial Margin|
|Five years but less than ten years to maturity||5% * Market Value||Same as Initial Margin|
|Ten years but less than twenty years to maturity||7% * Market Value||Same as Initial Margin|
|Twenty years or more to maturity||9% * Market Value||Same as Initial Margin|
|Zero coupon bonds with five years or more to maturity||3% * Principal Amount of the Obligation||Same as Initial Margin|
|Initial Margin Requirements||Maintenance Margin Requirements|
|Investment Grade 1||1.25 * Maintenance Margin 2||25% * Bond Market Value|
|Speculative Grade 1||1.25 * Maintenance Margin 2||50% * Bond Market Value|
|Junk Grade 1||1.25 * Maintenance Margin 2||75% * Bond Market Value|
|Defaulted 1||100% * Bond Market Value 2||100% * Bond Market Value|
The margin for the following types of corporate bonds is determined using a proprietary Value At Risk (VAR) methodology 3:
The theoretical price of each bond is calculated over a range of interest rate offsets to the prevailing Treasury yield curve. The result of such a calculation is illustrated in the following figure. As the interest rate offset increases, the bond price decreases. The upward curvature of the line is indicative of the "convexity" of the bond.
The VAR is the worst case loss in the bond price over a specified range of underlying interest rate changes. The scanning ranges are listed in the table below.
|Bond Type||Basis Points|
|Investment Grade (Moody's Aaa to Baa3)||200 basis points|
|NYSE-Listed Speculative Grade (Moody's Ba1 to B3)||300 basis points|
|NYSE-Listed Junk Grade (Moody's Caa1 to C)||400 basis points|
Within the Value At Risk calculation, bonds that contain embedded options (calls or puts) are subjected to stress tests that separately increase and decrease the interest rate period volatilities used to calculate the theoretical price of the bond by 15% of their values. Under each volatility change scenario, another theoretical price curve is calculated over the same range of interest rate offsets to the prevailing Treasury yield curve. The VAR for bonds with embedded options is taken as the worst case loss on the appropriate interest rate scanning range across each of the unchanged, up and down volatility scenarios.
The regulatory minimum margin of 10% of market value applies to investment grade bonds. The regulatory minimum of the larger of 20% of market value and 7% of face value applies to non-investment grade, NYSE-listed bonds.
Non-NYSE-Listed Speculative and Junk Bonds are margined as follows:
|Bond Type||Initial Margin||Maintenance Margin|
|Non-NYSE-Listed Speculative Grade||50% * Bond Market Value||50% * Bond Market Value|
|Non-NYSE-Listed Junk Grade||70% * Bond Market Value||70% * Bond Market Value|
Bonds that have defaulted or that are not rated are not eligible for margin treatment.
We may reduce the collateral value of securities (reduces marginability) for a variety of reasons, including:
Changes in marginability are generally considered for a specific security. However, in cases of concerns about the viability or liquidity of a company, marginability reductions will apply to all securities issued by, or related to, the affected company, including bonds, derivatives, depository receipts, etc.
In addition, please see discussions on special risk management algorithms, for example, large position and position concentration algorithms which may affect the margin rate applied to a given security within an account and may vary between accounts.