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Margin Requirements - US Bonds

 

Government Bonds     Municipal Bonds     Corporate Bonds     Special Margin Bonds

The following rules apply for Reg T Margin and Portfolio Margin[1] 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.

 

Government Bonds

Bond Type

Initial Margin

Maintenance Margin

Currency

Government

US Treasury Securities

Less than 6 months to maturity

1% * Market Value

1% * Market Value

USD

Less than 1 year to maturity

2% * Market Value

2% * Market Value

USD

1 year but less than 3 years to maturity

3% * Market Value

3% * Market Value

USD

3 years but less than 5 years to maturity

4% * Market Value

4% * Market Value

USD

5 years but less than 10 years to maturity

5% * Market Value

5% * Market Value

USD

10 year but less than 20 years to maturity

7% * Market Value

7% * Market Value

USD

20 years or more to maturity

9% * Market Value

9% * Market Value

USD

Zero coupon bonds with 5 years or more to maturity

3% * Principal Amount of the Obligation

3% * Principal Amount of the Obligation

USD

 

 

 

 

 

 

Municipal Bonds

Bond Type

Initial Margin

Maintenance Margin

Currency

Municipal

Municipal Bonds  

 

 

 

 

Investment Grade

25% * Bond Market Value 2

25%* Bond Market Value

USD

Speculative Grade

50% * Bond Market Value 2

50%* Bond Market Value

USD

Junk Grade

75% * Bond Market Value 2

75%* Bond Market Value

USD

Defaulted

100% * Bond Market Value 2

100%* Bond Market Value

USD

 

  Municipal Bonds

Portfolio Margin does not apply to Treasury Securities, thus, these securities are not eligible for portfolio margin treatment. However, Place Trade clients may carry Treasury Securities in a portfolio margin account if Place Trade is able to apply the applicable margin rates to these securities separately.

In order to apply other than 100% margin requirement, the bond must satisfy the following:
  • not private placement
  • not Reg S
  • not Rule 144 A
  • original issue size at least $25 million

Portfolio Margin and Treasury Securities

 

Back to Margin Requirements

 


Corporate Bonds

The margin for the following types of corporate bonds is determined using a proprietary Value At Risk (VAR) methodology[1]:

   Investment Grade

   NYSE-listed Speculative Grade

   NYSE-listed Junk Grade

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.

Corporate Bonds   ■   Investment Grade ■   NYSE-listed Speculative Grade ■   NYSE-listed Junk Grade

The VAR is the loss (in the worst case) 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 loss (in the worst case) 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

Currency

Non-NYSE-Listed Speculative Grade

50% * Bond Market Value

50% * Bond Market Value

USD

Non-NYSE-Listed Junk Grade

70% * Bond Market Value

70% * Bond Market Value

USD

Bonds that have defaulted or that are not rated are not eligible for margin treatment.

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Special Margin Bonds

Place Trade may reduce the collateral value of securities (reduces marginability) for a variety of reasons, including:

   small market capitalization or small issue size

   low liquidity in the collective primary/secondary exchanges

   involvement in tenders and other corporate action

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.

  

 

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