GB
I have seen this, too: techstocks.com
Comments to the rules 2) and 3):
2.) $5.00 per share or 30% of the current market value, whichever amount is greater, of each short position priced at $5.00 per share or above.
3.) $2.50 per share or 100% of current market value, whichever amount is greater, of each short position priced at less than $5.00 per share.
Commentary (with edits): This seems to halt different "fallacies".
The "fall through" feature on halted stocks like TRBD (when a zero price sets free all tied up margin on that stock into the account equity). Edit: When you had shorted a stock with a trading halt in your portfolio, it treated it like a GT0 and added the full initial sales cash return for that short position into the account equity and (2x additional purchasing power).
Now it will keep $2.50 for each TRBD share shorted as maintenance.
A general effect of the rules 2 and 3 by employing fixed margin sizes will be that a drop in the prices of shorted shares won't lift the purchasing power and overall margin maintenance "capabilities" in a diversified portfolio.
Having more short positions of which some move in the plus and others are underwater may perhaps lead to more margin calls, as the "netting effects" are reduced. Positions in the minus will eat into the equity, positions in the plus may not proportionally reduce margin maintenance necessities.
On the other hand, it has a dampening effect, as the maintenance margin requirement will not go up between $5 and $15 and stay at $5/share. Further evaluation will be necessary, still.
Examples with a short position of 1000 shares.
-If the a stock is between $0 and $2.50 it will calculate $2500 as margin requirement (as a fixed "minimum" maintenance). Former was $0 to $2500
-If the stock is between $2.51 and $4.99 it will keep basically the same amount as earlier (a NM stock) and keeping 100% - unchanged - which is a deduction between $2510 and $4990.
-If the stock is from $5 to $15.00 it will keep $5 per share, hence $5000, a percentage well over 30% maintenance margin. When a stock with a price of $7 is shorted, no longer a maintenance of 30% = $2100 but $5000 is necessary for that position. That seems to be a restriction which will have the most effects.
Example: Have an equity = cash of 100k, and PP of 200k.
Short 20k shares at 8.
The terms "available" maintenance margin means: Margin unused after the 30% rule to cover a position.
Former rule was: Calculate 30% of the new position value as margin requirement, hence: 30% of 160k = 48k. (52k of maintenance "unused").
Now: 20k shares @ $5 = 100k maintenance (and $0 maintenance "unused")
Suppose the stock goes to $9.
Former rule: Equity is 80k, 30% of position value 180k = 60k hence no margin call (and $20k maintenance unused from this position)... the "account ratio" = 44.44% (80/180)... But you are well over the 30% rule. The reduction in "available "margin maintenance is 32k (20k-52k)
New rule: Equity is 80k, maintenance is still 100k...you will get a margin call. (maintenance: -20k underwater, add 20k equity or close)
The reduction in "available" margin maintenance is only 20k (-20k -0k)
Suppose the stock goes to $5.50:
Former rule: Equity is 150k, 30% of position valued at $110k = 33k, gives you an "available" maintenance margin of now 117k (+55k from 52k).
Now: With the 150k equity, the maintenance is not reduced but stays at 100k. Hence, the "available" maintenance margin is now 50k (+50 from 0).
Hope that clears things up a bit. Still further studies with diversified portfolios will be necessary to figure out total effects.
C. |
