On July 9, 2019, the SEC and the CFTC (together, the commissions) issued a joint release announcing a proposal to align the minimum margin required on security futures with other similar financial products. The proposal would reduce the minimum margin requirement for security futures to 15 percent of the current market value of each security future from the current 20 percent level.

The proposal was initially released by the SEC on July 3, 2019. The CFTC unanimously approved the proposal in seriatim on July 9, 2019.

In 2002, the commissions adopted rules establishing margin requirements for unhedged security futures products at 20 percent. Considering lower margin requirements that have been established for comparable financial products, such as portfolio-margined exchange-traded equity options, and the resulting "asymmetry" of margin requirements for security futures and options, the commissions have determined that it is appropriate to propose the adjustment.

Self-regulatory organizations (SROs) such as exchanges that offer security futures may set their margin requirements higher than the 15 percent floor at their discretion. The SEC is also proposing corresponding revisions to the margin offset table adopted in 2002, consistent with the proposed reduction in margin. This table appears on pages 34-37 of the proposal.

This proposal is the latest component of ongoing efforts between the CFTC and the SEC to further harmonize their derivatives regulatory regimes.

Public comment on the proposal is due on August 26, 2019. The 30-day public comment period is the shortest public comment period for proposed rule changes, which are usually 60 to 90 days.

The joint release argues that lowering margin will promote trading and market efficiency without harming stability. The majorities on both commissions have pushed the easing of margin requirements under the overall administrative mandate of fostering capital formation. But the report lacks detailed information on how the rule change might affect market volume or use of futures or on how they are currently used by market professionals.

The report concluded, however, that the proposed lowering of the margin requirement would not have much immediate impact on markets or individuals, as retail investors account for only 1.0 percent of stock futures trading. The SEC notes that trading in stock index futures was 15 million contracts traded in 2017 compared with 3.9 billion in options.