ASC

ASE

SOFFEX:

Not applicable since only one market and one clearing house operate in Switzerland.

BDF

Frankfurt Stock Exchange:

Not relevant.

DTB:

Since there is only one market raising margins, namely the DTB, cross-margining between institutions is not relevant.

CFTC

Currently operating cross-margining programs allow a market participant to use a single margin payment to support an intermarket securities option and futures position where price movements on the securities component tend to be offset by price movements on the futures component. Five cross-margining programs have been approved to date in coordination with the SEC. Both the CME and the Intermarket Clearing Corporation ("ICC") operate separate cross-margining systems with the Option Clearing Corporation ("OCC") for margining of participant clearing members' proprietary intermarket positions. The ICC/OCC proprietary cross-margining program was approved by the Commission on a pilot basis on June 1, 1988. The pilot status of the program was lifted on September 26, 1990. The CME/OCC proprietary program was approved on September 26, 1989. Only the settlement schedule for the CME/OCC program was approved on a pilot basis. The pilot status was lifted on May 15, 1991. As of June 30, 1993, four joint and affiliated pairs of CME/OCC clearing members were participating in the CME/OCC proprietary cross-margining program, while one ICC/OCC clearing firm was participating in the ICC/OCC program.

In November of 1991 the CFTC and the SEC concurrently approved the expansion of the CME's and ICC's cross-margining programs with OCC to include intermarket futures and options positions held by participating clearing members on behalf of participating market makers, specialists, registered traders, and futures market professionals who trade for their own accounts. ^/ As of June 30, 1993, six firms were participating in the CME/OCC non-proprietary cross-margining program, while one firm was participating in the ICC/OCC non-proprietary program.

On June 2, 1993, the CFTC approved a tri-lateral cross-margining program for joint and affiliated clearing members of CME, ICC, and OCC. ^/ This tri-lateral cross margining program encompasses both proprietary and non-proprietary programs. The SEC approved this proposal on June 28, 1993. The CME-ICC-OCC cross-margining program was implemented on August 2, 1993, with two firms participating in the proprietary portion of the program.

ICC, OCC and the Commodity Clearing Corporation have also submitted to the CFTC and the SEC a proposal to create a tri-lateral cross-margining program for joint and affiliated clearing members of the three clearing organizations, under which both proprietary and non-proprietary accounts would be cross-margined. The CFTC and the SEC are coordinating their review of this proposal.

The CFTC and the SEC concurrently approved a proposed Board of Trade Clearing Corporation ("BOTCC")/OCC proprietary cross-margining program on October 31, 1991 and a proposed Kansas City Board of Trade Clearing Corporation ("KCBTCC")/OCC proprietary cross-margining program on February 25, 1992. ^/ As of June 30, 1993, two clearing members were participating in the BOTCC/OCC program and one clearing member was participating in the KCBTCC/OCC program.

On July 20, 1993, the CFTC approved proposals of the BOTCC and the KCBTCC to implement non-proprietary cross-margining programs with the OCC. The SEC approved the BOTCC/OCC non-proprietary program on July 27, 1993 and the KCBTCC/OCC non-proprietary program on August 2, 1993. These programs have not yet been implemented.

Finally, by letters dated July 24, and August 26, 1992, Commodity Exchange, Inc. ("COMEX") Clearing submitted a proposal to implement a proprietary cross-margining program substantially identical to the CME/OCC proprietary system. By letter dated September 9, 1992, Commission staff advised COMEX Clearing that its proposal could be made effective immediately without prior Commission approval. The SEC approved the OCC's counterpart proposal on November 6, 1992. As of June 30, 1993, one clearing firm was eligible to participate in the COMEX Clearing/OCC proprietary cross-margining program, but has not yet done so.

Status reports filed with the CFTC by the CME and ICC indicate that clearing members participating in the respective CME-OCC and ICC-OCC cross-margining systems generally have experienced substantial reductions in the total amount of margin they pay to carry cross-margined positions as compared to the amount of margin that would have been required in the absence of cross-margining. It should be noted that while cross-margining lowers costs by reducing the amount of margin funds in the system, it does not necessarily reduce cash flows or reduce solvency risk.

CNV

COB

A cross margining arrangement has been concluded between the MATIF and the MONEP regarding the future contract on the CAC40 index and the option on the CAC40 index: Market-makers' margins are calculated on a single net position.

CONSOB

CVMQ

MOF

None.

OSC

SEC

One of the recommendations that came out of the October 1987 market break was that the SEC and the CFTC work with the securities and futures clearing organizations to develop systems for cross-margining securities and futures positions. Five cross-margining arrangements are currently in place (see also CFTC response):

ICC - In 1988, the SEC and the CFTC approved a cross-margining arrangement between the Options Clearing Corporation ("OCC") and The Intermarket Clearing Corporation ("ICC"). ^/ Under that arrangement, ICC maintains certain proprietary securities and futures positions for participants in the OCC/ICC cross-margining program and calculates and collects a single clearing system margin requirement for all positions so held. By maintaining control of both sides of futures/options hedge and arbitrage positions, ICC can calculate a single net margin amount based upon the offsetting positions. Accordingly, ICC can reduce initial margin requirements for intermarket positions of joint and affiliated clearing members of OCC and ICC. Whereas this program initially only extended to proprietary positions, it has been expanded to include non-proprietary positions carried by clearing members for market professionals. ^/ Furthermore, OCC has filed a proposed rule change that would allow it to restructure the OCC/ICC cross-margining arrangement in the fashion of the OCC/CME cross-margining arrangement, as described below. ^/

CME - The SEC and the CFTC have approved an agreement between the OCC and the CME to provide cross-margining of options, futures, and options on futures on stock index products that are issued and cleared by both organizations. ^/ The OCC/CME arrangement differs somewhat from the current ICC/OCC cross-margining arrangement in that OCC and CME in effect share control over the cross-margined options, futures and options on futures positions. Under the OCC/CME arrangement, OCC maintains control of OCC-cleared options, which are held in a special "x-m" account, and CME maintains control of CME-cleared futures and options on futures, which also are held in a special "x-m" account. Clearing members electing to participate in the cross-margin arrangement must agree to grant OCC and CME cross-liens on futures and options on futures positions maintained at CME and options positions maintained at OCC. Funds paid to clearing members or generated by liquidating positions maintained in "x-m" accounts, in essence, are shared between OCC and CME, as are any losses resulting from position liquidations. OCC and CME exchange position data concerning participants in this service, calculate margin obligations on futures and options portfolios, and coordinate collection of margin deposits on those positions. This cross-margining program also was expanded to include non-proprietary positions carried by clearing members for market professionals. ^/

BOTCC, KCBOTCC and CCA - The SEC also has approved cross-margining programs between OCC and the Board of Trade Clearing Corporation ("BOTCC"), which acts as the clearing facility for the Chicago Board of Trade, ^/ between OCC and the Kansas City Board of Trade Clearing Corporation ("KCBOTCC"), which acts as the clearing facility for the Kansas City Board of Trade ^/ and between OCC and the Comex Clearing Association, Inc. ("CCA"), which acts as the clearing facility for COMEX. ^/ These programs are modeled after the OCC/CME proprietary cross-margin arrangement. Currently, only proprietary positions are eligible for inclusion in these programs. OCC has filed proposed rule changes with the SEC, however, to expand the OCC/BOTCC and OCC/KCBOTCC cross-margining programs to include non-proprietary positions carried by clearing members for market professionals. ^/

Benefits - In 1991, firms participating in the OCC/CME and OCC/ICC programs reduced their average daily margin requirements on eligible positions by approximately 60%. In the first half of 1992, firms participating in the OCC/CME and the OCC/ICC programs had average daily margin reductions of approximately 56%.

Proposals - Recently, OCC, ICC, and CME filed with their respective regulators proposals to establish a trilateral cross-margining program. ^/ The program is modeled after the OCC/CME cross-margin arrangement. This program will involve cross-margining of OCC cleared stock index options. ICC cleared stock index futures and options on stock index futures, and CME cleared stock index futures and options on stock index futures. Both proprietary and non-proprietary positions would be eligible for inclusion in the program. The SEC and the CFTC are in the process of reviewing the proposal.

SFC

HKFE allows cross margining between the Hang Seng Index Futures Market and the Hang Seng Index Options Market. When the Hang Seng Index Option contract was launched, HKCC purchased and installed a cross-margining system developed by the Options Clearing Corporation. The system calculates and collects from members one single margin amount for all positions held in both the futures and options markets. Members who have installed similar cross-margining systems approved by HKFE can also calculate and collect one single margin amount from clients who hold positions in both markets.

SIB

The London Clearing House calculates net original margin requirements using a system which permits the offset of index options and futures positions.