SAMPLE PORTFOLIO MARGINING RISK DISCLOSURE AND ACKNOWLEDGMENT STATEMENTS
 

Information Memo  07-27  is available for viewing or printing with Adobe Acrobat
 
Number 07-27 03/19/2007
 
ATTENTION:   CHIEF EXECUTIVE OFFICER, FINANCIAL & OPERATIONS OFFICER, MANAGING PARTNERS, CREDIT AND MARGIN DEPARTMENTS, COMPLIANCE AND LEGAL DEPARTMENTS
 
TO:   ALL MEMBER ORGANIZATIONS
 
SUBJECT:   SAMPLE PORTFOLIO MARGINING RISK DISCLOSURE AND ACKNOWLEDGMENT STATEMENTS
 



This Information Memo provides sample “portfolio margining risk disclosure” and “customer acknowledgement” text that member organizations may use to satisfy the requirements of NYSE Rule 431(g).1 As discussed more fully below, Rule 431(g) requires that such material (or “substantially similar” material) be provided to customers prior to opening a portfolio margin account.

On December 12, 2006, the Securities and Exchange Commission (“SEC”) approved amendments to NYSE Rule 431 (“Margin Requirements”) that will permit the application of portfolio margin to an expanded universe of eligible products.2 The amendments are effective April 2, 2007.

These amendments removed from the text of the rule sample “risk disclosure” and “customer acknowledgment” language3 that member organizations could use to satisfy Rule 431(g) requirements with respect to opening customer portfolio margin accounts.

Amended Rule 431(g) continues to provide that, on or before the initial transaction in a portfolio margin account, member organizations must: 1) furnish a risk disclosure statement to each prospective customer, and 2) obtain from each such customer an executed acknowledgement. Rule 7264 requires that these materials be in a format prescribed by the Exchange or in a format developed by the member organization, provided it contains substantially similar information as the prescribed Exchange format and has received the prior written approval of the Exchange.5 A revised Exchange-prescribed format that may be used to satisfy the requirements of Rule 431(g) is attached as Exhibit A. This format was developed in conjunction with the NASD and the CBOE and is substantively consistent with the corresponding sample documents prescribed by those entities.

Any questions regarding this Information Memo can be directed to Rudolph Verra at (212) 656-2924, Glen Garofalo at (212) 656-2084, or Steve Yannolo at (212) 656-2274, or your finance coordinator.

_______________________________________
Grace B. Vogel
Executive Vice President
Member Firm Regulation

Attachments

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1 See Rule 431(g)(5)(c).
2 See Release No. 34-54918 (December 12, 2006) 71 FR 75790 (December 18, 2006) (SR-NYSE-2006-13) and NYSE Information Memo No. 06-86, dated December 21, 2006.
3 See subsection (d) of NYSE Rule 726 (“Delivery of Options Disclosure Document and Prospectus”).
4 See Rule 726(d).
5 As part of the approval process to participate in portfolio margining, member organizations must include a copy of their portfolio margin disclosure and acknowledgement statements with their applications.


Exhibit A.DOC