Portfolio Margin

Lightspeed offers Portfolio Margining to select sophisticated, risk aware hedge funds and high-net worth individuals. Portfolio Margining permits eligible customers to use a portfolio or risk based method when calculating risk across a diversified investment portfolio, thereby more accurately reflecting the actual risk of the positions within the portfolio and, as a result, potentially increasing a customer’s leverage. Currently, portfolio margining is available for U.S equities and equity options only. Lightspeed requires a minimum of $500,000 to open a Portfolio Margin account.

Introduction to Portfolio Margin

Portfolio Margin is a different way to calculate margin requirements for an account. These new margin guidelines allow eligible investors to base margin requirements on the net risks of the eligible holdings in their accounts, typically offering more leverage. Unlike the current strategy-based margin requirements, portfolio margin establishes a margin requirement equal to the greatest loss that, theoretically, would result if a gain or loss is calculated on the portfolio as a whole, taking into account the upside gain and the downside loss.

It should also be noted that trading with greater leverage involves greater risk of loss. For some accounts with high-risk positions, Portfolio Margin can require more margin than under Reg T. That’s the point of Portfolio Margin, for margin requirements to more accurately reflect the actual risk of the positions in an account. Also, for customers with highly concentrated accounts, Portfolio Margin may calculate higher margin requirements then under Reg T. The main goal of Portfolio Margin is to reflect the lower risk inherent in a balanced portfolio of hedged positions. Portfolio Margin must assess proportionately larger margin for those accounts with positions that are concentrated in a small number of stocks.

Portfolio Margin is a more accurate assessment of risk to the account. For more active trading, portfolio margining gives you the ability to more effectively manage risk and leverage capital. Please note that only clients who pass a more stringent approval process are eligible to use portfolio margining.

Penson Portfolio Margin Model

The Penson Portfolio Margin Model uses the OCC’s Theoretical Intermarket Margining System (TIMS) methodology. TIMS supplies the base margin computation for each eligible product. Long and short positions in any eligible product are grouped with its underlying instruments and related instruments to form a portfolio. The margin required for each portfolio is assumed to be the greatest loss over the 10-day intervals ranging from -15% to +15%. Each portfolio is subject to a per contract minimum if $.375 for each listed option, multiplied by the contract’s or instrument’s multiplier. The total margin required for an account is the sum of the greatest loss from each portfolio.

The Penson Model makes the additional individual adjustments listed below, and sums the results to compute the customers total portfolio margin requirement:

Low Volume Products/Concentration Adjustment: An eligible product within a portfolio may not be able to be liquidated over 24 hours either due to the product having a low trading volume or a concentrated customer position. Both situations pose risk that should be mitigated by increased margin.

High Volatility Adjustment: An eligible product may have above average volatility resulting in added risk and requiring additional margin.

Backtesting Adjustment: Penson will monitor the number of times the account begins the day with a negative net liquidation value (NLV).

Please contact a Risk Manager for further information.