Treatment of simultaneous long and short positions in the same margin account when put or call options or combinations thereof on such stock are also outstanding in the account.

CFR · 2024-01-01 · US · Title 12

(a) The Board was recently asked whether under Regulation T, “Credit by Brokers and Dealers” (12 CFR part (b) The applicable provisions of regulation T are § 220.3(d)(3) and (5) and § 220.3(g)(4) and (5) which provide as follows: (c) Rule 431 of the New York Stock Exchange requires that a creditor obtain a minimum deposit of 25 percent of the current market value of the optioned stock in connection with his issuance or guarantee of a put, and at least 30 percent in the case of a call (and that such position be “marked to the market”), but permits a short position in the stock to serve in lieu of the required deposit in the case of a put and a long position to serve in the case of a call. Thus, where the appropriate position is held in an account, that position may serve as the margin required by § 220.3(d)(5). (d) In a short sale “against the box,” however, the customer is both long and short the same security. He may have established either position, properly margined, prior to taking the other, or he may have deposited fully paid securities in his margin account on the same day he makes a short sale of such securities. In either case, he will have directed his broker to borrow securities elsewhere in order to make delivery on the short sale rather than using his long position for this purpose (see also 17 CFR 240.3b-3). (e) Generally speaking, a customer makes a short sale “against the box” for tax reasons. Regulation T, however, provides in § 220.3(g) that the two position

official document · source cfr-2024 · id 12:§ 220.128