5725. Hedged option positions 

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    1. No margin is required for the following exchange-traded option and collateral position combinations held in equivalent quantities in a Dealer Member inventory or client account:

       

      Exchange-traded option position

       

      Acceptable collateral

      (i)

      Short call option with an equity, index, index participation unit, debt or currency underlying interest

      and

      escrow receipt evidencing the deposit of the underlying security

      (ii)

      Short put option with an equity, index, index participation unit, debt or currency underlying interest

      and

      escrow receipt evidencing the deposit of government securities

      (iii)

      Short put option with an equity, index, index participation unit, debt or currency underlying interest

      and

      letter of guarantee

       

      provided the conditions in subsections 5725(2) and 5725(3) are met.

    2. For an escrow receipt to be acceptable collateral in subsection 5725(1):

      1. the issuer of the escrow receipt must be a financial institution approved by the clearing corporation,

      2. and

      3. all clearing corporation agreements must be signed and delivered to the clearing corporation and available for inspection by IIROC on request,

      4. and

      5. in the case of an escrow receipt evidencing the deposit of government securities, the securities must:

        1. be acceptable forms of clearing corporation margin,

        2. mature within one year of their deposit, and

        3. have a market value of greater than 110% of the aggregate exercise value of the short put option.

    3. For a letter of guarantee to be acceptable collateral in subsection 5725(1):

      1. the issuer must be:

        1. a financial institution approved by the clearing corporation to issue escrow receipts,

        2. and

        3. a chartered bank, a Québec savings bank or a trust company licensed to do business in Canada, with a minimum paid-up capital and surplus of $5,000,000,

        4. and

      2. the letter must certify that the bank or trust company:

        1. holds on deposit for the client’s account cash equal to the full aggregate exercise value of the put option and that amount will be paid to the clearing corporation against delivery of the underlying interest hedged by the put option,

        2. or

        3. unconditionally and irrevocably guarantees to pay the clearing corporation the full amount of the aggregate exercise value of the put option against delivery of the underlying interest hedged by the put option,

        4. and

      3. the Dealer Member must deliver it to the clearing corporation and the clearing corporation must accept it as margin.

    5726. - 5729.  Reserved.

    There is no history log for this rule.

    There is no history log for this rule.