"The accounts are going to be open to everyone," said Richard Closs, director of risk management at Pershing, adding that the firm anticipates interest from "a lot of high-net-worth customers with active trading books that use options and are looking for enhanced leverage."

Pershing, whose 1,000 correspondents make it the largest clearing firm, obtained approval for portfolio margining earlier this year but did not make an announcement until now. The news comes about two weeks after the New York Stock Exchange, Chicago Board Options Exchange and Financial Industry Regulatory Authority (Finra) filed proposals with the Securities and Exchange Commission--effective immediately--to make the 16-month-old pilot program for the accounts permanent.

In March 2007, 12 self-clearing broker-dealers were permitted to begin providing portfolio margin accounts, following the SEC’s December decision that the accounts could include stocks. Portfolio margining uses risk-based models--the Options Clearing Corp.’s Theoretical Intermarket Margining System is the only allowed so far--to calculate margin requirements. Under the rules, portfolios, which can include a variety of stocks and derivative instruments, must have their value stress-tested after market increases or decreases of 15 percent and every 3 percent interval in between.

The bulge-bracket firms that are allowed to open the accounts, which require a minimum of 15 percent collateral compared to the traditional 50 percent under Regulation T, have offered them mainly to hedge funds. Also approved are a number of brokerages specializing in options trading--such as Greenwich, Conn.-based Interactive Brokers Group and Chicago’s optionsXpress--which have opened the most accounts. The big prime brokers, however, have generated the bulk of the $144 billion in portfolio margin debt, or 43 percent of all margin debt as of Feb. 29, according to Finra.

Previously, Dallas-based Penson Worldwide was the only full-fledged clearing firm to receive approval, opening portfolio margin accounts through correspondents, including Chicago-based thinkorswim, that tend to focus on clients who are high-volume options traders. Pershing’s correspondents, on the other hand, employ a wide array of business models.

According to Closs, the customers most likely to use portfolio margin accounts--both through broker correspondents and Pershing-supported registered investment advisers--are family offices and individuals employing margin debits of at least $10 million. Those clients actively trade stocks and options, with the latter making up 30 percent or more of trading activity. "We cater to many large introducing broker-dealers, and they all have high-net-worth individuals in their books of business," said Closs. "This offering helps our clients so they can compete with the Goldmans and Merrills."

Pershing, which is also offering the accounts to its prime brokerage clients, is requiring a $5 million account balance across the board. Some prime brokerage units, such as Morgan Stanley’s, are requiring the same minimum for the accounts. Meanwhile, highly automated broker-dealers such as Interactive Brokers and optionsXpress, catering mainly to active retail investors, require only $100,000.

"Each correspondent clearing firm is going to have to decide which types of customers it wants to allow into portfolio margining, given the clearer’s strategy and philosophy and depth of risk controls," said Douglas Engmann, president of proprietary trading firm San Francisco-based Engmann Options and former head of Newedge USA’s equity clearing division.

Engmann said Newedge, formed in January when French banks Calyon Financial and Société Générale merged their brokerage operations, has a $1 million minimum for the accounts and that Pershing appears to be taking a conservative approach. Fimat pioneered portfolio margining for index options in the U.S. and was among the first 12 broker-dealers approved to include equities.

"Customers with a lot of assets that trade options to hedge themselves certainly could be a targeted community," said Engmann, "but they’re a very specialized type of high-net-worth individual." Engmann added that he has also been working on identifying high-net-worth investors that could benefit from portfolio margining.

Pershing outsources the margin calculations to Valparaiso, Ind.-based LDB Consulting, one of several vendors, including SunGard Data Systems, that offer the service. LDB, which has long provided software to calculate market-makers’ margin "haircuts," receives Pershing’s account data at around 6 p.m. and returns processed numbers in time for the clearer’s overnight trade-processing batch cycle. Pershing’s systems monitor portfolio margin-related risk in real time through the trading day.

Closs said Pershing has not yet publicized its portfolio margin offering because it has been developing the prime brokerage and high-net-worth offerings for a simultaneous launch. The accounts, however, are currently available.

NYSE, CBOE and Finra, all of whom can give self-clearing brokers approval to offer portfolio margin accounts, each filed proposals July 30 to make the program permanent. The SEC has until Sept. 28 to act on the proposals.