[ By Howard Haykin ] FINRA proposes to amend its Rule 4210, Margin Requirements, to: (i) revise definitions and margin treatment of option spread strategies; (ii) clarify the maintenance margin requirement for non-margin eligible equity securities; (iii) clarify the maintenance margin requirements for non-equity securities; (iv) eliminate the current exemption from the free-riding prohibition for designated accounts; (v) conform the definition of "exempt account"; and (vi) eliminate the requirement to stress test portfolio margin accounts in the aggregate.  In addition, the proposed rule change would amend FINRA Rule 4210 to make non-substantive technical and stylistic changes. Option Spread Strategies. Basic option spreads can be paired in such ways that they offset each other in terms of risk.  The total risk of the combined spreads is less than the sum of the risk of both spread positions if viewed as stand-alone strategies.  FINRA Rule 4210(f)(2) currently recognizes several specific option spread strategies.  These strategies consist of either a "long" and a "short" option contract or 2 "long” and 2 "short" option contracts.  The "long" and "short" option contracts have the same underlying security or instrument and the "long" option contracts must expire on or after the expiration of the "short" option contracts. While the strategies recognized under FINRA Rule 4210 are the most common types of option spread strategies used by investors, there are other combinations of calls and/or puts that are similar in terms of their risk profile.  Accordingly, FINRA proposes a broader definition of a spread in FINRA Rule 4210(f)(2)(A)(xxxii) to mean a "long" and "short" position in different call option series, different put option series, or a combination of call and put option series, that collectively have a limited risk/reward profile, and meet the following conditions:

• all options must have the same underlying security or instrument;
• all "long" and "short" option contracts must be either all American-style or all European-style;
• all "long" and "short" option contracts must be either all listed or all OTC;
• the aggregate underlying contract value of "long" versus "short" contracts within option type(s) must be equal; and,
• the "short" option(s) must expire on or before the expiration date of the "long" option(s).

The proposed revised margin requirements are set forth in FINRA Rule 4210(f)(2)(H) and would require that the "long" option contracts within such spreads calendar iron butterfly spread, "short" calendar iron condor spread, "short" iron butterfly spread and "short" iron condor spread. Note to Reader: Given that the text goes on and on in this filing, we think it best if interested persons read the rule proposal for themselves, rather than read some paraphrased summary from C-I which would likely do little justice.  Thanks for your understanding. Therefore, for further details, go to:  [FINRA Rule Filing 12-24, 5/8/12].