Executive Summary: In August 2009, FINRA issued Regulatory Notice 09-53 (Non-Traditional ETFs), announcing increased customermargin requirements for leveraged ETFs and uncovered options overlying leveraged ETFs effective December 1, 2009. To accommodate ongoing changes in options symbology and other systems-related concerns, FINRA is deferring the effective date for increased customermargin for uncovered options overlying leveraged ETFs, as well as the application of day-tradingmargin requirements for leveraged ETFs to April 30, 2010. Firms should be aware, however, that the increased maintenancemargin for leveraged ETFs will take effect as originally scheduled on December 1, 2009.

Questions concerning this Notice should be directed to:
- Rudolph Verra,Managing Director, Risk Oversight and Operational Regulation, at (646) 315-8811;

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- Glen Garofalo, Director, Credit Regulation, at (646) 315-8464; or
- Steve Yannolo, Principal Credit Specialist, Credit Regulation, at (646) 315-8621.

Background & Discussion
As noted in Regulatory Notice 09-53, NASD Rule 2520(f)(8)(A) and Incorporated NYSE Rule 431(f)(8)(A) permit FINRA—in response to market conditions—to prescribe higher initial andmaintenancemargin requirements. In view of the increased volatility of leveraged ETFs compared to their non-leveraged counterparts, FINRA announced highermaintenance margin levels for leveraged ETFs and uncovered options overlying leveraged ETFs.

In general, themargin requirements have increased by a factor commensurate with the leverage of the ETF or underlying ETF in the case of an option.

FINRA is deferring the increasedmaintenancemargin requirements for options overlying leveraged ETFs and the day-tradingmargin requirements with respect to leveraged ETFs until April 30, 2010.While FINRA is committed to increasing these margin requirements, it also ismindful of the fact that listed optionsmarkets are in the final stages of a wholesale overhaul of themethod of identifying exchange-traded options contracts.1 The Options Symbology Initiative requires broker-dealers to redesign their systems to accommodate this new symbology and is expected to be completed on February 12, 2010.

To allow firms to devote the necessary resources tomeet this deadline, FINRA is deferring the implementation of the increasedmaintenancemargin requirements for options overlying leveraged ETFs until April 30, 2010. FINRA also is deferring the implementation of the day-tradingmargin requirements until April 30, 2010, as such calculations alsomay incorporate options overlying leveraged ETFs. Firms should be aware, however, that the increasedmaintenancemargin for leveraged ETFs will take effect as originally scheduled on December 1, 2009.

Member firms are reminded to review Regulatory Notice 09-53, which discusses the increasedmaintenancemargin requirements in detail.

Other Leveraged Products
In Regulatory Notice 09-53, FINRA advised firms to assess the adequacy ofmaintenance requirements for all securities that contain inherent leverage, such as leveragedmutual funds, and to increase requirements where appropriate. FINRA notes that this statement applies to security futures that have leveraged ETFs as the underlying security as well as any other securities that contain leverage or are linked to a leveraged product.

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