1. Common fundamental elements used to establish initial and maintenance margin levels in both the equity and derivatives markets have been the historic and implied volatility of the price of a particular instrument and the market as a whole.
2. Market authorities may also take into account the price correlation between derivatives and their underlying instruments and/or the concentration of positions amongst a small number of market participants.
3. In establishing margin levels at the client level, various client-related elements may be taken into account where necessary, including:
   • the level of the client's creditworthiness,
   • whether the client is an individual investor or another financial intermediary or large institution,
   • the level of the client's overall trading activity, and
   • whether the client is a speculator or hedger.
4. Market authorities should reexamine initial and maintenance margin levels periodically, and should take into account current market volatility in deciding whether to revise the margin requirements.
5. Competition between markets should not play any role in the determination of margin levels.

B. Calculation

1. The methods used to calculate margin should be clear and consistent. For example, a growing number of jurisdictions are using options and futures risk-based margining systems.
2. In calculating margin requirements, open positions should be revalued to current market prices at least once a day.

C. Collection and Monitoring

1. Market authorities also should establish clear procedures for margin setting, collection, notification, and monitoring. In order to be effective, margin should be collected by clearly specified times. Members, exchanges and clearinghouses also may have the ability to make intra-day margin calls under certain circumstances.
2. Margin may be deposited in various forms of collateral. The choice of collateral should be based on criteria such as high liquidity and the correlation of the collateral with the relevant instrument. Haircuts (i.e., a calculated reduction from the market value of an asset) may be applied to take into account the risk of a possible reduction in the market value of an instrument deposited as margin between the time of valuation and the time the clearinghouse might have to sell it, such as in case of a member's default.

D. Default

1. In case of customer default, members should ensure that they are able to cover the positions of a defaulted customer in order to remain in good financial standing vis-a-vis the clearinghouse. Provisions regarding customer defaults may include the liquidation of the customer's assets and closing of the account.
2. In the case of a member default, a clearinghouse should be able to cover against the loss and protect the counterparties and, in some instances, the customers of the defaulting member. Provisions for member default may include the application of available margin funds or collateral of the member and other available funds at the clearinghouse, and where applicable, transfer of customer accounts.