A margin account is a type of brokerage account that allows investors to buy and sell financial securities using credit. The account’s margin requirement is the amount of collateral required, from the investor, to cover the funds or securities extended by the broker to the investor. In Canada, the primary driver of an account’s margin requirement is the account’s Capital Charge [CC] which is calculated using a set of regulatory rules. The regulations are degenerate in that hundreds of valid CCs often exist for a single account. This work outlines a linear optimization model for selecting the minimal CC out of the set of valid CCs for a given margin account. The method proposed is consistent with all of the regulatory requirements and is guaranteed optimal in most cases. Relative to existing methods, the new method produced an average CC reduction of approximately 2% and displayed qualitatively better run-times.

A margin account is a type of brokerage account that allows investors to buy and sell financial securities using credit. The account’s margin requirement is the amount of collateral required, from the investor, to cover the funds or securities extended by the broker to the investor. In Canada, the primary driver of an account’s margin requirement is the account’s Capital Charge [CC] which is calculated using a set of regulatory rules. The regulations are degenerate in that hundreds of valid CCs often exist for a single account. This work outlines a linear optimization model for selecting the minimal CC out of the set of valid CCs for a given margin account. The method proposed is consistent with all of the regulatory requirements and is guaranteed optimal in most cases. Relative to existing methods, the new method produced an average CC reduction of approximately 2% and displayed qualitatively better run-times.