Bank Board Gives Thrifts Permission to Trade in Over-the-Counter Options

By Easton, Nina | American Banker, April 24, 1985 | Go to article overview

Bank Board Gives Thrifts Permission to Trade in Over-the-Counter Options


Easton, Nina, American Banker


WASHINGTON -- As a result of a Federal Home Loan Bank Board action last week, federally insured thrifts are now expressly authorized to trade in over-the-counter financial options.

In approving trades in these instruments, the agency reversed a policy that it had reiterated just months ago in a memorandum to federally insured thrifts. Under that policy, thrifts were permitted only to deal in those financial options traded on the exchanges.

The decision to permit thrifts to trade over-the-counter financial options "will increase significantly the flexibility of institutions to hedge against interest rate risk," said Bank Board attorney Robert Monheit.

Under the rule, however, thrifts may enter into these transactions only with those 36 primary government securities dealers regulated by the Federal Reserve Bank of New York. Thrifts may also enter into options agreements with affiliates of these dealers.

Some thrift analysts were puzzled by the Bank Board's initial prohibition of over-the-counter financial options trading, noting that thrifts have been purchasing options in this market for some time. Analysts say the new rule simply legitimizes the ongoing activity and adds a new restriction -- that thrifts deal only with regulated government securities dealers. The recent collapse of several unregulated government securities firms has rocked the financial world and made banking regulators nervous.

Privately, Bank Board officials acknowledge that the reversal in policy was prompted by pressure from the thrift industry.

"Thrifts had been engaging to a substantial degree in over-the-counter options, but they never had the authority," said one Bank Board official. "There's been quite an outcry from the industry, because these are deemed to be essential. And we agreed these options had their place."

Peregrine Montcreiffe, executive vice president of Shearson Lehman Brothers Inc., said that thrift institutions are attracted to the over-the-counter market because of the opportunity to trade in options on mortgage-backed securities issued by the Government National Mortgage Association, or Ginnie Mae; the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac.

Those options, which provide an often effective means of hedging against the interest rate risk in thrifts' portfolios, are not traded on the exchanges.

Seeking Squeeze Protection

"The squeeze of interest rate spreads in the mortgage origination market has led thrifts and mortgage bankers to seek optional protection," said Mr. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Bank Board Gives Thrifts Permission to Trade in Over-the-Counter Options
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.