To our knowledge, FINRA has not released the actual text of any of these proposed changes, although we expect such a release to occur in relatively short order. Most recently, in September 2018, FINRA’s Board of Governors had approved additional changes to FINRA Rule 4210, including an elimination of the 2% maintenance margin requirement. FINRA Rule 4210 Update: New Proposed Implementation Date of March 25, 2020 for TBA Margining, California Land Use & Development Law Report, Accountability Limits and Hedge Exemptions, Distributed Ledger Technology and Smart Contracts, New ISDA LIBOR Fallback Protocol and FCMs Holding Virtual Currency, Re-Proposed Rule 18f-4: Commitment Agreements—Putting it all Together, Re-Proposed Rule 18f-4: Features of Loan Commitments that May Prevent “Leveraging Effects”, Re-Proposed Rule 18f-4: Unfunded Loan Commitments, Re-Proposed Rule 18f-4: Why Some Commitment Agreements may not have “Leveraging Effects”. In the United States, the agency mortgage-backed securities (MBS) market is the second largest after US treasuries. The SEC has approved1 FINRA’s rule change amending FINRA Rule 4210 to establish margin requirements for Covered Agency Transactions. Covered Agency Transactions Under FINRA Rule 4210 In June 2016, the SE approved FINRA’s rule change (SR-FINRA-2015-036) amending FINRA Rule 4210 to establish margin requirements for Covered Agency Transactions.

This approach mitigates counterparty risk in so far as it provides the buy-side firm with the benefits of events of default and established close-out and netting procedures if a broker-dealer becomes insolvent or defaults under the MSFTA for other reasons. If the SEC did not honor FINRA’s request for immediate effectiveness, then the proposed rule change would not become operative for 30 days after the date of its filing by FINRA with the SEC. However, we think that regulators should address the evolving framework in an efficient manner that shields market players from additional costs due to late blueprint amendments.

FINRA has requested that the deferred implementation date becomes effective immediately upon filing of the rule change by FINRA with the SEC. This is not the first time that FINRA has indicated that it is considering amendments to 4210. The Derivatives and Repo Report offers insights into regulatory and transactional issues related to derivatives and repurchase agreements. We believe that the introduction of margin requirements on uncleared transactions and expansion of collateralization technique are key tools to mitigate risks. Our goal is to provide meaningful and timely information to buy-side market participants, including: mutual funds, hedge funds, exchange-traded funds (ETFs) and their investment advisers; corporate end users; nonswap dealer banks; and other end users of derivatives and repurchase agreements. To date, FINRA has not proposed any such amendments. Reducing overall exposure to credit risk and implementing best practices are key objectives for the industry as whole. For additional background on FINRA Rule 4210, please see our post from earlier this year (relating to the prior round of 4210 deferral by FINRA). Given the magnitude of the proposed changes to FINRA Rule 4210, we further expect that any of the new (i.e., not-yet-released) proposed changes would be subject to public comment; although, we note that FINRA has not made an official statement to that effect. FINRA has indicated that it will file the proposed rule change with the SEC with a request for “immediate effectiveness,” which means that FINRA desires for the deferred implementation date to become effective immediately upon filing of the rule change by FINRA with the SEC.

This regulation pursues the following objectives: *Any counterparty, buy-side or sell-side (non-broker) participant, entering into buy/sell transactions (on these assets) with a FINRA member. FINRA is seeking comment on proposed amendments to FINRA Rule 4210 to establish margin requirements for transactions in the To Be Announced (TBA) market. FINRA has recently submitted a filing with the Securities and Exchange Commission (“SEC”) to propose another delay to the implementation of TBA margin requirements under Rule 4210. A memo from FINRA’s president announcing these changes is available here. This is not the first time that FINRA has indicated that it is considering amendments to 4210. (At the risk of stating the obvious, asset managers that take such an approach can only do so if their client agreements do not require the margining of TBAs.). Finally, and by way of background, since December 2016, broker-dealers have had to make certain risk limit determinations under FINRA Rule 4210 in respect of a customer’s trading of Covered Agency Transactions.

These cookies are set in order to secure your browsing, improve your user experience and enable us to compile statistics. As a result, addressing counterparty exposure to credit risk remains a priority for the regulators in their quest to secure global financial markets. As a result, addressing counterparty exposure to credit risk remains a priority for the regulators in their quest to secure global financial markets. We expect that FINRA’s request will be honored by the SEC. By pursuing your navigation on our website, you allow us to place cookies on your device. Covered Agency Transactions include (1) To Be Announced (TBA) transactions, inclusive of adjustable rate However, this decision ultimately rests with the SEC and, as of the time of the publication of this post, the SEC has not yet issued a release in respect of the FINRA proposed rule change.



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