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finra 4210 tba

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In the language of FINRA Rule 4210, transactions subject to these margin requirements are referred to as “Covered Agency Transactions,” although many market participants use the “short hand” term of “TBA Margin Requirements” or “TBA Margining” to describe the scope of transactions subject to the requirements. 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).

1 The proposal, designed to reflect the growth of the TBA market and to replace current interpretive materials under Rule 4210 that have become outdated, is informed by the set of best practices adopted by the Treasury Market Practices Group (TMPG) of the Federal Reserve Bank … FINRA has indicated that it will file the proposed rule change with the Securities and Exchange Commission (“SEC”) with a request for “immediate effectiveness,” which means that FINRA is recommending to the SEC that the deferred implementation date will become effective  immediately upon filing of the rule change by FINRA with the SEC. 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. For instance, dealers and service providers are facing substantial technological adaptations in order to support new margin requirements in an automated manner. January 2019 – FINRA filed for effective date postponement, proposing March 2020 as go-live. 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. By pursuing your navigation on our website, you allow us to place cookies on your device. FINRA Rule 4210 (Margin Requirements) describes the margin requirements that determine the amount of collateral customers are expected to maintain in their margin accounts, including both strategy-based margin accounts and portfolio margin accounts. 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.

(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.). FINRA Rule 4210 is a step toward market integrity and avoidance of systemic event. To date, FINRA has not proposed any such amendments. 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. This is not the first time that FINRA has indicated that it is considering amendments to 4210. Nevertheless, financial actors may also face roll-out challenges. A memo from FINRA’s president announcing these changes is available here. As a result, addressing counterparty exposure to credit risk remains a priority for the regulators in their quest to secure global financial markets. If such loss is outstanding for 5 consecutive business days, a position liquidation process may be activated to satisfy the loss and reporting made to FINRA, Some counterparties (certain mortgage banks, federal banking agencies) or assets (multifamily housing securities or project loan program securities) are exempt from margin requirements as long as the dealer`s credit risk department enforces due diligence on the counterparty, Repeal of maintenance margin (also known as initial margin) requirement, Allowance for capital charges by dealers in lieu of margin but limited to a certain threshold, Clarification of exemption pertaining to cleared transactions. The FINRA Rule 4210 margin requirements have been subject to several amendments and deferrals since their original proposal by FINRA in October 2015. Margin would certainly provide for additional counterparty risk mitigation, although it comes with additional operational complexities that many buy-side firms prefer to deal with after FINRA finalizes this rule. We expect that FINRA’s request will be honored by the SEC. However, FINRA Rule 4210 implementation may be delicate, with consultations continuing throughout 2020 and resulting in scope revision / effective date delay. 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. Notwithstanding this delay, many buy-side market participants are finalizing their negotiation of Master Securities Forward Transaction Agreements (MSFTAs) with broker-dealers. These agreements often include provisions that defer the exchange of margin until such time as FINRA finalizes its rules. A Buy-Side Guide to Regulatory and Transactional Issues Related To Derivatives and Repurchase Agreements. These cookies are set in order to secure your browsing, improve your user experience and enable us to compile statistics.

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