Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Setting Aside Action by Delegated Authority and Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend the Requirements for Covered Agency Transactions Under FINRA Rule 4210 (Margin Requirements) as Approved Pursuant to SR-FINRA-2015-036

The U.S. Securities and Exchange Commission (SEC) has published in the Federal Register its decision of approval of a proposed rule amendment by the Financial Industry Regulatory Authority (FINRA) which the Commission had previously approved already, but for which there was a request for review. The rule modification procedure was subsequently put on hold.
Specifically, the SEC has now finally approved FINRA Rule 4210 amendments relating to the application of margin requirements for „covered agency transactions“ which refer to
(1) To Be Announced (TBA) transactions;
(2) Adjustable rate mortgage (ARM) transactions:
(3) Specified Pool Transactions; and
(4) Collateralized Mortgage Obligations (CMOs).
Specifically, the amendments to Rule 4210 will
– eliminate the additional maintenance margin requirement of 2% for accounts that require such deposits (non-exempt accounts pursuant to paragraph (e)(2)(H)(ii)e. under Rule 4210) which implies that firms do no longer have to monitor whether or not a counterparty is an exempt on non-exempt counterparty under the rule;
– apply the excess mark-to-market loss margin requirement to both exempt and non-exempt accounts in an equal manner;
– permit the taking of a capital charge instead of the collection of margins based on mark-to-market adjustments provided that certain conditions are met; and
– clarify certain provisions under the rule, (i.e. the „$250,000 de minimis transfer exception and the $10 million gross open position exception established pursuant to SR-FINRA-2015-036“).
The SEC’s final decision is based upon the facts that
– FINRA member firms had and still have sufficient time to adjust to the modifications;
– the modifications ease burdens of member firms by eliminating the additional two percent maintenance margin for such transactions for ALL firms; and
– provide more flexibility to members as regards the collection of margins.
Furthermore, the final rule amendment levels the playing field between broker-dealer subject to FINRA margin requirements and those dealers that are not (exempt and non-exempt).