FINRA Proposes to Amend Rule 4210

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The Financial Industry Regulatory Authority, Inc. requested comments on amendments to Rule 4210 to establish margin requirements for To Be Announced (TBA) market transactions. The TBA market is where most agency mortgage-backed security (MBS) trading takes place. Most transactions are characterized with forward settlements up to six months past the trade date. The proposed rule change applies to TBA transactions, including adjustable rate mortgage (ARM) transactions, specified pool transactions and collateralized mortgage obligation (CMO) transactions, with forward settlement dates. FINRA members engaging in such transactions with any counterparty must determine risk limits unless the transactions are either cleared or with an exempt counterparty or central bank counterparty. For transactions with non-exempt accounts that meet a $250,000 de minimis amount, FINRA members must collect variation margin and maintenance margin equal to 2 percent of the market value of the securities. FINRA members must also report concentrated credit exposures and may be prohibited from entering into any new transactions if net capital deductions over a five business day period: (1) exceed 5 percent of the member’s tentative net capital for a single account (or commonly controlled accounts) or (2) exceed 25 percent of the member’s tentative net capital for all accounts. Exempt account determination depends on the beneficial ownership of the account, and sub-accounts of investment advisers must meet individual margin requirements. 

The Proposed Rules are available here

FINRA’s notice to members is available here.

Topics:  FINRA, Mortgage-Backed Securities

Published In: Finance & Banking Updates, Residential Real Estate Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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