SEC Approves on an Accelerated Basis FINRA Rule Change Relating to Margin Requirements for Credit Default Swaps

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The Securities and Exchange Commission has approved a Financial Industry Regulatory Authority proposed change to amend FINRA Rule 4240, which implements an interim pilot program with respect to margin requirements related to credit default swaps (CDS). The proposed rule change provides that, in lieu of the margin methodology requirements set forth in the rule, a member firm may margin CDS on a portfolio margin basis. However, the member firm must notify FINRA in advance in writing of its intent to operate under the portfolio margin program. The proposed rule change also clarifies that, in addition to requiring initial margin, a member firm must collect daily variation margin from each customer or broker-dealer counterparty. In addition, the proposed rule change amends the reference to “largest maximum possible loss” by providing a reference point for the computation of such loss.

The SEC is accepting comments on the proposed rule change. Comments should refer to File Number SR-FINRA-2013-017 and must be submitted to the SEC by April 4, 2013.

The notice of filing and order granting approval is available here.

 

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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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