FINRA Files Rule Change to Extend Implementation Date of Rule 4210 TBA Changes

Morgan Lewis - All Things FinReg
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Morgan Lewis - All Things FinReg

FINRA filed a proposed rule change with the US Securities and Exchange Commission (SEC) on August 26, 2021 to delay the effective date of changes to FINRA Rule 4210 that were previously implemented on December 15, 2016.

The proposed delay applies to amendments made to FINRA Rule 4210 (TBA Amendments) that establish margin requirements for (1) To Be Announced (TBA) transactions, inclusive of adjustable rate mortgage (ARM) transactions; (2) Specified Pool Transactions; and (3) transactions in Collateralized Mortgage Obligations (CMOs), issued in conformity with a program of an agency or Government-Sponsored Enterprise (GSE), with forward settlement dates (collectively, the Covered Agency Transactions).

The current delay was prompted by continuing dialogue with industry and market participants, including the staff of the SEC and the Federal Reserve System, which resulted in proposed amendments to the TBA Amendments (Subsequent Amendments). As FINRA works on the Subsequent Amendments, the TBA Amendments may be subject to further delay.  FINRA is reminding firms that the risk limit determination requirements are still in effect. That provision requires broker-dealers that engage in Covered Agency Transactions to make and enforce a written risk limit determination for each such counterparty, which can be made at the investment adviser level if a broker-dealer engages in transactions with advisory clients of a registered investment adviser.

The proposed implementation date would be January 26, 2022. FINRA proposed the change through a provision of the Securities Exchange Act of 1934 (Exchange Act) that permits rule changes to become operative after 30 days of filing (or sooner if designated by the SEC) if the proposal does not significantly affect the protection of investors or the public interest, or impose any significant burden on competition.

The delay signals that FINRA continues to take industry concerns into account, especially as they relate to potential competitive disadvantages that small and medium-size broker-dealers would face against better capitalized broker-dealers, and banks that may not have similar requirements.

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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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