FINRA Proposes Amendments to Margin Requirement Rules

Latham & Watkins LLP

The proposed amendments could significantly alter the landscape for extended settlement of securities offerings by expressly limiting the public offering exception for “when-issued” securities to equity IPOs.

Key Points:

The proposed amendments:

..Define an “extended settlement transaction” as any transaction that is agreed to settle beyond T+2 and require all such transactions to be margined as though they were transacted in margin accounts

..Expressly narrow the scope of the current “primary distribution” exception for “when issued” securities to only apply to equity IPOs, and thus exclude public or “Rule 144A” offerings of debt securities, as well as follow-on or exchange offerings of equity securities

..Extend the exception whereby member firms can choose to take capital charges for any net mark to market loss on transactions in when-issued securities in “designated accounts” to the broader category of “exempt accounts” (which includes certain institutional investors), foreign broker-dealers, and DVP/RVP accounts

The Financial Industry Regulatory Authority (FINRA) has proposed amendments to its margin requirement rules, which protect member firms against customer credit risk by generally requiring firms to collect margin when they extend credit to their customers.

Please see full Alert below for more information.

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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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