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To Be Announced: Implementation of FINRA Rule 4210 for Covered Agency Transactions

Broker-dealers can breathe a collective sigh of relief. The Financial Industry Regulatory Authority, Inc. (FINRA) has filed a rule change with the Securities and Exchange Commission (SEC) to delay the effective date of certain changes to its maintenance margin rule for Covered Agency Transactions (e.g., to-be-announced transactions, specified pool transactions, transactions in collateralized mortgage obligations) until June 25, 2018.

In brief, in August 2016, FINRA announced the adoption of changes to Rule 4210 with respect to the treatment of “Covered Agency Transactions” that would require FINRA members that engage in covered agency transactions with counterparties to

  • make and enforce written risk determinations for each counterparty, and

  • subject to certain exceptions, collect maintenance margin for each counterparty based on the net long or short position by CUSIP.

The requirement with respect to risk determinations has been effective since December 15, 2016 and the requirements with respect to maintenance margin were scheduled to become effective on December 15, 2017.

Industry participants have requested of FINRA additional time to make systems changes necessary to comply with the amended maintenance margin provisions, including time to test the systems changes, and update or amend margining agreements and related documentation. In filing its rule change with the SEC, FINRA indicated that, given the systems changes necessary and industry participants’ requests for additional time to update margin documentation, it was appropriate to extend the December 15, 2017 implementation date until June 25, 2018. The risk limit determination requirements included in amended Rule 4210, which became effective on December 15, 2016, remain in effect.

As explained by FINRA, because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed with the SEC, or such shorter time as the SEC may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934 and Rule 19b-4(f)(6) thereunder.

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About this Author


Ignacio A. Sandoval is an associate in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Sandoval's practice focuses on advising broker-dealers on their obligations under the federal securities laws and self-regulatory organization rules.

Mark D. Fitterman, Broker-Dealer Regulation, Securities Lawyer, Morgan Lewis, Law Firm

Mark D. Fitterman is a partner in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Fitterman's practice focuses on the regulation of broker-dealers under federal and state law.