The Financial Industry Regulatory Authority (FINRA) has once more filed a rule change with the US Securities and Exchange Commission (SEC) to further 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 March 25, 2020. Final implementation of the rule’s requirements to collect margin on covered agency transactions was scheduled for March 25, 2019, which itself was a delay from a previous compliance date of June 25, 2018. As with the other delays, the new postponement was filed for immediate effectiveness and FINRA, in delaying the rule changes, said that it “is considering, in consultation with industry participants and other regulators, potential amendments to the requirements of [amended Rule 4210].” FINRA further states that it “believes that this is appropriate in the interest of avoiding unnecessary disruption to the Covered Agency Transaction market. Of note, the risk limit determinations of amended Rule 4210 that became effective on December 15, 2016, are not affected by the proposal.” In considering further changes to the Rule 4210 margin collection requirements, FINRA appears to be reacting to industry concerns regarding the competitiveness of certain FINRA members in this market.
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 originally scheduled to become effective on December 15, 2017.