Today BDA filed comments, available [here], on FINRA Notice 14-02, “Proposed Amendments to FINRA Rule 4210” regarding TBA margining.
Among other items, the comments assert that, in order to appropriately balance the essential liquidity provided by middle market dealers with its desire to address systemic risk:
- FINRA should consider exempting MBS specified pools, ARM and CMO markets from the rule at this time, applying the rule to the TBA market alone. Short of such an exemption, FINRA should consider applying the rule at at least T+3 for those three markets.
- BDA opposes collection of 2% maintenance margin from non-exempt accounts but should one be imposed, FINRA should conside exempting trades below $500,000.
- On capital charges, FINRA should allow each broker-dealer to assign a threshold amount to each counterparty, below which there should be no capital charges required, up to a maximum of $100,000. A firm should not have to take a capital charge for maintenance margin due from the customer.
- FINRA should reconsider and raise concentration limit thresholds.
- FINRA should recognize the challenges in addressing and educating retail customers as firms adapt to the rule, and the challenges of margining numerous subaccounts of investment advisor accounts.
- FINRA should recognize the significant time and monetary investment that the rule will require, particularly for firms who have not been involved in margining in the past, and the cost-prohibitive nature of many third-party vendor solutions.
BDA staff and members met with FINRA last week regarding the proposal, and will continue to actively dialogue with FINRA on the proposal, which is likely to be finalized in 2015.
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