March 10, 2023
On February 24, 2023, FINRA filed a rule change with the SEC that extends the implementation date of FINRA Rule 4210, margin requirements for Covered Agency Transactions, from April 23, 2023, to October 25, 2023. Covered Agency Transactions include to be announced (TBA) transactions, specified pool transactions, and transactions in collateralized mortgage obligations, if issued under an agency or government-sponsored enterprise program and if subject to a forward settlement date.
The original amendments would generally require brokers to collect daily margin for each counterparty’s excess mark to market loss. FINRA is concerned about potential counterparty exposure risk because, historically, the TBA market is one of the few markets where a significant portion of activity is unmargined. FINRA has noted that its existing margin requirements do not address the TBA market and based the rules on the Treasury Market Practices Group’s (TPMG) 2012 recommended standards (TMPG best practices) regarding the margining of forward-settling agency mortgage-backed securities transactions.
The FINRA rules were initially approved by the SEC in 2016 but have been delayed multiple times due to industry participants requesting that FINRA extend the implementation date and consider the impact on smaller and mid-sized brokers. This proposed delay does not apply to other FINRA amendments to the rule adopted in 2022, which are being challenged by market participants and have been stayed pending SEC action.
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