BDA staff today met with FINRA staff on their ongoing project to amend FINRA Rule 4210 related to margin for extended-settlement and when-issued trades. We received a verbal briefing on changes FINRA expects to make to their 4210 proposal before releasing it.
In an advoacy win, FINRA adopted many provisons drafted by the BDA.
BDA Advocay can be viewed here.
On extended settlement trades, FINRA intends to adopt these provisions:
- Extended settlement transaction will be defined as any time a trade is not funded by a customer within the standard T+2 settlement cycle. The rule will make clear that extended settlement is an extension of credit.
- The rule will permit a capital charge in lieu of customer-posted margin for trades with extended settlement cycles of up to 35 days with "DVP customers," a term which will be defined in the rule, for trades with settlements.
On when-issued transactions, FINRA intends to adopt these provisions:
- When-issued trades will be subject to the margin rule.
- The rule will permit capital charges in lieu of customer margin for all when-issued trades with "exempt accounts." That will be in addition to interdealer and designated trades which are exempted in the current rule.
- Exempt accounts will be defined as minimums of $45 million in financial assets, $40 million in net assets, and providing sufficient financial information to conduct a credit review.
- There will be an exception to margin requirements for trades in new-issue Treasury securities that settle within T+14 and new-issue municipal securities that settle within T+42.
- The rule will permit a capital charge in lieu of margin for DVP customers on when-issued new issues in general if the trades are settled soon after securities are issued.
FINRA intends to issue the proposal as soon as they finish briefing stakeholders. We take that to mean a matter of days. There will be a 60-day comment period after which FINRA will analyze comments, revise the proposal, and transmit a final proposed rule to the SEC for review, where there will be an additional comment period. FINRA has not decided when will be the revised compliance deadline for the rule changes.
Please note that we gleaned these observations from an informal conversation. FINRA did not provide us any written materials. We will analyze the written rule proposal fully when it is released and provide a more fulsome description. As always, please call or write of you have any questions.