FINRA proposed to delay, from March 25, 2020, to March 25, 2021, the implementation date of rule amendments on margin requirements for Covered Agency Transactions (which includes "to-be-announced" ("TBA") transactions and other forward-settling agency securities transactions). The implementation date of the amendments to the margin requirements for TBA transactions previously had been delayed in light of operational and other difficulties (see previous coverage).
FINRA emphasized that risk limit determination requirements relating to Covered Agency Transactions continue to be in effect. FINRA also indicated that it is considering, in consultation with other regulators and industry participants, potential amendments to the margin collection requirements "in the interest of avoiding unnecessary disruption to the Covered Agency Transaction market."
Commentary Steven Lofchie
Both regulators and industry participants underestimated the difficulty of adopting these rule amendments, both from an operational standpoint and from the standpoint of disrupting ordinary course business expectations and arrangements. The difficulties of coming into compliance with the rule also had the likely side effect of driving a good number of smaller or medium-sized firms out of the TBA business.
A mistake in the original implementation plan was that the TBA margin rules were not operationally consistent with the cash-market margin rules. That created numerous mechanical problems. The regulators might want to step back and start from square one.
The SEC now has adopted its security-based swap margin rules. The TBA rules are more similar to the newly-adopted (but not yet effective) security-based swaps margin rules than they are to the cash market margin rules. (In fact, lessons learned from the TBA proposals impacted the final SBS margin requirements fairly significantly.) FINRA should conform the TBA rules as closely as is reasonable to the SBS margin rules, so that firms can struggle with the implementation of just two sets of margin requirements for securities transactions (cash market and SBS/TBA) rather than with three wholly distinct sets of margin requirements (i.e., cash market, SBS and TBA).
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