In comments on FINRA's proposed amendments to rules governing margin on "To Be Announced" ("TBAs") and other "Covered Agency Transactions" ("CATS"), SIFMA, SIFMA's Asset Management Group ("SIFMA AMG") and the Bond Dealers of America ("BDA") addressed the cost, competitive impact and implementation timing of the proposal.
FINRA's proposal would amend requirements approved, but not yet implemented, under SR-FINRA-2015-036 ("Proposed Rule Change to Amend FINRA Rule 4210 (Margin Requirements) to Establish Margin Requirements for the TBA Market").
Comments on the proposal included:
- Timing. FINRA stated in the proposal that the proposed rule changes would be effective no later than 120 days following the issuance of a Regulatory Notice. All three groups stated that this short time frame would create major hurdles for their members. SIFMA, SIFMA AMG and BDA all stressed the need to implement new technology and renegotiate agreements to conform to the new legal requirements.
- Technical Changes. The trade groups raised a number of questions about technical terms of the new proposal, including the usage of a $250,000 allowance before margin must be collected, and the new capital charge provisions under the rules.
- Competitive Impact on Smaller FINRA-Member Broker-Dealers. SIFMA and BDA noted that many mid-size and smaller firms would be significantly affected by the proposed rules. In particular, customers may not want to post margin to small or mid-size broker-dealers because they would be able to instead transact with banks that do not have margin collection requirements. BDA stated that this proposal would further widen a gap between mid-size and larger firms that could result in mid-size firms exiting the CAT business entirely.
(Note: Cadwalader represented SIFMA in the drafting of its comment letter.)
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