An overview of the FINRA Rule 4210 margin amendments

Purpose To summarize for registered broker-dealers and their customers upcoming margin requirements for “to-be-announced” (TBA) transactions on mortgage-backed securities pursuant to recently-amended FINRA Rule 4210. Design/methodology/approach This article explains the various margin requirements that are expected to come into effect on June 25, 2018. A chart summarizing the applicability of margin requirements for various types of accounts is also provided. Additionally, the article addresses practical steps to bring Master Securities Forward Transaction Agreements (“MSFTAs”) governing relevant transactions into compliance with the amended rules. Findings The compliance date for margining under FINRA Rule 4210 is approaching. Broker-dealers will be required to collect (but not post) daily variation margin and, depending on the type of account, maintenance margin, from their customers on specified transactions. Broker-dealers should become familiar with the relevant requirements in order to amend (or enter into new) MSFTAs by the deadline. Customers also should become familiar with, and consider the implications of, these margin requirements. Originality/value Concisely summarizes and explains the key requirements and provides practical guidance regarding compliance from experienced derivatives attorneys.