FINRA recently submitted a filing with the SEC that will effectively delay the mandatory margining of TBAs pursuant to FINRA Rule 4210 until October 26, 2021.   In that filing, FINRA indicated that it is considering whether there should be additional revisions to FINRA Rule 4210 (i.e., beyond those that are now scheduled to go into effect on October 26th).

Notwithstanding this delay and potential for additional rule revisions, many buy-side market participants are finalizing their negotiation of Master Securities Forward Transaction Agreements (MSFTAs) with broker-dealers.  These agreements often include provisions that defer the exchange of margin until such time as FINRA finalizes its rules.

This approach to negotiation mitigates counterparty risk in so far as it provides the buy-side firm with the benefits of events of default and established close-out and netting procedures if a broker-dealer becomes insolvent or defaults under the MSFTA for other reasons.  (At the risk of stating the obvious, asset managers that take such an approach can only do so if their client agreements do not require the margining of TBAs.)

A previous post, with a link to another post, on this regulatory saga is available here.

Good day.  Good delay(s)…we ask again? DR2