The U.S. Securities and Exchange Commission (SEC) approved FINRA’s proposed amendments (Amendments) to Rule 4210 on July 27, 2023.

In summary, the Amendments amend Rule 4210 in the following respects:

  • Eliminate the 2% maintenance margin for nonexempt accounts.
  • Permit dealers to take a capital charge in lieu collecting margin from accounts for net mark-to-market losses provided that the dealer’s net capital deductions for all accounts combined cannot exceed $25 million.
  • Make certain clarifying and conforming changes to Rule 4210.

Our Take

The elimination of the 2% maintenance margin (roughly equivalent to initial margin) will streamline the Master Securities Forward Transaction Agreement (MSFTA) negotiation process as asset managers do not need to go through the headache of classifying each of their accounts as “exempt” or “nonexempt” and monitoring such classifications. Additionally, these designations, along with the 2% maintenance margin, no longer need to be baked into your MSFTA. It is also helpful that the Amendments reaffirm the $250,000 minimum transfer amount that most market participants have embedded into their MSFTAs.

The effective date of the Amendments is May 22, 2024. The Financial Industry Regulatory Authority (FINRA) noted that “Prior to the May 23, 2024, effective date, FINRA will engage with market participants to make available updated guidance as appropriate.” Amended Rule 4210 can be accessed here. The FINRA notice can be accessed here.