FINRA Maintenance Margin Requirements Become Effective May 22, 2024

Amended FINRA Rule 4210 requires members to collect margin for each counterparty’s excess mark to market loss related to covered agency transactions, unless otherwise provided by the rule. Covered agency transactions include (1) To Be Announced transactions, inclusive of adjustable-rate mortgage transactions, (2) Specified Pool Transactions and (3) transactions in Collateralized Mortgage Obligations, issued in conformity with a program of an agency or Government-Sponsored Enterprise, with forward settlement dates. These maintenance margin requirement amendments take effect May 22, 2024.

The FINRA Rule 4210 amendments for covered agency transactions will also permit the option to take a capital charge in lieu of collecting margin for a counterparty’s excess net mark to market loss (to the extent it exceeds $250,000). This alleviates the competitive disadvantage that smaller firms face in obtaining margin agreements with counterparties, subject to certain conditions and limitations designed to help protect the financial stability of those members.

FINRA expects members to exercise appropriate diligence when understanding the extent of their risk and to craft their risk limit determinations accordingly when making risk limit determinations to advisory accounts. To this point, we highlight the following passage in paragraph (a) of Supplementary Material .03 to Rule 4210, which states, “If a member engages in transactions with advisory clients of a registered investment adviser, the member may elect to make the risk limit determination at the investment adviser level.”

We also note that FINRA has published extensive and helpful FAQs regarding the amendments to maintenance margin requirements, several of which address the relationship between members and investment advisers trading on behalf of their clients.

How we help

Broker-dealers have a number of obligations for FINRA, the SEC, and other regulators. ACA Signature can help.

ACA Signature is a scalable solution curated to suit your firm’s unique compliance needs. We combine compliance advisory, innovative technology, managed services, and cybersecurity to effectively address regulatory commitments and day-to-day responsibilities.

Reach out to your ACA consultant to learn how to establish and scale your GRC programs as your business evolves. Or contact us directly to learn how we help you launch, grow, and protect your firm. 

Contact us