Finally Finally! FINRA Finalizes Amendments to Covered Agency Transaction Requirements Under FINRA's Margin Rule 4210

After seven years of extending the implementation date of the original rulemaking adopted in 2016 for Covered Agency Transactions, the SEC approved FINRA's amendments on July 27, 2023, and the amendments will become effective on May 22, 2024.

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.

In summary, the amendments include three main changes. The amendments:

• eliminate the two percent maintenance margin requirement that the original rulemaking applies to Covered Agency Transactions by non-exempt accounts. This eliminates the need for broker-dealers to distinguish exempt account customers from other customers for purposes of Covered Agency Transaction margin. As such, without regard to a counterparty’s exempt or non-exempt account status, broker-dealers will collect margin for each counterparty’s excess mark-to-market loss;
• permit broker-dealers, subject to specified conditions and limitations, to take a capital charge in lieu of collecting margin for excess net mark-to-market losses on Covered Agency Transactions; and
• make revisions designed to streamline, consolidate and clarify the Covered Agency Transaction rule language. 

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