Amendment to FINRA RULE 4524: OBS Requirements

In April 2016, the Securities and Exchange Commission (SEC) approved a proposed amendment to FINRA Rule 4524 (Supplemental FOCUS Information). The approved amendment alters the instructions to the Derivatives and Other Off-Balance Sheet Items Schedule (OBS), expanding the application of the OBS to certain non-carrying or non-clearing firms with significant amounts of off-balance sheet obligations.

Newly filing firms were required to file their initial OBS disclosing off-balance sheet information on or before August 2, 2016. Carrying or clearing firms that were already subject to the OBS reporting requirements before the approved expansion will continue to file on a quarterly basis without interruption.

Per the newly expanded rule, unless subject to a de minimis exception, the Off Balance Sheet Items Schedule must be filed by:

  • All FINRA member firms that self-clear their proprietary transactions; clear transactions for others; or carry customer accounts
  • All other FINRA member firms that have – in agreement with SEA Rule 15c3-1 – a minimum-dollar net-capital requirement greater than or equal to $100,000 and at least $10 million in reportable items pursuant to the OBS

The purpose of the OBS is to capture important information that would otherwise not be reported on firms’ balance sheets. The OBS enables FINRA to monitor the potential impact that such off-balance sheet activities might have on the net capital, leverage, and liquidity of carrying or clearing firms. It also enables FINRA to better assess such firms’ ability to fulfil their customer protection obligations. FINRA is amending Rule 4524 to expand past carrying or clearing firms to include non-clearing firms with significant off-balance sheet obligations. This expansion will help ensure that all firms with significant derivative and off-balance sheet positions report these positions to FINRA regularly and consistently.

As mentioned above, the amended instructions to the OBS preserve the de minimis exception for any firm conducting limited off-balance sheet activity during a reporting period. A firm is not required to file the OBS for a reporting period if the aggregate of all gross amounts of off-balance sheet items is less than ten percent of the firm’s net capital on the last day of said reporting period. If a firm claims the de minimis exception, they must convey so by using the eFOCUS system. The firm must affirmatively indicate that no filing is required for the reporting period by choosing the “NOT FILE” option on the submission.

Firms required to file the OBS must do so as of the last day of a reporting period – within 22 business days of the end of each calendar quarter. For more information about reporting on the OBS, please see FINRA’s FAQ, in which FINRA clarifies the inclusion or exclusion of certain line-items.

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