In an effort to clarify the rules regarding security-based swaps (SBS), FINRA has adopted amendments to rules 0180, 4120, and 4220. FINRA had previously adopted temporary relief from the application of most FINRA rules to SBS (Rule 0180), in tandem with temporary exemptive orders issued by the SEC relating to the definition of SBS as securities, as well as an interim pilot program with respect to margin requirements for transactions in CDS held in an account at a member (Rule 4240). These rules expire on February 6, 2022, and April 6, 2022, respectively.
Amendments to Rule 0180
FINRA has adopted a new Rule 0180 (Application of Rules to Security-Based Swaps), which, along with conforming amendments to Rule 9610 (Procedures for Exemptions—Application), will become effective February 6, 2022. The new rule replaces the expiring temporary Rule 0180 and generally applies FINRA rules to members’ activities and positions with respect to SBS, with limited exceptions.
Amendments to Rule 4120
FINRA has amended its financial responsibility and operational rules, including Rule 4120 (Regulatory Notification and Business Curtailment), to conform to the Securities and Exchange Commission’s (SEC or Commission) SBS-related capital, margin, and segregation requirements. These amendments will also become effective February 6, 2022.
Amendments to Rule 4240
FINRA has adopted a new SBS-specific margin rule, Rule 4240 (Security-Based Swap Margin Requirements), which replaces the expiring interim pilot program establishing margin requirements for credit default swaps (CDS). The new margin rule, along with related amendments to Rules 4210 (Margin Requirements) and 4220 (Daily Record of Required Margin), will become effective April 6, 2022.
For more information on the new amendments to clarify the application of FINRA rules to security-based swaps, check out Regulatory Notice 22-03.
MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting for your firm’s compliance responsibilities. If there are any areas where you would like to explore additional assistance or services, please contact us.