The Financial Industry Regulatory Authority (FINRA) is requesting comment on proposed amendments to Rule 4210 (Margin Requirements) that seek to clarify current interpretations related to extended settlement transactions. Rule 4210 generally requires firms to collect margin when they extend credit to their customers, and extensions of credit covered by the rule include transactions in which member firms permit customers to make partial or delayed payment on securities purchases (or partial or delayed delivery of securities sold). FINRA examinations have revealed some uncertainty in firms’ understanding about what constitutes delayed payment or delivery for purposes of the margin rules. Therefore, FINRA has proposed to refine the definition of “extended settlement transaction” to resolve any uncertainty related to these rules.
In addition, FINRA has proposed to add a new paragraph (f)(3)(C) to Rule 4210 requiring all extended settlement transactions (or net positions resulting from extended settlement transactions) to be margined as though they were in margin accounts, with a few limited exceptions, including, but not limited to, covered agency transactions and certain refunding transactions.
FINRA requests comment on all aspects of the proposal. Specifically, FINRA requests comment concerning (1) whether there are other ways in which FINRA applies Rule 4210 to extended settlement transactions, including impacts to the member firm operations and processes it uses, that should be modified, (2) whether Rule 4210 should also expressly address extended settlement transactions by broker-dealers for customers in non-securities, and (3) whether there are any material economic impacts, including costs and benefits to investors and firms, particularly smaller firms, that are associated specifically with the proposal.
The comment period expires on May 14.