Revised Standard-Form Forward Transaction Agreement and Related SIFMA Statement (with Lofchie Comment)

SIFMA issued a revised version of its standard Master Securities Forward Transaction Agreement ("MSFTA"), along with an accompanying explanatory statement. As noted in the statement, the most substantial revision to the agreement is that it provides for margining by both parties.

Lofchie Comment: Regulated broker-dealers must consider how the FINRA margin regulations apply to forward transactions as well as the capital treatment of such transactions. Historically, there has been uncertainty as to whether or not the counterparty to a forward transaction with a broker-dealer is a "customer" for purposes of the broker-dealer insolvency rules. The judge presiding over the SIPA insolvency of Lehman decided that forward counterparties under an MSFTA are not customers. Accordingly, each party to an MSFTA must be mindful of how it will be treated in the bankruptcy of its counterparty; under the Lehman decision, it will be treated as a counterparty and not as a customer.

View SIFMA statement in full here (links externally to SIFMA website).See also: MSFTA Agreement.