SIFMA Expresses Concerns with FINRA's Proposed TBA Margin Requirements

SIFMA voiced "serious concerns" about "operational and practicability issues" in FINRA's proposal to amend FINRA Rule 4210 to adopt margin requirements for transactions in the "to-be-announced" ("TBA") market. "If these issues are not addressed," SIFMA cautioned, "it is likely that there will be a material reduction of participants, both buy- and sell-side, in the TBA market."

SIFMA emphasized support for FINRA's goal to "reduce credit exposures in the financial system." However, SIFMA expressed uncertainty as to whether the proposal will lessen credit exposure sufficiently to offset, inter alia, (i) the costs of implementing the proposal; (ii) the loss of credit that will be available for housing-related projects; (ii) the departure of broker-dealers from this market as a result of the proposal; and (iii) the loss of liquidity from the loss of investors using the products as a result of the proposal. SIFMA additionally provided a series of comments and suggestions for FINRA to modify the proposal.

A full list of the comment letters received by the SEC on the proposal is available here. The comment period on the proposal remains open until March 7, 2016 for interested parties to rebut comments already submitted.

Disclosure: Cadwalader represented SIFMA in the preparation of the comment letter referenced in this story.