FINRA Reminds Firms of Expanded Definition of "Ready Market" for Certain Foreign Equity Securities (FINRA Reg. Notice 16-13)

FINRA reminded member firms that a revision to an SEC staff no-action letter expanded the definition of "ready market" for certain foreign equity securities. The SEC staff clarified that the difference between its original November 2012 no-action letter and the revised February 2016 no-action letter was a modification of the text of footnote 5 in the November 2012 letter. The earlier text had stated: "The shares purchased by the computing broker-dealer during the preceding 29 business day period are to be excluded when determining the median trading volume." The new text reads: "Trading volume calculations must be based upon bona fide transactions."

According to FINRA, SEC staff made this revision based on the determination that footnote 5 (i) is not necessary to ensure that the liquidity of foreign equity securities is treated as having a "ready market" under the November 2012 letter, and (ii) creates operational burdens on computing broker-dealers.

FINRA emphasized the need for firms to be aware that options on foreign equity securities remain subject to the initial and maintenance margin requirements pursuant to FINRA Rule 4210(f)(2)(E)(iii).