A new FOCUS reporting requirement designed to enhance FINRA's ongoing monitoring of members' financial condition will take effect for the new year. Beginning January 2015, broker-dealers will be required to include with their FOCUS filings a Supplemental Inventory Schedule ("SIS") that provides more detailed information about the firm's long and short inventory positions than is currently disclosed on the FOCUS Report. Firms with a minimum dollar net capital requirement of less than $100,000 will be exempt from the new reporting requirement. Firms with inventory positions consisting solely of money market mutual funds at the end of a reporting period need not file a SIS for that reporting period.
Currently, FOCUS Report Part II, or Part IIA, as applicable, requires aggregate information only with respect to short inventory positions. Long inventory is reported in categories that aggregate securities with different market risk profiles, thus making it difficult for regulators to accurately assess the market risk associated with such holdings. The SIS requires that securities and commodities positions, both long and short, be itemized by type, thus providing greater transparency into the market risk posed by instruments held in inventory, the potential impact to the firm's net capital and related funding and liquidity needs. The information also will enable the FINRA staff to perform more targeted examinations of firms' market risk exposure.
Firms subject to the SIS filing requirement should work now to assure that they capture the requisite information and accurately map inventory positions to the corresponding line items on the SIS. The initial SIS must disclose inventory positions as of December 31, 2014.