SIFMA recently submitted another comment letter to FINRA’s proposal to amend FINRA Rule 4210, which would establish margin requirements for transactions in the To Be Announced (“TBA”) market. These transactions would include TBA transactions (including adjustable rate mortgage transactions), defined “Pool Transactions” and collateralized mortgage obligations (“CMOs”). FINRA initially proposed the amendment to FINRA Rule 4210 in 2014, but later amended its proposal in 2015 and again in 2016. In its initial proposal, FINRA noted that most trading of agency mortgage-backed securities (‘MBS”) takes place in the TBA Market and that agency MBS is one of the largest fixed income markets, with $5 trillion of securities outstanding and approximately $750 billion to $1.5 trillion in gross unsettled and unmargined dealer to customer transactions.
In the most recent comment letter submitted by SIFMA on the proposed rule (May 2016), SIFMA generally supports FINRA’s goal of addressing counterparty credit risk and systemic risk faced by broker-dealers in the TBA market, but disagrees with the requirements that FINRA has proposed to achieve its goal. In addition, SIFMA asserts that there are methods which would be less costly and less likely to drive market participants away from the market. SIFMA notes that the proposal would require, “TBA transactions to be margined in a manner that is dissimilar from, and more difficult to implement than, the margining of other comparable financial transactions.” SIFMA also emphasizes that, “It is clear from FINRA’s latest response that there continues to be a basic disagreement between FINRA and the industry as to the cost and difficulties of the Proposal.”
FINRA’s proposed rule remains under consideration.