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FINRA 4210 Margin Requirements

Tonic’s FINRA 4210 regulatory services help our clients to accelerate and optimize their compliance, via our market-leading collateral, post-trade and transformation expertise.

Regulatory Overview

Key FINRA 4210 Margining Terms

· Effective Date - May 22, 2024

· Collateralised Trades  -  All Covered Agency Transactions (CAT) with any bilateral counterparties are subject to exemptions

   - To Be Announced ("TBA") including adjustable-rate mortgages which account for the vast majority of CAT transactions

   - Specified Pool Transactions

   - Collateralised Mortgage Obligations ("CMOs") are issued by GSE or Agency

· Margin Obligations: 

   - Daily margining, net MTM losses

   - Unsecured Threshold: $250,000, subject to counterparty type

   - Eligible collateral: US Cash

· Capital Charge in Lieu of Margin 

   - Members do not need to collect and instead can deduct the amount of the counterparty’s unmargined excess net mark to market loss from the member’s net capital subject to counterparty type

Key Challenges

Implementation of Margin Requirements for FINRA 4210 present a series of key challenges that will need to be addressed prior to go live on May 22, 2024.

Challenges will impact many aspects of the organisation and a co-ordinated approach is required to ensure that deadlines are met.

The table below outlines some of the key challenges:

Solution Considerations

Implementation of Margin Requirements for FINRA 4210 will require a coordinated effort across many aspects of the organisation.

Sophistication of TOM and supporting processes will be driven by clients’ business decisions to offer capital in lieu services.

We identify 7 x key elements that companies should consider when implementing FINRA 4210 plans.

Legal Documentation and Onboarding

Revise MSFTA Agreements supporting new language

Evaluate existing client amendments vs new client terms

Define onboarding strategy: negotiation, onboarding, and testing

Capital Charge in Lieu of Margin

Determine in-scope clients

Define amendments to capital calculations where margin is not called from non-margin clients

Implement monitoring program for clients subject to capital deductions limits and trigger events (risk reduction and liquidation)

Co-ordinate with operations' margin call requirements where capital deduction limits are exceeded

Written Risk Limits

Establish risk limit for each counterparty to cover all transactions

Update governance to ensure that new risk limit determinations are performed by credit risk officer/credit risk committee


Support new components of MTM calculation

Determine where MTM calculation will be performed

Upstream or within collateral application 

TBA calculation to leverage repo functionality

New Data Requirements 

Identify prices sources for dirty prices, pool factors

Identifying/tagging “non margin clients” to support capital in lieu

Escalation to FINRA

Establish reporting mechanism to FINRA  

Where net capital deductions > $25Mfor five BD's

Unmargined net mark to market losses, non-margin counterparties and related capital charges

Capital-Induced Trading Restrictions 

Define procedure where execution of risk reducing transactions is required where net capital conditions are met (where capital deductions exceed the lesser of $30 million or 25% for 5 BDs)

Formulate liquidation procedures for counterparties where MTM margin is not collected (based on capital conditions apply)

Tonic FINRA 4210 Health Check

Tonic suggests that in-scope firms should use FINRA 4210 as an opportunity to augment existing margining infrastructure in order to:

    Future-proof margining practices to meet current and future regulatory obligations

    Ensure operating model scalability to support long-term volumes growth and any future stress market scenarios

The Tonic FINRA 4210 Health Check leverages our deep collateral and transformation expertise to define and deliver regulatory-compliant, high-quality margining solutions. The objectives of the Health check are to:

    Provide assurance that margining practices are regulatory-compliant

    Highlight opportunities for operational efficiency and effectiveness of the collateral operating model

Tonic FINRA Implementation Services

At Tonic we suggest firms should quickly establish how FINRA 4210 impacts clients, legal entities, products and technology infrastructure including collateral, credit and trading systems. This is required to ensure:

    Future-proof margining infrastructure to meet current FINRA 4210 regulatory obligations

    Operating model scalability to support long-term volumes growth, future market volatility and stress events

TonicX Approach

   • For FINRA 4210, Tonic will leverage our TonicX transformation methodology, designed and iterated across a wide variety of Tonic transformation programs

   • TonicX provides a high-quality, structured approach to accelerate transformation, tailored per client to maximise execution success

   • We break out our TonicX transformation lifecycle into a flexible suite of modular services, with clear, agreed deliverables for each

Next Steps

Get in touch below if you would like an informal chat about how our service proposals can help your firm accelerate a high-quality FINRA 4210 implementation.

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