FINANCIAL AND OPERATIONAL RULES

General

(NEW) Security-Based Swaps

FINRA has adopted amendments to its rules to clarify the application of FINRA rules to security-based swaps (SBS):

  • FINRA has adopted a new Rule 0180 (Application of Rules to Security-Based Swaps), which, along with conforming amendments to Rule 9610 (Procedures for Exemptions—Application), will become effective February 6, 2022. The new rule replaces the expiring temporary Rule 0180 and generally applies FINRA rules to members’ activities and positions with respect to SBS, with limited exceptions.
  • FINRA has amended its financial responsibility and operational rules, including Rule 4120 (Regulatory Notification and Business Curtailment), to conform to the Securities and Exchange Commission’s (SEC or Commission) SBS-related capital, margin and segregation requirements. These amendments will also become effective February 6, 2022.
  • FINRA has adopted a new SBS-specific margin rule, Rule 4240 (Security-Based Swap Margin Requirements), which replaces the expiring interim pilot program establishing margin requirements for credit default swaps (CDS). The new margin rule, along with related amendments to Rules 4210 (Margin Requirements) and 4220 (Daily Record of Required Margin), will become effective April 6, 2022.

Effective Dates: February 6, 2022 (Rules 0180, 4120 and 9610) and April 6, 2022 (Rules 4210, 4220 and 4240)

FINRA Regulatory Notice 22-03 (January 20, 2022): FINRA Adopts Amendments to Clarify the Application of FINRA Rules to Security-Based Swaps

 

(NEW) SEC Financial Responsibility Rules

FINRA is updating the imbedded text of Securities Exchange Act (SEA) financial responsibility rules in the Interpretations of Financial and Operational Rules to reflect the effectiveness of amendments the SEC adopted. The updated imbedded text relates to SEA Rules 15c3-1, 15c3-1a, 15c3-1b, 15c3-1d, 15c3-1e, 15c3-3, 15Fi-1 through 15Fi-5, 17a-3, 17a-4, 17a-5, 17a-11 and 18a-3. FINRA is also making available related updates of the Interpretations of Financial and Operational Rules that have been communicated to FINRA by the staff of the SEC’s Division of Trading and Markets. The updated interpretations relate to SEA Rules 15c3-1, 17a-3, 17a-4 and 17a-5.

FINRA Regulatory Notice 21-45 (December 28, 2021): FINRA Announces Update of the Interpretations of Financial and Operational Rules

 

Supplemental Liquidity Schedule

FINRA has established a new Supplemental Liquidity Schedule (SLS). The new SLS, which members subject to the requirement will need to file as a supplement to the FOCUS Report, is designed to improve FINRA’s ability to monitor for events that signal an adverse change in the liquidity risk of the members with the largest customer and counterparty exposures. FINRA is issuing this Notice to provide further information on the new requirement, which will become effective on March 1, 2022. For members subject to the requirement, the first SLS must be completed as of the end of March 2022 and will be due by May 4, 2022

FINRA Regulatory Notice 21-31 (September 3, 2021): FINRA Establishes New Supplemental Liquidity Schedule (SLS)

 

Vendor Management and Outsourcing

Member firms are increasingly using third-party vendors to perform a wide range of core business and regulatory oversight functions. FINRA is publishing this Notice to remind member firms of their obligation to establish and maintain a supervisory system, including written supervisory procedures (WSPs), for any activities or functions performed by third-party vendors, including any sub-vendors (collectively, Vendors) that are reasonably designed to achieve compliance with applicable securities laws and regulations and with applicable FINRA rules. This Notice reiterates applicable regulatory obligations, summarizes recent trends in examination findings, observations and disciplinary actions; and provides questions member firms may consider when evaluating their systems, procedures and controls relating to Vendor management.

FINRA Regulatory Notice 21-29 (August 13, 2021): FINRA Reminds Firms of their Supervisory Obligations Related to Outsourcing to Third-Party Vendors

SEC Financial Responsibility Rules

FINRA is making available updates to interpretations in the Interpretations of Financial and Operational Rules that have been communicated to FINRA by the staff of the SEC’s Division of Trading and Markets. The updated interpretations are with respect to Securities Exchange Act (SEA) Rules 15c3-1 and 15c3-3.

FINRA Regulatory Notice 21-27 (July 22, 2021): FINRA Announces Update of the Interpretations of Financial and Operational Rules

 

SEC Adopts Clearing Agency Rule to Limit Potential for Overlapping or Duplicative Regulation

The SEC is adopting a rule pursuant to Section 36 of the Securities Exchange Act of 1934 (“Exchange Act”) to exempt from the definition of “clearing agency” in Section 3(a)(23) of the Exchange Act certain activities of a registered security-based swap dealer, a registered security-based swap execution facility, and a person engaging in dealing activity in security-based swaps that is eligible for an exception from registration as a security-based swap dealer because the quantity of dealing activity is de minimis.

SEC Release No. 34-90667 (December 16, 2020), 86 FR 7637 (February 1, 2021): Exemption from the Definition of “Clearing Agency” for Certain Activities of Security-Based Swap Dealers and Security Based Swap Execution Facilities (Final Rule)

 

Amendments to Financial Disclosures about Acquired and Disposed Businesses

The SEC adopted amendments to its rules and forms to improve their application, assist registrants in making more meaningful determinations of whether a subsidiary or an acquired or disposed business is significant, and to improve the disclosure requirements for financial statements relating to acquisitions and dispositions of businesses, including real estate operations and investment companies. The changes are intended to improve for investors the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure.The final rules become effective on January 1, 2021

SEC Release No. 33-10786 (May 20, 2020)85 FR 54002 (August 31, 2020): Amendments to Financial Disclosures about Acquired and Disposed Businesses (Final Rule)