Financial Management

General Standards

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

 

Qualifications of Accountants

The SEC adopted amendments to update certain auditor independence requirements. These amendments are intended to focus the independence analysis more effectively on those relationships or services that are more likely to pose threats to an auditor’s objectivity and impartiality. The amendments became effective on June 9, 2021.

• SEC Release No. 33-10876 (October 16, 2020), 85 FR 80508 (December 11, 2020): Qualifications of Accountants (Final Rule)

 

Fund of Funds Arrangements

The SEC adopted a new rule under the Investment Company Act of 1940 to streamline and enhance the regulatory framework applicable to funds that invest in other funds (“fund of funds” arrangements). In connection with the new rule, the Commission rescinded rule 12d1-2 under the Act and certain exemptive relief that had been granted from sections 12(d)(1)(A), (B), (C), and (G) of the Act permitting certain fund of funds arrangements. Finally, the Commission adopted related amendments to rule 12d1-1 under the Act and to Form N-CEN. The rule became effective on January 19, 2021.

• SEC Release No. 33-10871 (October 7, 2020)85 FR 73924 (November 19, 2020): Fund of Funds Arrangements (Final Rule)

• SEC Press Release 2020-247 (October 7, 2020): SEC Updates Framework for Fund of Funds Arrangements

 


SEC Adopts Clearing Agency Rule to Limit Duplicative Regulation

The SEC adopted 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)

Liquidity Management

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 became effective on March 1, 2022. For members subject to the requirement, the first SLS were to be completed as of the end of March 2022 and due by May 4, 2022

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

 

Customer Order Handling, Margin and Liquidity

FINRA issued this Notice to remind member firms of their obligations to maintain appropriate margin requirements and effectively manage their liquidity, especially during periods of extreme market conditions.

• FINRA Regulatory Notice 21-12 (March 18, 2021): FINRA Reminds Member Firms of Their Obligations Regarding Customer Order Handling, Margin Requirements and Effective Liquidity Management Practices During Extreme Market Conditions

 

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

Credit Risk Management

Margin Interpretation Updates

FINRA Rule 4210 (Margin Requirements) specifies the margin requirements applicable to securities held in margin accounts, including both strategy-based margin accounts and portfolio margin accounts. FINRA maintains interpretations regarding FINRA Rule 4210, available on the Interpretations of FINRA’s Margin Rule webpage, in a portable digital format (PDF) document where the interpretations immediately follow the section of the rule to which they relate. This Notice clarifies and updates the interpretations regarding minimum equity requirements.

• FINRA Regulatory Notice 21-24 (July 6, 2021): FINRA Announces Updates to the Interpretations of FINRA’s Margin Rule Regarding Minimum Equity

 

Margin Interpretation Updates

FINRA Rule 4210 (Margin Requirements) specifies the margin requirements applicable to securities held in margin accounts, including both strategy-based margin accounts and portfolio margin accounts. FINRA maintains interpretations regarding FINRA Rule 4210, available on the Interpretations of FINRA’s Margin Rule webpage, in a portable digital format (PDF) document where the interpretations immediately follow the section of the rule to which they relate. This Notice clarifies and updates the interpretations regarding day trading.

• FINRA Regulatory Notice 21-13 (March 24, 2021): FINRA Announces Updates to the Interpretations of FINRA’s Margin Rule for Day Trading