Updated: FINRA Proposes Further Extension of CDS Margining Pilot Program | Practical Law

Updated: FINRA Proposes Further Extension of CDS Margining Pilot Program | Practical Law

FINRA proposed an amendment to FINRA Rule 4240 that would extend until July 18, 2018 an interim pilot program imposing margin requirements on credit default swap (CDS) transactions that are security-based swaps (SBS) held in FINRA member accounts.

Updated: FINRA Proposes Further Extension of CDS Margining Pilot Program

Practical Law Legal Update w-008-8493 (Approx. 3 pages)

Updated: FINRA Proposes Further Extension of CDS Margining Pilot Program

by Practical Law Finance
Published on 08 Jun 2020 • USA (National/Federal)
FINRA proposed an amendment to FINRA Rule 4240 that would extend until July 18, 2018 an interim pilot program imposing margin requirements on credit default swap (CDS) transactions that are security-based swaps (SBS) held in FINRA member accounts.
On June 14, 2017, FINRA filed a proposed amendment with the SEC to extend the implementation of FINRA Rule 4240 until July 18, 2018. FINRA Rule 4240 establishes an interim pilot program imposing margin requirements on member credit default swap (CDS) transactions that are security-based swaps (SBS) (see Legal Update, FINRA Implements Interim Pilot Program Establishing Margin Requirements for Certain Transactions in Credit Default Swaps).
Update: On June 2, 2020, FINRA announced its intention to extend the implementation of FINRA Rule 4240 to September 1, 2021.
The pilot program establishes margin requirements for:
  • CDS cleared through clearing facilities that use FINRA-approved margin methodologies.
  • CDS cleared through clearing facilities that use unapproved margin methodologies or that settle over-the-counter (OTC).
  • CDS that are subject to CDS portfolio margining.
The pilot program also establishes risk monitoring procedures and guidelines for members.
The pilot program was approved in May 2009 in an effort to address concerns of systemic risk due to the lack of a central clearing counterparty (CCP), or clearinghouse, for CDS. Implementation of the program was previously extended until July 18, 2017 (see Legal Update, FINRA Proposes Extension of CDS Margining Program). The June 2017 amendment extended the program another year to allow for the consideration of additional amendments to the pilot program in light of ongoing CDS regulatory developments.
Comments may be submitted on the SEC's website and must be submitted within 21 days of publication in the Federal Register.