FINRA Requests Comment on Liquidity Risk Management Rule Concept Proposal | Practical Law

FINRA Requests Comment on Liquidity Risk Management Rule Concept Proposal | Practical Law

FINRA issued Regulatory Notice 23-11 to seek comment on a concept proposal to establish liquidity risk management requirements under a new Rule 4610.

FINRA Requests Comment on Liquidity Risk Management Rule Concept Proposal

Practical Law Legal Update w-039-7918 (Approx. 3 pages)

FINRA Requests Comment on Liquidity Risk Management Rule Concept Proposal

by Practical Law Corporate and Securities
Published on 14 Jun 2023USA (National/Federal)
FINRA issued Regulatory Notice 23-11 to seek comment on a concept proposal to establish liquidity risk management requirements under a new Rule 4610.
On June 12, 2023, FINRA issued Regulatory Notice 23-11 to seek comment on a concept proposal to establish liquidity risk management requirements under a new Rule 4610.
Broker-dealers are currently required to comply with several rules designed to protect customers from losses if the broker-dealer fails, such as the SEC's Net Capital Rule and Customer Protection Rule. However, FINRA is concerned that these and other existing rules do not adequately address liquidity risk management issues. While FINRA notes that many firms already invest considerable time and resources into managing their liquidity risk, it has also observed instances in which member firms did not have sufficient liquidity risk management practices. Thus, FINRA is seeking comment on a concept proposal that would establish liquidity risk management requirements under a new Rule 4610.
Rule 4610 would generally apply to members with the largest customer and counterparty exposure, that is:
Rule 4610 would require such members to maintain sufficient liquidity on a current basis at all times, and specify certain conditions that the occurrence of, subject to limited exceptions, would result in a presumption of insufficient liquidity. A process for members to notify FINRA of the condition's occurrence and present evidence to rebut the presumption of insufficient liquidity would also be established under Rule 4610. Factors presented by members to rebut a presumption of insufficient liquidity would be evaluated considering the member's specific business activities and in conjunction with relevant facts and circumstances at the time the condition occurs. If the member is unable to rebut the presumption and corrective action is not taken, FINRA may restrict or suspend the member's business.
Comments on the concept proposal are due by August 11, 2023.