FINRA Proposes Extension of CDS Margining Program | Practical Law

FINRA Proposes Extension of CDS Margining Program | Practical Law

FINRA proposed an amendment to FINRA Rule 4240 that would extend until July 18, 2017 an interim pilot program imposing margin requirements on member credit default swaps that are security-based swaps (SBS).

FINRA Proposes Extension of CDS Margining Program

Practical Law Legal Update w-002-7330 (Approx. 3 pages)

FINRA Proposes Extension of CDS Margining Program

by Practical Law Finance
Published on 05 Jul 2016 • USA (National/Federal)
FINRA proposed an amendment to FINRA Rule 4240 that would extend until July 18, 2017 an interim pilot program imposing margin requirements on member credit default swaps that are security-based swaps (SBS).
On June 15, 2016, FINRA proposed and filed with the SEC a rule change that would amend FINRA Rule 4240 (Margin Requirements for Credit Default Swaps). FINRA Rule 4240 establishes an interim pilot program imposing margin requirements on any credit default swaps (CDS) transactions that are security-based swaps (SBS) held in FINRA member accounts (see Legal Update, FINRA Implements Interim Pilot Program Establishing Margin Requirements for Certain Transactions in Credit Default Swaps).
The proposed rule change would extend the pilot program from July 18, 2016 to July 18, 2017.
The pilot program establishes margin requirements for:
  • CDS clearing facilities that use FINRA-approved margin methodologies.
  • CDS clearing facilities that use unapproved margin methodologies.
  • CDS subject to CDS portfolio margining (for details on portfolio margining, see Regulators Permit CDS Portfolio Margining).
FINRA Rule 4240 also imposes CDS risk monitoring procedures and guidelines for its members. For purposes of the pilot program, CDS transactions include any product that is commonly known to the trade as a credit default swap and which is also a SBS.
FINRA proposes to extend the pilot program for another year to allow for the CFTC and SEC to finish developing rules that govern CDS under Title VII of the Dodd-Frank Act. The proposed rule change will be effective upon filing with the SEC, and will become operative on July 18, 2016. Public comment on the extension may be submitted for 21 days after publication in the Federal Register.