Grace Vogel

PwC explains New Margin Rule for Broker-Dealers in To-Be-Announced Transactions

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On August 15, the Financial Industry Regulatory Authority (FINRA) issued a regulatory notice adopting a requirement that U.S. registered broker-dealers collect margin on To-Be-Announced (TBA) transactions (FINRA Rule 4210).[1] FINRA’s action follows the Securities and Exchange Commission’s approval of FINRA’s earlier proposal[2] which was amended several times.

TBA transactions serve as a significant funding and hedging vehicle for consumer mortgage originations and provide liquidity in the secondary market for mortgage loans. These products have over $184 billion in average daily trading volume, second only to U.S. Treasuries, and have historically not been subject to margin requirements. The Rule … Read more

PwC explains why Broker-Dealers Should Lock in Liquidity

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The credit crisis of 2008 highlighted the criticality of effective liquidity management and demonstrated the difficulties broker-dealers face without adequate funding sources. In response, the Financial Industry Regulatory Authority (“FINRA”) has been taking steps to impose new requirements that will impact many broker-dealers, especially those that hold inventory positions or that clear and carry customer transactions.

Following up on guidance issued in November of 2010, FINRA last month issued new liquidity risk management guidance after a year-long liquidity review of 43 member firms under a stressed environment.

While the guidance was issued as a FINRA notice and therefore lacks the … Read more

PwC discusses Cyber-security: Think Risk Not IT

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Despite millions of dollars spent on enhancements, cybersecurity remains the area of risk management with the largest gap between threat and preparedness. As the frequency and sophistication of cyber attacks have increased significantly in recent years, counter measures have failed to keep pace.

This gap is especially important for financial institutions, which by our estimate are over 30% more likely to be targeted by cyber crime. While the biggest banks have been dealing with cyber threats for years, they and their smaller peers are largely responding to threats reactively. More specifically, banks continue to address past issues rather than responding … Read more

PwC discusses FINRA’s Proposed Margin Rule on TBA Transactions

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With over $186 billion in average daily trading volume, the To-Be-Announced (“TBA”) market serves as a significant funding and hedging vehicle for consumer mortgage origination. Although a large portion of the TBA market is comprised of highly liquid agency MBS, the exchange of margin has not typically been required. Without the backstop of collateral, another financial crisis could spell significant turmoil for investors.

Given the TBA market’s significance to lenders, in an effort to address counterparty risk, FINRA issued its long-awaited proposed margin rule requiring margin on TBA transactions for the first time (FINRA Rule 4210).

After its release in … Read more