BDA FINRA Rule 4210 Letter: Competitive Concerns, Compliance Questions, and a Proposed Amendment for FINRA’s Consideration

August 8, 2017, BDA submitted a letter to FINRA to respond to its request for interpretive and compliance questions related to the FINRA 4210 margin regime for mortgage securities.

BDA FINRA 4210 Letter Summary
  • First Good Settlement Date: The letter re-submits BDA’s proposed amendment to the rule, which would re-define “Covered Agency Transaction” to exclude TBA, CMO, and Specified Pool transactions that settle on the first good settlement date.
  • Rule Harms Competition: The letter urges FINRA and the SEC to urgently reconsider the rule in light of the competitive concerns raised by regional dealers. The letter points out that BDA firms will be harmed by the rule and business will migrate to non-broker-dealer financial institutions and the GSEs.
  • Market Consolidation: The letter includes tables that highlight the already concentrated nature of the TBA market, in which 10 firms control over 80% of the market based on par value transactions.  
  • List of Compliance Questions: The letter includes BDA’s list of compliance questions as discussed on the recent conference call. 
  • Delay not Good Enough: Finally, the letter states that while a delay is necessary, an amendment is the only solution for the competitive issues raised by BDA firms.