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ARTICLE · 05 JUNE 2017

FINRA Expands Margin Rules For Mortgage-Backed Securities Transactions

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

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FINRA has introduced an expansion of Rule 4210 (the Rule), effective Dec. 15, 2017, importing margin concepts into the world of mortgage-backed transactions.

United StatesFinance and Banking
Fabien Carruzzo
Fabien Carruzzo
Daniel King
Daniel King
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FINRA has introduced an expansion of Rule 4210 (the Rule), effective Dec. 15, 2017, importing margin concepts into the world of mortgage-backed transactions.

The expansion is centered on mortgage-backed securities forward transactions and, barring narrow exceptions, requires broker-dealers to collect mark-to-market (variation) margin from almost all counterparties as well as maintenance (initial) margin from a large number of counterparties. The Rule also provides dealers with increased liquidation rights following a failure to post margin by the counterparty. This article gives a high-level overview of the covered transactions and of the counterparties covered by the two margin requirements and implications of the new liquidation rights.

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