On June 12, 2023, FINRA published Regulatory Notice 23-11,[*1]
soliciting comments on proposed Rule 4610 concerning liquidity risk management
requirements. Rule 4610 would require covered members—those with the “largest
customer and counterparty exposures”—to “have and maintain sufficient liquidity
on a current basis” at all times. The purpose of Rule 4610 is to “ensure that
members have sufficient liquid assets to meet their funding needs in both normal
and stressed conditions.”
Rule 4610 would apply to three groups of FINRA members: (1) members carrying “$25 million or more in
free credit balances … as reported on the member’s most recently filed FOCUS
report”; (2) members that carry customer accounts on behalf of other broker-dealers
on an “omnibus or fully disclosed basis”; and (3) members “whose aggregate
amount outstanding under repurchase agreements, securities loans contracts and
bank loans is equal to or greater than $1 billion, as reported on the member’s
most recently filed FOCUS report.”
Rule 4610 would require each covered member to establish a
liquidity risk management program (“LRMP”). A covered member’s LRMP must conduct
a liquidity stress test (“LST”) at least every 30 days. The LST must “clearly
indicate whether the firm projects a liquidity shortfall at any point over”
period covered by the LST. Additionally, members much design a written
contingency funding plan (“CFP”) for liquidity stress situations. A member’s
CFP must both “designate responsibilities and identify guidelines and
conditions for its activation.”
FINA would have the authority under Rule 4610 to take action
against members with insufficient liquidity, up to and including restricting or
suspending business for noncompliant members. Comments on Regulatory Notice 23-11
must be received by August 11, 2023.
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[*1] Regulatory Notice 23-11 | FINRA.org
