SIFMA submitted recommendations to FINRA in response to a request for comments on proposed notification requirements for broker-dealers experiencing changes in liquidity and funding (as described in FINRA Regulatory Notice 18-02).
SIFMA argued that the notification requirements had, as a practical matter, the effect of imposing substantive liquidity requirements on broker-dealers in the absence of an actual FINRA or SEC rule expressly doing so. Further, SIFMA argued, the provisions requiring firms to provide FINRA notice on the occurrence of certain events were not well constructed and would force firms to provide numerous notices in response to routine business events. SIFMA argued that many retail firms might be required to provide a notice to FINRA each week on the day that they swept client cash in securities accounts into money market funds.
SIFMA suggested that the goals of FINRA's proposal would be better served by allowing firms the option to use liquidity models that are firm-specific and holistic rather than using the one-size-fits-all approach set out in the notice. SIFMA made several recommendations that would require firms to provide notices to FINRA only in instances of real stress. SIFMA encouraged FINRA to ensure the confidentiality of information contained in notifications, emphasizing the real risks that could occur as a result of a firm's customers or counterparties believing that any submission of a notice to FINRA by the firm indicated that the firm was under stress and in financial danger. Lastly, SIFMA provided detailed comments on clarifications and revisions that should be made to FINRA's proposed Supplemental Liquidity Schedule, a monthly report on liquidity that firms would be required to provide to FINRA.
Steven Lofchie of Cadwalader assisted in the drafting of the letter.
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