Originally published March 6, 2008
Effective today, March 6, 2008, FINRA is requiring all member firms to increase the margin they collect from customers with investments in auction rate securities that are backed by fixed income products such as municipal bonds and collateralized debt obligations. FINRA is also telling its members that they should revisit how these types of securities are described on customer statements and member Web sites.
This action is the result of problems in the credit markets. Member firms that have customers holding fixed income auction rate securities have asked FINRA if the securities are marginable, which would enable the member firm to provide some liquidity to customers. In Regulatory Notice 08-08, issued last night, FINRA tells its members that certain types of fixed income auction rate securities are marginable; other types are not marginable; and beginning today, margin collected by member firms on marginable auction rate securities must increase to 25 percent of the current market value of the security. The Notice also reminds members that auction rate preferred securities issued by closed-end funds are not marginable.
The Notice cautions members that they "should give careful consideration to the classification of these securities on customer statements as cash or cash equivalents. Firms are also encouraged to review any references and characterization of these securities on the firm's Web site as short-term securities."
For the full text of the FINRA Regulatory Notice, please click here.
© 2008 Sutherland Asbill & Brennan LLP. All Rights Reserved.
This article is for informational purposes and is not intended to constitute legal advice.
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