FINRA Regulatory Notice 21-31: Supplemental Liquidity Schedule

FINRA’s New Supplemental Liquidity Schedule Key Points

Proper monitoring of funding and liquidity risks presents a crucial element of a carrying broker-dealer’s financial responsibility and remains an ongoing focus of FINRA’s financial supervision programs.

Thus, the SLS is devised to enhance FINRA’s monitoring capacities for any potential adverse changes in the liquidity risk of subject members, including the following:

• Reverse repurchase and repurchase agreements;

• Securities borrowed and securities loaned;

• Non-cash reverse repurchase and securities borrowed transactions;

• Non-cash repurchase and securities loaned transactions;

• Bank loan and other committed and uncommitted credit facilities;

• Total available collateral in the member’s custody;

• Margin and non-purpose loans;

• Collateral securing margin loans;

• Deposits at clearing organizations; and

• Cash and securities received and delivered on derivative transactions not cleared through a central clearing counterparty.

The SEC and FINRA have stated that this implementation will allow for an adequate assessment of the ability of broker-dealers to continue funding their operations and meeting their financial obligations.

Furthermore, the SEC believes that: “regular and ongoing access to such information is important for the purpose of understanding the liquidity risks that member firms face, as well as differences in liquidity risks among firms that otherwise may appear to be similar based on similar characteristics in the firms’ balance sheets.”

The SEC underlines that the new SLS will provide information that is crucial to investors and public interest protection. The Commission believes that the new SLS will allow for a higher degree of anticipation of risk, and quicker responses to it, especially during stressful events that could endanger the ability of members to adequately fund their operations.