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ICYMI: Cotton Questions Fed Vice Chair on Fairness of FINRA Rule 4210

Written by Press Release

April 19, 2018

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FOR IMMEDIATE RELEASE Contact: Caroline Tabler<mailto:[email protected]> or James Arnold<mailto:[email protected]> (202) 224-2353 April 19, 2018
ICYMI: Cotton Questions Fed Vice Chair on Fairness of FINRA Rule 4210
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Click Here to Watch
Washington, D.C. — Senator Tom Cotton (R-Arkansas) today questioned Randy Quarles, the Vice Chairman for Supervision for the Federal Reserve, about the Financial Industry Regulatory Agency (FINRA) Rule 4210 and whether it was creating an unfair advantage for bank-affiliated broker dealers. Click here to watch their exchange in full. In addition, an excerpt of the Q&A can be found below.
Senator Cotton: Thank you, Mr. Quarles, for your appearance here today. I want to speak to you about FINRA Rule 4210. Two years ago, I sent a letter to the SEC expressing concern about this rule which established margin requirements on to-be-announced securities such as mortgage-backed bonds. The key problem here is that Rule 4210 applies to broker dealers but not to banks. Thus, broker dealers can use their banking arm to evade the requirement, which can create an unfair and uneven playing field. Earlier this week, Federal Reserve staff confirmed with my advisor that this is a potential inequity and I would say that there are Arkansas firms that will simply exit the market if this uneven playing field comes to pass. Do you share my concern about this matter?
Vice Chairman Quarles: So, I would say that certainly as a general principle a level playing field is important, you know, and that’s across a range of issues—whether its banks and broker dealers, big banks and small banks, domestic banks and international banks. So it’s a pretty high priority for us as regulators to try to ensure that our regulatory systems creates a level playing field. On the specific issue of the FINRA rule you’re citing, I’m only now becoming familiar with it but am very engaged in understanding how its affecting that level playing field.
Senator Cotton: Ok. Rule 4210 is one of those final rules not yet in effect, which both the SEC and the Federal Reserve has the ability to alter. Can I get your commitment to take a review of it and to ensure that it doesn’t create an uneven playing field between smaller broker dealers and larger bank-affiliated firms?
Vice Chairman Quarles: We’ll certainly review it through that lens, yes.
Senator Cotton: Thank you.
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