Regulatory Notice 10-57

Funding and Liquidity Risk Management Practices

In adverse circumstances, whether the result of firm-specific events or systemic credit events, the cost of funding a broker-dealer’s operations could become prohibitively expensive; in extreme cases funding could become unavailable. FINRA expects broker-dealers to develop and maintain robust funding and liquidity risk management practices to prepare for adverse circumstances. Further, FINRA expects broker-dealers affiliated with holding companies to undertake these efforts at the broker-dealer level, in addition to their planning at the holding-company level. We are publishing this Notice to provide guidance in this effort.

Many of the practices outlined in this Notice were identified through FINRA examinations and a survey of 15 mid-sized and large broker-dealers that hold inventory positions and carry customer accounts. This Notice does not provide a comprehensive description of all appropriate funding and liquidity risk management practices. Each broker-dealer should determine which practices are best suited to its particular business, whether or not they are mentioned in this Notice. While much of the content in this Notice is directed to broker-dealers that carry inventory positions, other brokerdealers may also find it to be a valuable resource.

Questions regarding this Notice may be directed to:

  • Eric Moss, Vice President, Emerging Regulatory Issues, or Mo Saleh, Director, Emerging Regulatory Issues, at (202) 728-8472.
  • Amr M. El-Sabbagh, Director, Risk Oversight and Operational Risk, at (646) 315-8739.