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Margin Balance Reporting: Frequently Asked Questions under FINRA Rule 4521(d)

Published: April 13, 2021

FINRA Rule 4521(d) provides that, unless otherwise permitted by FINRA in writing, each member carrying margin accounts for customers is required to submit, on a settlement date basis, as of the last business day of the month:

(A) the total of all debit balances in securities margin accounts; and

(B) the total of all free credit balances in all cash accounts and all securities margin accounts.

The rule provides that, for purposes of paragraph (d):

(A) Only free credit balances in cash and securities margin accounts shall be included in the member's report. Balances in short accounts and in special memorandum accounts (see Regulation T of the Board of Governors of the Federal Reserve System) shall not be considered as free credit balances.

(B) Reported debit or credit balance information shall not include the accounts of other FINRA members, or of the associated persons of the member submitting the report where such associated person's account is excluded from the definition of customer pursuant to SEA Rule 15c3-3.

In response to inquiries, FINRA is providing answers to the following frequently asked questions to aid members in their reporting obligations under FINRA Rule 4521(d). This guidance only applies to members that need to report data pursuant to that rule.

Members are reminded that they should use the Customer Margin Balance Form, available on FINRA Gateway, for all reporting referred to in the questions and answers below. For technical assistance with the form, see Request Access to the Customer Balance Margin Form.

Members may contact their Risk Monitoring Analyst with any questions about this guidance.

1. What is considered a free credit balance in cash and securities margin accounts for purposes of Rule 4521(d)?
"Free credit balance" is defined in SEA Rule 15c3-3(a)(8):
"The term free credit balance means liabilities of a broker or dealer to customers which are subject to immediate cash payment to customers on demand, whether resulting from sales of securities, dividends, interest, deposits or otherwise, excluding, however, funds in commodity accounts which are segregated in accordance with the Commodity Exchange Act or in a similar manner, or which are funds carried in a proprietary account as that term is defined in regulations under the Commodity Exchange Act. The term 'free credit balances' also includes, if subject to immediate cash payment to customers on demand, funds carried in a securities account pursuant to a self-regulatory organization portfolio margining rule approved by the Commission under section 19(b) of the Act (15 U.S.C. 78s(b)) ('SRO portfolio margining rule'), including variation margin or initial margin, marks to market, and proceeds resulting from margin paid or released in connection with closing out, settling or exercising futures contracts and options thereon."
SEA Rule 15c3-3(j)(1) requires broker-dealers to periodically give or send to customers, together with or as part of the customer's statement of account, a written statement of their free credit balances. Free credit balances reported under Rule 4521(d) should be consistent with the written statements that are given or sent to customers as required in compliance with SEA Rule 15c3-3(j)(1).
 
2. If my firm maintains for each customer a separate short sub-account type containing a credit balance equal to the market value of securities (including options) that the customer is short, and a separate margin sub-account type with a debit balance, should my firm report the net balance across the two sub-account types for purposes of Rule 4521(d)?
No. Debit balances in securities margin accounts should be reported on a gross basis, for purposes of Rule 4521(d), i.e., they should not be netted with short credit balances.
 
3. If my firm does not maintain separate sub-account types (as described in Question 2 above) for the margin debit balance and the short credit balance, should my firm report the net balance in the margin account?
No. If the margin account has a net debit balance, the short market value (i.e., the market value of all securities, excluding options, short in the account) should be added to the net debit balance (i.e., should be "grossed up") for purposes of reporting the debit balance in the margin account under Rule 4521(d). (See Example A below). If the account has a net credit balance, the short market value should be subtracted from the net credit balance. If the resulting balance after such adjustment is a debit balance, it should be reported under Rule 4521(d). (See Example B below). If the resulting balance after such adjustment is a credit balance, no debit balance is reported under Rule 4521(d).
Example A - A firm does not maintain separate sub-account types for the margin account and short account. Assume that a customer's margin account has a debit balance of $25, and a short securities position with a market value of $50. The short market value should be added to the debit balance in the account, which in this example, would result in a debit balance of $75. This debit balance should be reported under "Debit Balances in Customers' Securities Margin Accounts." 
Example B - A firm does not maintain separate sub-account types for the margin debit balance and short credit balance. Assume that a customer's account has a credit balance of $140, and a short securities position with a market value of $160. The short market value should be subtracted from the short credit balance in the account, which in this example, would result in a debit balance of $20. As in Example A, this debit balance should be reported under "Debit Balances in Customers' Securities Margin Accounts."
Example C - A firm does not maintain separate sub-account types for the margin debit balance and short credit balance. Assume that a customer's account has a credit balance of $140, short stock positions of $160 and short options with a market value of $40. The short market value excluding the short options market value is $160 and should be subtracted from the credit balance in the account. In this example, this would result in a debit balance of $20. As in Example A, this debit balance should be reported under "Debit Balances in Customers' Securities Margin Accounts" on the Customer Margin Balance Form.

 

4. My firm does not maintain separate sub-accounts for the margin debit balance and short credit balance. When computing the short market value, how should the short positions be valued?
All balances reported are on a settlement date basis and therefore, the current market value of the settled short securities on the computation date should be used to determine the short market value.
 
5. If my firm maintains separate cash and margin accounts for a customer (whether or not maintained as separate sub-accounts of a single account), and the cash account contains a credit balance that is not a free credit balance (and is also not a short credit balance), while the margin account contains a debit balance, should my firm report the net balance across the customer's cash and margin accounts?
If the credit balance in a customer's cash account is not a free credit balance or a short credit balance, then it should be netted with the debit balance in the margin account for purposes of reporting under Rule 4521(d) if your firm uses the credit balance in the cash account in the determination of the customer's maintenance excess or deficiency. 
If the credit balance in the cash account is a free credit balance (see Question 1), is a short credit balance, or is not considered in the determination of the customer's maintenance excess or deficiency, then it should not be netted with the debit balance in the customer's margin account for purposes of reporting under Rule 4521(d).
Example – A customer has a cash account with a $100 credit balance, and a margin account with a $150 debit balance.
(a) If the $100 credit balance in the cash account is a free credit balance, the $100 credit balance should be reported under "Free Credit Balances in Customers' Cash Accounts" and the $150 debit balance should be reported under "Debit Balances in Customers' Securities Margin Accounts."
(b) If the credit balance in cash account is a short credit balance, the firm should not report the credit balance (because it is not a free credit balance) and should report the $150 debit balance under "Debit Balances in Customers' Securities Margin Accounts."
(c) If the credit balance in the cash account is not a free credit balance or short credit balance, but the firm does not consider it in determining the customer's maintenance excess or deficiency, then the firm should not report the credit balance (because it is not a free credit balance) and should report the $150 debit balance under "Debit Balances in Customers' Securities Margin Accounts."
(d) If the credit balance in the cash account is not a free credit balance or short credit balance, and the firm does consider it in determining the customer's maintenance excess or deficiency, then the firm should net the $100 credit balance with the $150 debit balance and report the net debit balance of $50 under "Debit Balances in Customers' Securities Margin Accounts."

 

6. My firm uses separate sub-accounts within the margin account of the customer to track different trading strategies or different types of securities. As a result, the customer should have a sub-account with a credit balance, another sub-account with a debit balance and a third sub-account with a short credit balance. My firm calculates the customer's margin requirements based on the combined or rolled up positions and net balance across the three sub-accounts. How should my firm report the balances in the sub-accounts for purposes of Rule 4521(d)?
For purposes of reporting under Rule 4521(d), this is a single margin account and accordingly debits and credits, except short credit and free credit balances should be netted. See Question and Answer 1 for the meaning of "free credit balance" for purposes of Rule 4521(d). See Question and Answer 2 and 3 for further guidance on the treatment of short credit balances for purposes of Rule 4521(d) reporting.
Example – The client maintains (1) a sub account with a credit balance of $50, which is not a free credit balance, (2) another sub account with a debit balance of $100 and (3) a third sub account with a short credit balance of $100. A net debit balance of $50 associated with the sub accounts (1) & (2) should be reported under "Debit Balances in Customers' Securities Margin Accounts." The short credit balance associated with sub account (3) is excluded for purposes of reporting under Rule 4521(d).

 

7. If my firm established separate margin accounts in accordance with section 220.4(a)(2) of Regulation T, and one margin account maintains a debit balance and the second margin account maintains a credit balance, should my firm report the net balance across the customer's accounts?
No. Regulation T permits a creditor to establish separate margin accounts for the same person to: (i) Clear transactions for other creditors where the transactions are introduced to the clearing creditor by separate creditors; or (ii) Clear transactions through other creditors if the transactions are cleared by separate creditors; or (iii) Provide one or more accounts over which the creditor or a third party investment adviser has investment discretion. If the reporting firm establishes separate accounts for the same person under circumstances outlined in (i) or (iii), the creditor relationship with each of those accounts would be through different agents or third parties, hence the firm should not combine the balances in each of those accounts for purposes of reporting under Rule 4521(d).
Example – Assume that a firm maintains two margin accounts for a customer as permitted under section 200.4(a)(2) of Regulation T. The first margin account has a debit balance of $100, and the second margin account has a free credit balance of $50. Neither account contains short positions. The debit balance of $100 should be reported under "Debit Balances in Customers' Securities Margin Accounts" and the free credit balance of $50 should be reported under "Free Credit Balances in Customers' Securities Margin Accounts."

 

8. Should my firm report balance(s) in non-securities accounts when reporting the debit and free credit balances required by Rule 4521(d)?
No. Balances in non-securities accounts (e.g., commodities account) should not be reported.
 
9. Should my firm report balance(s) in security-based swap accounts when reporting the debit and free credit balances required by Rule 4521(d)?
No. Security-based swap accounts are not considered cash accounts or margin accounts for purposes of Rule 4521(d).
 
10. Should my firm report balance(s) in Regulation T good faith accounts when reporting the debit and free credit balances required by Rule 4521(d)?
Yes. A good faith account, other than non-securities account, is considered a margin account, therefore balances in such accounts should be reported.
 
11. My firm has both portfolio margin and Regulation T margin accounts. How do I report balances in these accounts?
The free credit balances in portfolio margin accounts should be aggregated with the free credit balances in the Regulation T margin accounts and reported as "Free Credit Balances in Customers' Securities Margin Accounts." Similarly, the debit balances in portfolio margin accounts should be aggregated with the debit balances in the Regulation T margin accounts and reported as "Debit Balances in Margin Accounts."
 
12. My customer has a $25 credit balance in a margin account and a $80 debit balance in a good faith account. When reporting the debit and free credit balances required by Rule 4521(d) should I treat the good faith account as a sub-account as described in Answer 5?
Yes. If the credit balance in the margin account is not a free credit balance, it is netted with the debit balance in the good faith account resulting in $55 debit balance. This debit balance is included in "Debit Balances in Customers' Securities Margin Accounts."
 
13. Should my firm report nonpurpose loan balance(s) when reporting the debit balances required by Rule 4521(d)?
Yes. Nonpurpose loans are recorded in a good faith account, which is a margin account for purposes of this rule. See Question and Answer 10.
 
14. Should my firm report customer debit and credit balances in DVP/RVP accounts?
No. Customer debit and free credit balances in DVP/RVP accounts are excluded from the reported balances. DVP/RVP accounts typically do not maintain debit or free credit balances.
 
15. Is the FINRA member carrying the omnibus account of another FINRA member, pursuant to Regulation T 220.7(f), required to report the balance(s) in the other member's omnibus account when reporting the debit and free credit balances required by Rule 4521(d)?
No. Balances in the omnibus account of another FINRA member ("omnibus firm") should not be reported by the FINRA member carrying the omnibus account. Each omnibus firm has its own, separate obligation under Rule 4521(d) to report the debit and free credit balances in the accounts of its customers.
 
16. Rule 4521(d)(3)(B) provides that reported debit or credit balance information shall not include the accounts of other FINRA members, or of the associated persons of the member submitting the report where such associated person's account is excluded from the definition of customer pursuant to SEA Rule 15c3-3. What is the applicable definition of an "associated person" for purposes of this requirement?
For purposes of Rule 4521(d)(3)(B), the term "associated person" is as defined pursuant to paragraph (rr) of Article I under the FINRA By-Laws. 
 
17. Should my firm report foreign currency balance(s) in securities accounts when reporting the debit and free credit balances required by Rule 4521(d)?
Yes, however, foreign currency balances should be converted to the US dollar equivalent and reported as required under FINRA rule 4521(d).
Example – A customer has a margin account with a 25 US dollar credit and 100 euro debit. First the euro balance is converted to US dollars at the current exchange rate. Then, if the US dollar balance is a not free credit balance, it is netted with the US dollar equivalent debit balance. In this case, assuming the euro balance is equivalent to 120 US dollars and the 25 US dollar credit is not a free credit, a debit balance of $95 should be reported under "Debit Balances in Customers' Securities Margin Accounts."

 

18. Before filing my firm's 4521(d) report, I noticed significant variation in the margin debit balance compared with the prior month's margin debit. Should I provide commentary?
You may provide commentary on your report with brief explanation of the activity that caused the change. FINRA reviews all submitted reports and compares them to the prior month's reports. As a result of this review, FINRA may contact your firm to understand what caused the variation in balances. The commentary you provide assists FINRA in determining if additional information is needed.
 
19. My firm does not currently report debit balances and free credit balances in the manner described above. How long do we have to program, test, and implement changes to our systems?
Members should begin reporting debit balances and free credit balances consistent with this guidance as soon as practicable. Any member that believes it will need an extended period to implement this guidance should contact their Risk Monitoring Analyst to discuss an implementation timetable.