Frequently Asked Questions: Supplemental Liquidity Schedule
See link to FINRA Regulatory Notices 21-31, which includes the schedule and instructions:
https://www.finra.org/sites/default/files/2021-09/Regulatory-Notice-21-31.pdf
SECTION 1. REVERSE REPURCHASE AND REPURCHASE AGREEMENTS
Question 1.1: The instructions under Section 1 state in part that members should report the gross contract value of all reverse repurchase and repurchase agreements by collateral type. The instructions provide that:
“Contracts collateralized by more than one security type should be categorized using a consistent method, with a description of such method included in the line item memo. For example, if the majority of the collateral for a contract consists of U.S. Treasury securities, but also includes some U.S. Government Agency securities, the member may elect to include the entire contract with other contracts collateralized with U.S. Treasury securities, or the member may elect to allocate the contract between the two types of collateral (for example, based on the market value of the respective collateral types, either before or after the application of haircuts). The reporting method for contracts collateralized by more than one security type should be consistent from month to month.”
What would be an illustrative example of allocating the contract between the two types of collateral, as specified in the instructions?
Answer 1.1: The instructions are intended to provide flexibility for reporting reverse repurchase and repurchase agreements collateralized by more than one type of collateral (for purposes of this FAQ, also referred to as “mixed collateral” contracts), where the member would need to identify the different collateral types and report them under each of the respective collateral categories.
For example, suppose the member has a reverse repurchase contract with a $1,000,000 repurchase price and purchased securities with a market value (“MV”) of $707,000 of U.S. Treasury securities with six years to maturity (with a 101% contractual margin percentage) and investment-grade corporate bonds with a MV of $315,000 and seven years to maturity (with a 105% contractual margin percentage). In this case, the member could report in any of several ways, for example:
- Include the entire $1,000,000 contract value in the U.S. Treasury securities category under Section 1 of the SLS, as U.S. Treasury securities represent the majority of the collateral;
- Allocate the contract value between the U.S. Treasury securities and Investment Grade Corporate Obligations categories based on the proportionate MV of the securities, i.e., the $707,000 MV represents 69.17% of the total MV and the $315,000 represents 30.83% of the total MV, hence, the member would include $691,781 in the U.S. Treasury securities category and $308,319 in the Investment Grade Corporate Obligations category;
- Allocate the contract value between the U.S. Treasury securities and Investment Grade Corporate Obligations categories based on the proportionate MV of the securities after application of the contractual haircuts of 1% and 5%, respectively, which would reduce the MV of the U.S. Treasury securities to $700,000 and the MV of the Corporate Obligations to $300,000. Therefore, the member would include $700,000 in the U.S. Treasury securities category and $300,000 in the Investment Grade Corporate Obligations category; or
- Allocate the contract value between the U.S. Treasury securities and Investment Grade Corporate Obligations categories based on the proportionate MV of the securities after application of the haircuts applicable to the securities under SEA Rule 15c3-1(c)(2)(vi). In this example, the haircut on the U.S. Treasury securities is 4%, therefore the MV after application of the haircut would be $678,720, representing 69.86% of the total MV after haircuts. The haircut on the Corporate Obligation is 7%, therefore the MV after application of the haircut would be $292,950 representing 30.14% of the total MV after haircuts. Therefore, the member would include $698,600 (69.86% of the $1,000,000 contract value) in the U.S. Treasury securities category and $301,400 (30.14% of the $1,000,000 contract value) in the Investment Grade Corporate Obligations category.
For purposes of the SLS, any of these allocations would be acceptable. As stated in the instructions, the member’s methodology for allocating mixed collateral transactions would need to be applied consistently from month to month. Also, the member should include a description of its method in the line item memo.
Question 1.2: The instructions state in part that reverse repurchase and repurchase agreements should be reported at gross contract value. Should the gross contact value include accrued interest on the contract?
Answer 1.2: Yes. The gross contract value to be reported for reverse repurchase and repurchase agreements should include interest that has accrued on the contract.
Question 1.3: The instructions state in part that “Weighted Average Maturity” should be computed on the gross contract value of term agreements only. The instructions state that, for this purpose, “term agreements” includes all transactions that are not terminable on demand and have a termination date later than the next business day after the SLS date.
Should the amounts reported for “Open and Overnight” reverse repurchase and repurchase agreement balances include all such agreements that are either open on the SLS date or that mature the next business day after the SLS date, regardless of the original term of the contract? For example, if the original term of a contract is 30 days and such contract would have matured on 4/1/2022, would the contract need to have been included in the total amount of “Open and Overnight” contracts on the SLS that would have been filed as of 3/31/2022?
Answer 1.3: Yes. Contracts that would terminate the next business day after the SLS date of 3/31/2022 would be included in “Open and Overnight” regardless of their original term. Note that for contracts containing an option feature permitting the funding provider to elect not to renew the contract after an agreed-upon notice period (“evergreen contracts”), members should use the termination date applicable if that election were made on the earliest possible date on or after the SLS date in determining whether to report such contracts as “Open and Overnight.”
Question 1.4: Should a member include reverse repurchase and repurchase agreements with its parent or an affiliate or those with FICC’s GCF Repo Service in the calculation to determine the information to be reported under the “Top 5 Counterparties: Reverse Repurchase and Repurchase Agreements” section?
Answer 1.4: Yes. The member should include reverse repurchase and repurchase agreements with its parent or an affiliate or those with FICC’s GCF Repo Service in the calculation to determine the information to be reported under the “Top 5 Counterparties: Reverse Repurchase and Repurchase Agreements” section.
Question 1.5: If a member deposits securities purchased under reverse repurchase agreements into its SEA Rule 15c3-3 Customer or PAB Reserve Accounts, should these reverse repurchase agreements be reported on the member’s SLS? Similarly, if the member is an FCM and invests its futures customers’ segregated funds in reverse repurchase agreements, should these reverse repurchase agreements be reported on the member’s SLS?
Answer 1.5: No. Neither the reverse repurchase agreements entered to satisfy the member’s deposit requirements under SEA Rule 15c3-3 nor those used to invest customers’ segregated funds should be reported on the SLS.
SECTION 2. SECURITIES BORROWED AND SECURITIES LOANED
Question 2.1: Should a member apply, with respect to securities borrowed and securities loaned under Section 2, the same approach to “Open and Overnight” and “Term” as discussed in the answer to Question 1.3 above?
Answer 2.1: Yes. Contracts that have a termination date not later than the next business day after the SLS date, including those that mature on the next business day after the SLS date, should be reported as “Open and Overnight.” For evergreen contracts, members should use the termination date applicable if that election were made on the earliest possible date on or after the SLS date in determining whether to report such contracts as “Open and Overnight.”
Question 2.2: The instructions call for securities borrowed and securities loaned to be reported at gross contract value – does that mean report the contract value and any accrued interest on the contract?
Answer 2.2: No. For purposes of the SLS, the gross contract value to be reported for securities borrowed and securities loaned should exclude interest that has accrued on the contract. Any accrued borrow fees payable to the securities lender should also be excluded.
SECTION 3. NON-CASH REVERSE REPURCHASE AND SECURITIES BORROWED TRANSACTIONS
Question 3.1: Should both “collateral upgrade” and “collateral downgrade” transactions in non-cash reverse repurchase and securities borrowed transactions be reported in Section 3?
Answer 3.1: Yes. Both “collateral upgrade” and “collateral downgrade” transactions in non-cash reverse repurchase and securities borrowed transactions should be reported in Section 3.
SECTION 4. NON-CASH REPURCHASE AND SECURITIES LOANED TRANSACTIONS
Question 4.1: Should both “collateral upgrade” and “collateral downgrade” transactions in non-cash repurchase and securities loaned transactions be reported in Section 4?
Answer 4.1: Yes. Both “collateral upgrade” and “collateral downgrade” transactions in non-cash repurchase and securities loaned transactions should be reported in Section 4.
SECTION 5. BANK LOAN AND OTHER COMMITTED AND UNCOMMITTED CREDIT FACILITIES
Question 5.1: Section 5 instructs members to report the dollar amount of committed bank loan and other secured committed credit facilities (for example, subordinated loans, lines of credit, and secured demand notes) that have been drawn on Lines 1a through 1b, separating affiliated lending sources from non-affiliated lending sources, with the undrawn amounts of secured committed credit facilities on Line 2. Members are instructed to include any unsecured credit facilities in Lines 3a and 3b. Report drawn amounts of uncommitted credit facilities in Line 4 (for example, commercial paper).
A member has a subordinated loan and a revolving subordinated loan, both of which are unsecured. Should these loans be reported under Line 3 (Unsecured Committed Credit Facilities) of Section 5?
Answer 5.1: Yes. The unsecured subordinated loan and the unsecured revolving loan are both committed credit facilities (“CCF”) that are unsecured. The member should report the subordinated loan and the drawn amount of the revolving subordinated loan on Line 3a of Section 5 and the undrawn amount of the revolving subordinated loan should be reported on Line 3b of Section 5.
Question 5.2: A member has entered into a contractual agreement providing it with a CCF. The member has the option, at the time of drawing upon such CCF, to determine whether to borrow on a secured or unsecured basis. Should the member report the undrawn amount of the CCF on Line 2 (Undrawn Portion of Secured Credit Facilities) or on Line 3b (Unsecured Committed Credit Facilities – Undrawn Amounts) of Section 5?
Answer 5.2: The member should report the amount of the undrawn CCF on Line 3b, provided the contractual agreement gives the member the option to borrow on an unsecured basis and does not limit the amount of the CCF that may be borrowed on a secured versus unsecured basis.
Question 5.3: A member has an overdraft facility as part of a deposit account with a third-party bank. Should the amount of the overdraft facility be reported on the SLS?
Answer 5.3: Yes. If the member has a written agreement with the deposit bank, whereby the bank has agreed to provide the member with an overdraft facility and the ability to overdraw up to a specified amount, that amount should be reported on Lines 1 and 2 in Section 5 if the overdraft facility is secured by collateral, and on Lines 3a and 3b if the overdraft facility is unsecured. If there is no written agreement between the member and the bank, the member should only report the amount of any overdraft that exists as of the SLS date on Line 4 (Drawn Amounts of Uncommitted Credit Facilities).
Question 5.4: Do “credit facilities” as referenced in Section 5 pertain only to credit extended to the member?
Answer 5.4: Yes. The credit facilities referenced in Section 5 pertain only to credit facilities that are extended to the member.
Question 5.5: Does a credit facility need to be fully secured by collateral to be “secured” as that term is used in Section 5?
Answer 5.5: No. For purposes of Section 5, a credit facility may be considered “secured” if the lending agreement requires any amount of collateral to be posted by the member as a condition to drawing on such facility.
Question 5.6: Should Line 1 (Drawn Amounts of Secured Credit Facilities) include only drawn amounts of secured CCFs?
Answer 5.6: Yes. Only drawn amounts of secured CCFs should be reported on Line 1 under Section 5. Drawn amounts of uncommitted credit facilities, whether secured or unsecured, should be reported on Line 4.
Question 5.7: Should the amounts reported in Section 5 of the SLS include only the balances as of the close of business on the SLS date?
Answer 5.7: Yes. The balances to be reported in Section 5 of the SLS should be the balances as of the close of business on the SLS date.
Question 5.8: A member has a total of $1,000,000 in an unsecured committed credit facility and has borrowed $300,000 from such credit facility. How should the member report these amounts in Section 5 of the SLS?
Answer 5.8: The member should report the $300,000 drawn amount of the unsecured credit facility on Line 3a in box 21220 and in box 21221, 21222, 21223 or 21224, as appropriate. The member should report the remaining undrawn amount of $700,000 on Line 3b in box 21225 and in box 21226, 21227, 21228 or 21229, as applicable.
Question 5.9: Does the term “bank” as used in Section 5 of the SLS include only entities that are themselves banks or is it meant to include any entity that is part of a Bank Holding Company (“BHC”), even if such entity is not itself a bank?
Answer 5.9: For purposes of reporting in Section 5 of the SLS, the member should include only those bank loans and other committed or uncommitted credit facilities where the lender is itself a bank under the columns titled “Bank.” Bank loans and other committed or uncommitted credit facilities from non-bank entities, whether or not such entities are subsidiaries of a BHC, should be reported in the columns titled “Non-Bank.”
SECTION 6. TOTAL AVAILABLE COLLATERAL IN BROKER-DEALER’S CUSTODY
Question 6.1: In Section 6, should “Available Collateral” include the market value of only those U.S. Treasury securities that are available to be rehypothecated? For example, suppose we have $100,000 of market value in U.S. Treasury securities available for rehypothecation and have already hypothecated $20,000 of that market value through a repurchase transaction. Should we report the remaining $80,000 market value in Line 1 under Section 6?
Answer 6.1: Yes. The amount to be reported in Line 1 should include only the market value of U.S. Treasury and other securities issued or guaranteed as to principal and interest by the U.S. Government that are available for re-hypothecation as of the SLS date. The market value of securities that have already been hypothecated through bank loans, securities loans, repurchase agreements, etc., should not be included in this section.
SECTION 7. MARGIN & NON-PURPOSE LOANS
Question 7.1: Should a customer’s debit balances resulting from delivery-versus-payment (“DVP”) transactions that have not yet settled be included in Section 7?
Answer 7.1: No. DVP transactions are cash transactions. Section 7 only pertains to credit extended on margin transactions.
SECTION 8. COLLATERAL SECURING MARGIN LOANS
Question 8.1: A customer has a debit balance of $50,000 and the following securities positions in their account:
- $100,000 market value of XYZ ($60,000 is segregated pursuant to SEA Rule 15c3-3)
- $100,000 market value of ABC ($100,000 is segregated pursuant to SEA Rule 15c3-3)
- $100,000 market value of DEF ($70,000 is segregated pursuant to SEA Rule 15c3-3)
Which of the securities in the customer’s account should be included in the calculation to determine the Top 5 equity securities securing margin loans in Section 8?
Answer 8.1: To determine the top 5 equity securities securing margin loans to be included in Section 8, members should exclude securities that are segregated pursuant to SEA Rule 15c3-3, i.e., identified as fully paid or excess margin securities on their books and records. Hence, in the above example, the member should include only $40,000 of the market value of XYZ and $30,000 of the market value of DEF in determining the top 5 equity securities securing margin loans.
Question 8.2: Should collateral securing customer’s debit balances resulting from DVP transactions that have not yet settled be included in Section 8?
Answer 8.2: No. DVP transactions are cash transactions. Section 8 only pertains to credit extended on margin transactions.
SECTION 9. DEPOSITS AT CLEARING ORGANIZATIONS
Question 9.1: Section 9 of the instructions states: “Report the total value of cash and securities required to be on deposit at clearing organizations, and the total value of cash and securities deposited at clearing organizations (which may be in excess of the amount required to be on deposit) as of the SLS date. The amounts shall include the following: the clearing deposit, initial and variation margin, adequate assurance deposits, additional liquidity deposits, guarantee fund deposits, and any other cash and proprietary assets deposited.”
Should a member that maintains a required clearing deposit at its clearing broker report such deposit in Section 9? Should a member that maintains other cash or securities in accounts at its clearing broker report such cash or securities in Section 9?
Answer 9.1: The amount of a member’s required clearing deposit at its clearing broker should be included in box 21309 on Line 6 (Amount Required—Total). If this clearing deposit exceeds 10% of the total amount reported in box 21309, it should also be reported in box 21306 on Line 5 (Amount Required—Other).
Any other cash or securities held in accounts of the member at its clearing broker that are not for purposes of meeting the member’s clearing deposit at the clearing broker should not be included in Section 9.
The following examples illustrate how such member would complete Section 9:
Example A: A member has a clearing deposit at its clearing broker, consisting of proprietary U.S. government securities with a market value of $1,000,000. The member’s required deposit at the clearing broker is $750,000. This deposit represents the member’s only deposit. The member should report the clearing deposit as follows:
Example B: A member has a clearing deposit at its clearing broker, consisting of proprietary securities with a market value of $100,000. The member’s required deposit is $100,000. The member also self-clears fixed income transactions and maintains a clearing deposit at FICC, consisting of proprietary U.S. government securities with a market value of $2,000,000. The member’s required deposit at FICC is $1,500,000. The member should report its clearing deposits at its clearing broker and at FICC as follows:
Question 9.2: If a member has clearing deposits at more than one “other” clearing organization (i.e., other than DTCC, OCC, CME, or ICE), should the amounts required or deposited at those other clearing organizations be aggregated for purposes of determining the 10% threshold for reporting on Line 5 (Other if >10% of the Total on Line 6)?
Answer 9.2: No. An amount required or deposited at a clearing organization other than DTCC, OCC, CME, or ICE should only be included in the amount reported on Line 5 if the amount deposited at such clearing organization exceeds 10% of the total of all collateral deposited at all clearing organizations reported on Line 6.
Question 9.3: Is a member required to report both proprietary and customer related clearing deposit amounts in Section 9?
Answer 9.3: Yes. A member should report the total amounts required and deposited at a clearing organization for all its business activities, including required deposits to clear customer, non-customer or proprietary transactions.
Question 9.4 If a member deposits proprietary collateral to satisfy a clearing deposit requirement to clear customer transactions, should the amount of such deposit be reported under the column titled “Proprietary Collateral Included in Total Amount Deposited” as well as under the column titled “Amount Required”?
Answer 9.4: Yes. The amount of proprietary collateral deposited with a clearing organization should be reported under the column titled “Proprietary Collateral Included in Total Amount Deposited,” using the appropriate box. In addition, such clearing deposits should be reported under the column titled “Amount Required,” again using the appropriate box.
Question 9.5: The last column in Section 9 requires the reporting of a “Date.” We are assuming the applicable date would be within the calendar month ending on the SLS date. Is that correct?
Answer 9.5: Yes. Specifically, the last column in Section 9 (Deposits at Clearing Organizations) refers to the date during the calendar month ending on the SLS date on which the member had the largest single amount required to be deposited with the applicable clearing organization. That largest single intra-month amount should be reported in the fourth column of Section 9, using the applicable box.
Question 9.6: Is a member required to include the DTC Required Preferred Stock and Participants Fund Deposit, in addition to its NSCC Clearing Deposit, on Line 1?
Answer 9.6: Yes. A member should include the DTC Required Preferred Stock and Participants Fund Deposit amounts as these are required amounts by DTCC. These amounts should be included in the “Amount Required,” “Total Amount Deposited,” and “Proprietary Collateral Included in Total Amount Deposited” reported for DTCC. Line 1 will include the aggregate of all deposits at DTCC; Lines 1a and 1b will separate out the respective amounts for NSCC and FICC.
Question 9.7: For purposes of reporting on Line 2 under Section 9, for OCC, should “Amount Required” include specific and escrow deposits and customer valued securities, in addition to proprietary and clearing fund collateral held at OCC?
Answer 9.7: Yes. For purposes of reporting on Line 2, a member should include in the “Amount Required” box all required deposits at OCC, irrespective of how such deposit requirements are funded.
Question 9.8: The member has posted collateral to satisfy its margin requirement at OCC, which consist of a cash deposit as well as specific securities to collateralize calls written on such securities (“covered call collateral”). Should the member report the value of the covered call collateral as part of the amount on deposit at OCC or should it report only the cash collateral deposited at OCC?
Answer 9.8: The member should report on the SLS only the cash amount of its clearing deposit at OCC. Covered call collateral deposited at OCC should not be included.
SECTION 10. CASH & SECURITIES RECEIVED AND DELIVERED ON DERIVATIVE TRANSACTIONS NOT CLEARED THROUGH A CCP
Question 10.1: The instructions for Section 10 state in part that “derivative transactions” for purposes of the SLS include non-regular way settlement transactions (including To Be Announced (“TBA”), delayed delivery and delayed settlement transactions) as well as swap and security-based swap transactions. Do “derivative transactions” also include specified pool, MBS, and CMO transactions?
Answer 10.1: Yes. Specified pool and MBS transactions, and CMO transactions with a settlement date beyond T+2 (or T+3 for agency-issued CMOs), should be included in as “derivative transactions” for purposes of Section 10.
QUESTIONS AND ANSWERS RELATING TO THE EXPLANATION OF TERMS
Question 1: For purposes of the SLS, may corporate bonds that are rated Baa3 by Moody’s be considered “Investment Grade Corporate Obligations”?
Answer 1: Baa3 is an investment grade rating on the Moody’s Rating Scale. However, to be considered an Investment Grade Corporate Obligation, the issuer of the obligation must be rated investment grade by two Nationally Recognized Statistical Rating Organizations (e.g., Baa2 or higher by Moody’s and BBB or higher by S&P). Alternatively, a member may elect to include in “investment grade corporate obligations” those issues having a “minimal amount of credit risk,” pursuant to SEA Rule 15c3-1(c)(2)(vi)(I), provided the member includes a memo in the line item memo on the SLS noting this election.