[ By Howard Haykin ] Since early February, FINRA has had the authority to require broker-dealers to file additional supplemental information to the FOCUS Report - FINRA Rule 4524, Supplemental FOCUS Information.  FINRA has put out for comment a new proposal to require firms to submit a supplemental schedule for derivatives and other off-balance sheet items.  The comment period ends 6/4/12.

FINRA Rule 4524 requires each firm, as FINRA shall designate, to file such additional financial or operational schedules or reports as FINRA may deem necessary or appropriate for the protection of investors or in the public interest as a supplement to the FOCUS Report.  Pursuant to this rule, FINRA is proposing to adopt a supplemental schedule to capture important information that is not otherwise reported on certain firms’ balance sheets.

Proposed Requirement. As proposed, all carrying and clearing firms would be required to file with FINRA a proposed Derivatives and Other Off-Balance Sheet Items Schedule (OBS) within 22 business days of the end of each calendar quarter. The proposed OBS would require firms to report:

• their gross exposures in financing transactions - e.g., reverse repos, repos, and other transactions that otherwise are netted under GAAP, reverse repos, and repos to maturity and collateral swap transactions);
• interests in and exposure to Variable Interest Entities;
• nonregular way settling transactions - including to be announced or TBA securities and delayed settlement/delivery transactions);
• underwriting and other financing commitments; and,
• gross notional amounts in centrally cleared and non-centrally cleared derivative contracts involving equities, commodities, interest rates, forex derivatives and CDSs (or credit default swaps).

FINRA’s objective is to ... obtain more comprehensive and consistent info re: carrying and clearing firms’ off-balance sheet assets, liabilities and other commitments.  With this information, FINRA will be able to assess more effectively on an ongoing basis the potential impact off-balance sheet activities may have on carrying and clearing firms’ net capital, leverage and liquidity, and ability to fulfill their customer protection obligations. FINRA's Particular Interest in These Types of Comments. FINRA is looking for specific comment on whether there is a category of carrying or clearing firms that should not be required to file the proposed OBS based upon de minimis off-balance sheet activity.  After assessing the comments FINRA will seek the SEC's approval of the proposed OBS. FINRA Staff Contacts. Direct questions to: Kris Dailey, VP, Risk Oversight & Operational Regulation (ROOR) - (646) 315-8434; Marshall Levinson, VP, ROOR - (646) 315-8453; and Matthew Vitek, Asst. GC, Office of General Counsel - (202) 728-8156. For further details, go to:  [FINRA RegNote 12-23, May 2012].