The Investment Dealers Association has issued a notice providing guidance to member firms with respect to the unique credit issues that arise in the situation where loan value is being granted to a significant security position that is held in one or a small number of accounts. The IDA refers to this situation as single account securities concentration.
The IDA notice:
- details the current regulatory requirements with respect to the valuation and margining of securities;
- defines what is considered to be a significant security position;
- details the factors that indicate that single account securities concentration risk is present;
- provides guidance as to when and how adjustments to loan value should be made to address the presence of single account securities concentration risk; and
- details the possible actions that may be taken by the IDA where a firm is unable to adequately support the loan value granted to a significant security position with single account securities concentration risk.
According to the notice, where a firm cannot support the loan value granted to a particular significant security position, where single account securities concentration risk is present, the IDA may decide to exercise, at its discretion, the Early Warning Level 2 restrictions.
The restrictions that may be imposed include the requirement to segregate customer free credit balances up to an amount determined by the IDA to alleviate its regulatory concerns.