The Financial Industry Regulatory Authority has proposed a pilot program for the margining of credit default swaps (CDS) by registered brokerage firms, the regulator said Wednesday.

FINRA explains that historically CDS trades have not been transacted by broker-dealers themselves, but, rather, in affiliated entities. It is expected that with the creation of CDS central counterparties, an increasing volume of CDS transactions may be handled through broker-dealers.

FINRA says its proposal recognizes this possible development and seeks comment on whether the potential risk to the broker-dealer channel makes sense as part of an endeavor to create greater systemic stability. The rule proposal also requires that a firm notify FINRA of participation in the CDS central counterparty trading prior to undertaking such activity.

The proposal has been filed with the U.S. Securities and Exchange Commission, with a request for accelerated approval. It would expire on Sept. 25 — the same day that the SEC’s temporary rules providing for the establishment of central counterparties for CDS transactions expire.

IE