Monday, September 20, 2010
FINRA Provides Sales Checklist to Firms
WASHINGTON — The Financial Industry Regulatory Authority (FINRA), in coordination with the Municipal Securities Rulemaking Board (MSRB) today issued a Regulatory Notice reminding municipal securities dealers of their sales practice, due diligence and fair pricing obligations when selling municipal securities in the secondary market.
In particular, the regulators reminded dealers that they must obtain and disclose to their customers, at or before the time of trade, all material information about the bond that is either known to them or publically available through established industry sources, including, but not limited to, continuing disclosures and other information made available through the MSRB's Electronic Municipal Market Access System (EMMA). Dealers must also consider this information in assessing the suitability of a municipal security for their customer.
The regulators also reminded dealers that while credit ratings and ratings changes are generally material information about a municipal security, they are only one factor to be considered, and dealers should not solely rely on credit ratings as a substitute for their own assessment of a bond.
FINRA has several ongoing sweeps involving municipal securities. While the results of the sweeps are still being evaluated, FINRA has concerns that firms may not completely understand their obligations with respect to the disclosure of material information to customers at the time of trade.
Accompanying the Notice is a Checklist for Customer Disclosure that FINRA designed as a voluntary tool for dealers to use in connection with secondary market sales of municipal securities. Among other things, material information about a bond will include its terms and features, ongoing disclosures, ratings and ratings changes, the existence of bond insurance or credit or liquidity enhancements, the bond's price and yield, interest payments, tax implications, call provisions and other material risks, including risk of default.
FINRA is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit www.finra.org.