Fixed Income Confirmation Disclosure: Frequently Asked Questions (FAQ)

Preliminary Note: FINRA recently adopted enhanced confirmation disclosure requirements for corporate and agency bonds. (For additional detail on the rulemaking process, see Regulatory Notice 17-08 and SR-FINRA-2016-032.) As discussed in greater detail throughout this guidance, beginning on May 14, 2018, members will be subject to requirements in Rule 2232 concerning confirmation disclosure of mark-ups and mark-downs, time of execution, and a security-specific URL for webpages that contain relevant information about the traded securities. The MSRB adopted substantially similar requirements.

FINRA worked with the MSRB to produce this guidance and consulted with SEC staff. While each has published its own version to refer to FINRA and MSRB rules and materials, respectively, the versions are materially the same and reflect the organizations’ coordinated approach to enhanced confirmation disclosure for debt securities. To the extent FINRA and the MSRB offer different guidance based on differences between the markets for corporate, agency, and municipal securities, those differences are discussed in the context of the relevant question and answer. Also, several MSRB FAQ are not included here. These FAQ are omitted because they address or rely on language specific to MSRB rules or materials, not because FINRA disagrees with their substance; FAQ numbers in these cases are left blank below to promote consistency of format with the MSRB.

For ease of reference, unless otherwise noted, the term “mark-up” refers both to mark-ups applied to sales to customers and mark-downs applied to purchases from customers; the term “contemporaneous cost” refers both to contemporaneous cost in the context of sales to customers and contemporaneous proceeds in the context of purchases from customers.

During the implementation period, FINRA will continue to work with firms on questions related to the confirmation disclosure requirements adopted in SR-FINRA-2016-032. Firms are encouraged to contact FINRA to suggest additional topics or questions for inclusion in the FAQ. Accordingly, FINRA may update or revise this guidance. Updated and revised questions will be clearly marked.

Section 1: When Mark-Up Disclosure Is Required

1.1 When does Rule 2232 require mark-up disclosure?
A member is required to disclose on a customer confirmation the mark-up on a transaction in corporate and agency debt securities with a non-institutional customer if the dealer also executes one or more offsetting principal transaction(s) on the same trading day as the customer transaction in an aggregate trading size that meets or exceeds the size of the customer trade. A non-institutional customer is a customer with an account that is not an institutional account, as defined in Rule 4512.
As FINRA noted during the Rule 2232 rulemaking process, any intentional delay of a customer execution to avoid triggering the mark-up disclosure requirements may violate Rule 2232, Rule 5310 (Best Execution and Interpositioning), and Rule 2010 (Standards of Commercial Honor and Principles of Trade).
1.2  Is mark-up disclosure required only where the sizes of same-day customer and principal trades offset each other?
Yes. Mark-up disclosure is required only where a customer trade offsets a same-day principal trade in whole or in part. For example, if a dealer purchased 100 bonds at 9:30 a.m., and then, as principal, satisfied three non-institutional customer buy orders for 50 bonds each in the same security on the same trading day without making any other purchases of the bonds that day, mark-up disclosure would be required only on two of the three customer purchases, since one of the trades would need to be satisfied out of the dealer’s prior inventory rather than offset by the dealer’s same-day principal transaction.
1.3  When are trades executed by a member’s affiliate relevant for determining whether the mark-up disclosure requirements are triggered?
 If a member’s offsetting principal trade is executed with a broker-dealer affiliate and did not occur at arm’s length, the member is required to “look through” to the time and terms of the affiliate’s trade with a third party to determine whether mark-up disclosure is triggered under Rule 2232. On the other hand, if the member’s transaction with its affiliate is an arms-length transaction, the member would treat that transaction as any other offsetting transaction (i.e., the member would not “look through” to the time and terms of the arms-length transaction).
1.4  What is considered an “arms-length transaction” when considering whether a member must “look through” to the time and terms of an affiliate’s trade?
The term “arms-length transaction” is defined in Rule 2232(f)(3) to mean a transaction that was conducted through a competitive process in which non-affiliate firms could also participate, and where the affiliate relationship did not influence the price paid or proceeds received by the member. FINRA has noted that as a general matter, it expects the competitive process used in an arms-length transaction to be one in which non-affiliates have frequently participated. In other words, FINRA would not view a process, like a request for pricing protocol or posting of bids and offers, as competitive if non-affiliates responded to requests or otherwise participated in only isolated or limited circumstances.
1.5  If a member has an exclusive agreement with a non-affiliated broker-dealer under which it always purchases its securities from, or always sells its securities to, that non-affiliate, would the “look through” requirements apply when the member transacts with the non-affiliate?
No. The “look through” applies only to certain transactions between affiliated members. Under Rule 2232, a “look through” is required when the member’s offsetting transaction is with an affiliate and is not an “arms-length transaction.”  A transaction with a non-affiliate would not meet these conditions, so a “look through” would not be required. FINRA notes that members should continue to evaluate the terms and circumstances of any such arrangements in light of other FINRA rules and guidance, including best execution. In evaluating these terms and circumstances, members should consider whether they diminish the reliability and utility of mark-up disclosure to investors.
1.6  Does the mark-up disclosure requirement in Rule 2232 apply to transactions that involve a broker-dealer and a registered investment adviser?
No. To trigger the mark-up disclosure requirement in Rule 2232, a member must execute a trade with a non-institutional customer. Under the rule, registered investment advisers are institutional customers; accordingly, mark-up disclosure is not required when members transact with registered investment advisers. This is the case even where the registered investment adviser with whom the dealer transacted later allocates all or a portion of the securities to a retail account or where the transaction is executed directly for a retail account if the investment adviser has discretion over the transaction. FINRA notes that this answer is specific to the mark-up disclosure requirement in Rule 2232; it is not intended to alter any other obligations, including existing obligations under SEC Rule 10b-10.
1.7  Are there any exceptions to the mark-up disclosure trigger requirements?
Yes. There are two exceptions. First, mark-up disclosure is not necessarily triggered by principal trades that a member executes on a trading desk that is functionally separate from a trading desk that executes customer trades, provided the member maintains policies and procedures reasonably designed to ensure that the functionally separate trading desk had no knowledge of the customer trades. For example, the exception allows an institutional desk within a firm to service an institutional customer without necessarily triggering the disclosure requirement for an unrelated trade performed by a separate retail desk within the firm.   
Second, mark-up disclosure is not required when bonds are acquired by a member in a fixed-price offering and sold to non-institutional customers at the same offering price on the same day the member acquired the bonds.
1.8  May members voluntarily provide mark-up disclosure on additional transactions that do not trigger mandatory disclosure?
Yes. In disclosing this information on a voluntary basis, members should be mindful of any applicable FINRA rules. For example, while mark-up disclosure is voluntary for trades that do not trigger Rule 2232, the process for determining prevailing market price (PMP) according to Rule 2121 applies in all cases. In addition, to avoid customer confusion, voluntary disclosure should also follow the same format and labeling requirements applicable to mandatory disclosure.
1.9  In arrangements involving clearing dealers and introducing or correspondent dealers, who is responsible for mark-up disclosure?
The introducing or correspondent broker-dealer bears the ultimate responsibility for compliance with the disclosure requirements under Rule 2232. Although an introducing or correspondent broker-dealer may use the assistance of a clearing broker-dealer, as it may use other third party service providers subject to due diligence and oversight, the introducing or correspondent broker-dealer remains ultimately responsible for compliance.
1.10  Are hybrid securities subject to the new mark-up disclosure requirements?
Yes, if they are reported to TRACE. Hybrid securities that are considered “TRACE-Eligible Securities” under FINRA guidance [see Regulatory Notice 14-23] may also meet the definition of “corporate debt security” under Rule 2232 for purposes of mark-up disclosure. FINRA notes that hybrid securities reported to the OTC Reporting Facility may be subject to other disclosure requirements applicable to equity securities under SEC Rule 10b-10.
1.11 Are Securitized Products or U.S. Treasury Securities subject to the new mark-up disclosure requirements?
No. Rule 2232 requires mark-up disclosure for corporate and agency debt securities, as they are defined in Rule 2232(f). Accordingly, Rule 2232 does not apply to other types of debt securities, including U.S. Treasury Securities, as defined in Rule 6710(p), or Securitized Products, as defined in Rule 6710(m).
Updated: 8/8/17

Section 2: Content and Format of Mark-Up Disclosure

2.1  What information must be included when members provide mark-up disclosure on a confirmation?
When mark-up disclosure is provided on a customer confirmation, Rule 2232(c) requires firms to express the disclosed mark-up as both a total dollar amount and a percentage amount of PMP. The mark-up should be calculated and disclosed as the total amount per transaction; disclosure of the per bond dollar amount of mark-up (e.g., $9.45 per bond) would not satisfy the requirement to disclose the total dollar amount of the transaction mark-up.
2.2  Where should mark-up disclosure be located on a confirmation?
Rule 2232 does not require mark-up disclosure to be located in any particular place on a customer confirmation. However, like commissions, the disclosure should appear in a naturally visible place, for example, on the front of the confirmation for printed confirmations. Because the rule requires mark-up disclosure to be on the confirmation itself, the inclusion of a link on the customer confirmation that a customer could click to obtain his or her mark-up disclosure would not satisfy the requirements of Rule 2232.
2.3  May members use explanatory language to provide context for mark-up disclosure?
Yes. Members may include accompanying language to explain mark-up related concepts, or a member’s particular methodology for calculating mark-ups according to FINRA guidance (or to note the availability of information about the methodology upon request), provided such statements are accurate and not misleading. However, members may not label mark-ups as “estimated” or “approximate” figures, or use other such labels. These types of qualifiers risk diminishing the utility of the disclosure and of the member’s own determination of the security’s PMP and mark-up charged, and otherwise risk diminishing the value to retail investors of the disclosure.
2.4  If a member encounters a situation where a mark-up is negative (i.e., the member sold to the customer at a price lower than the PMP), may it choose to disclose a mark-up of zero instead?
FINRA believes that negative mark-ups will be very infrequent; however, if such a case arises, a member may not disclose a mark-up of zero where the mark-up is not, in fact, zero. Members should disclose the mark-up that they calculate based on their determination of PMP consistent with Rule 2121. As an alternative to disclosing a negative mark-up, dealers are permitted to disclose “N/A” in the mark-up/mark-down field if the confirmation also includes a brief explanation of the “N/A” disclosure and the reason it has been provided. Members also have the flexibility to provide an explanation for trades with disclosed negative or zero mark-ups as well, consistent with FAQ 2.3 above.

Section 3: Determining Prevailing Market Price

3.1  How should members determine PMP to calculate mark-ups?
Members must calculate mark-ups from a security’s PMP, consistent with existing Rule 2121 and the supplementary material thereunder, particularly Supplementary Material .02 (Additional Mark-Up Policy for Transactions in Debt Securities, Except Municipal Securities) (sometimes referred to as the “waterfall” guidance or analysis). Members may rely on reasonable policies and procedures to facilitate PMP determination, provided the policies and procedures are consistent with Rule 2121 and are applied consistently.
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3.4  When should members determine PMP and calculate the mark-up to be disclosed on a confirmation?
FINRA recognizes that firms may employ different processes for generating customer confirmations such that this may occur at the end of the day, or during the day for firms that use real-time, intra-day confirmation generation processes. Therefore, although the objective must always be to determine the price prevailing at the time of the customer transaction, different members may consistently conduct the analysis to make that determination at different times. Specifically, members may base their mark-up calculations for confirmation disclosure purposes on the information they have available to them (based on the exercise of reasonable diligence) at the time they systematically input relevant transaction information into the systems they use to generate confirmations. This means that a member that systematically inputs the information at the time of trade may determine the PMP—and therefore, the mark-up—at the same time (even if the confirmation itself is not printed until the end of day). On the other hand, if a member systematically inputs such information at the end of the day, the member must use the information available to it at that time to determine the price prevailing at the time of the customer transaction—and, therefore, the mark-up.
The timing of the determination must be applied consistently across all transactions in corporate and agency debt securities (e.g., the member may not enter information into its systems at the time of trade and determine the PMP at the time of trade for some trades but at the end of the day for others).
3.5  Once members determine PMP and input relevant information into confirmation generation systems, would they be required to cancel and correct a confirmation to revise a disclosed mark-up if later events might contribute to a different PMP determination?
No. The disclosure must be accurate, based on the member’s reasonable policies and procedures, as of the time the member systematically inputs the information into its system to generate the disclosure. Once members have input the information into their confirmation generation systems, FINRA does not expect members to send revised confirmations solely based on the occurrence of a subsequent transaction or event that would otherwise be relevant to PMP determination under Rule 2121. On a voluntary basis, members may correct a confirmation, pursuant to reasonable and consistently applied policies and procedures.
3.6  May members engage third-party vendors to perform some or all of the steps required to fulfill the mark-up disclosure requirements?
Yes. Members may engage third-party service providers to facilitate mark-up disclosure consistent with Rule 2232. For example, members that wish to perform most of the steps of the waterfall internally may choose to use the services of a vendor at the economic models level of the waterfall. Other members may wish to use the services of a vendor to perform most or all of the steps of the waterfall. In either case, the members retain the responsibility for ensuring the PMP is determined in accordance with Rule 2121 and that the mark-up is disclosed in compliance with Rule 2232 and must exercise due diligence and oversight over their third party relationships.
As a policy matter, FINRA does not endorse or approve the use of any specific vendors.
3.7  May members use a third party evaluated pricing service as an economic model at the final step of the waterfall?
Yes. However, before doing so, the member should have a reasonable basis for believing the third-party pricing service’s pricing methodologies produce evaluated prices that reflect actual prevailing market prices. A member would not have a reasonable basis for such a belief, for example, where a periodic review of the evaluated prices provided by the pricing service frequently (over the course of multiple trades) reveals a substantial difference between the evaluated prices and the prices at which actual transactions in the relevant securities occurred. In choosing to use evaluated prices from any pricing service, a member should assess, among other things, the quality of the evaluated prices provided by the service, whether the evaluated pricing services incorporates similar factors as in Rule 2121 and the extent to which the service determines its evaluated prices on an intra-day basis.
3.8  May members use or rely on automated systems to determine PMP?
Yes. While members are not required to automate PMP determination and mark-up disclosure, they may choose to do so, provided they (or their vendors) do so consistent with Rule 2121 and all other applicable rules. FINRA provided guidance in several areas during the rulemaking process to facilitate automation for firms that choose to employ it. First, as noted above in Question 3.4, members are permitted on certain conditions to determine PMP on an intra-day basis (e.g., at the time of trade), allowing dealers that generate confirmations intra-day to continue to do so. Second, as noted in Question 3.1 and discussed throughout this guidance, FINRA has acknowledged that members may develop policies and procedures that rely on reasonable, objective criteria to apply Rule 2121 at a systematic level. Consistent with the reasonable policies and procedures approach, FINRA further recognized during the rulemaking process that reasonable policies and procedures could result in different firms making different PMP determinations for the same security. (FINRA would expect, however, that the consistent application of policies and procedures within a firm would result in different traders or desks arriving at PMP determinations that are substantially the same under comparable facts and circumstances.)
3.9 May members develop objective criteria to automatically determine whether a trade is “contemporaneous” for purposes of establishing a presumptive PMP at the first step of the Rule 2121 waterfall analysis?
Yes. Members may reasonably establish an objective set of criteria to determine whether a trade is contemporaneous. For example, members could define an objective period of time as a default proxy for determining whether the trade is contemporaneous. Members could also define criteria to consider other relevant factors, such as whether intervening trades by other firms occurred at prices sufficiently different than the member’s trade to suggest that the member’s trade no longer reasonably reflects the current market price for the security, or whether changes in interest rates or the credit quality of the security, or news reports were significant enough to reasonably change the PMP of the security.
Given the different trading characteristics of different debt securities, and relevant court and SEC case law, it likely would not be reasonable for a member’s policies and procedures to determine categorically that all transactions that occur outside of a specified time frame are not “contemporaneous.”  Accordingly, members should include in their policies and procedures an opportunity to review and override the automatic application of default proxies (e.g., by reconsidering the application for transactions identified through reasonable exception reporting and specifying designated time intervals (or market events) after which such proxies will be reviewed).
3.10 Since Rule 2232 adopts a same-day trigger standard for mark-up disclosure, would it be reasonable to assume a same-day standard for determining whether trades are contemporaneous for purposes of determining PMP under Rule 2121?
FINRA notes that the determination of whether mark-up disclosure is required under Rule 2232 is distinct from the determination of whether a transaction is contemporaneous under the waterfall analysis. The PMP guidance under Rule 2121 provides that a dealer’s cost is considered contemporaneous if the transaction occurs close enough in time to the subject transaction that it would reasonably be expected to reflect the current market price for the security. While same-day transactions may often be contemporaneous according to this meaning, FINRA has not set forth a specific time-period that is categorically contemporaneous. As noted above in 3.9, FINRA would expect that reasonable policies and procedures account for trading characteristics and other relevant facts and circumstances.
3.11  How should members determine their contemporaneous cost if they have multiple contemporaneous purchases?
Members may rely on reasonable and consistently applied policies and procedures that employ methodologies to establish PMP where they have multiple contemporaneous principal trades. For example, a member could employ consistently an average weighted price or a last price methodology. Such methodologies could further account for the type of principal trade, giving greater weight to principal trades with other dealers than to principal trades with customers.
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3.13  Are members allowed to adjust their contemporaneous cost when they execute offsetting customer trades?
Yes. Members may adjust their contemporaneous cost where a member’s offsetting trades that trigger disclosure under Rule 2232 are both customer transactions. FINRA has noted that this approach allows the member to avoid “double counting” in the mark-up and mark-down it discloses to each customer. For example, if a member buys 100 bonds from Customer A at a price of 98 and immediately sells 100 of the same bonds to Customer B at a price of 100, it may apportion the mark-up and mark-down paid by each customer. In this case, if the member determines PMP to be 99, it would disclose to Customer A a total mark-down of $1000, or 1.01% of PMP, and it would disclose to Customer B a total mark-up of $1000, or 1.01% of PMP.
3.14  May members apportion their expected aggregate monthly fees—for example to access an alternative trading system (ATS) or other trading platform—to individual contemporaneous transactions to be included in their contemporaneous costs?
No. For any given mark-up on a transaction, Rule 2121 requires dealers to look first to their contemporaneous cost as incurred. FINRA does not believe it would be consistent with Rule 2121 for dealers to consider an estimated apportionment of a future charge to be part of the specific cost they incurred in a contemporaneous transaction.
3.15  In determining contemporaneous cost, may members include transaction fees—for example to access an ATS or other trading platform—that were included in the price they paid?
Yes, provided the transaction fee is reflected in the price of the contemporaneous trade that is reported to TRACE consistent with FINRA rules and guidance on pricing, trade reporting, and fees. FINRA will monitor and adjust this guidance as needed if it determines that pricing practices change in a way that diminishes the utility and reliability of mark-up disclosure.
3.16  May a member treat its own contemporaneous transaction as “isolated” and therefore disregard it when determining PMP?
No. According to the Rule 2121 guidance, isolated transactions or isolated quotations generally will have little or no weight or relevance in establishing PMP. However, the concept of “isolated” transactions or quotations does not apply to a dealer’s contemporaneous cost, which presumptively determines its own PMP.
3.17  Rule 2121 notes that changes in interest rates may allow a dealer to overcome the presumption that its own contemporaneous cost is the best measure of PMP. Does this refer only to formal policy interest rate changes, or does it also contemplate market changes in interest rates?
It refers to any change in interest rates, whether the change is caused by formal policy decisions or market events. However, Rule 2121 notes that a dealer may overcome the presumption that its contemporaneous cost is the best measure of PMP based on a change in interest rates only in instances where they have changed after the dealer’s transaction to a degree that such change would reasonably cause a change in debt securities pricing.
3.18  Rule 2121 notes that changes in the credit quality of the debt security may allow a dealer to overcome the presumption that its own contemporaneous cost is the best measure of PMP. Does this refer only to formal credit rating changes, or does it also contemplate market changes in implied or observed credit spreads such as those due to market-wide credit spread volatility or anticipated changes in the credit quality of the individual issuer?
It refers to any changes to credit quality, with respect to that particular security or the particular issuer of that security, whether the change is caused by a formal ratings announcement or market events. Thus, for example, this could include changes in the guarantee or collateral supporting repayment as well as significant recent information concerning the issuer that is not yet incorporated in credit ratings (e.g., changes to ratings outlooks). However, Rule 2121 notes that a dealer may overcome the presumption that its contemporaneous cost is the best measure of PMP based on a change in credit quality only in instances where it has changed significantly after the dealer’s transaction.
3.19  May members adopt a reasonable default proxy where Rule 2121 refers to trades between dealers and institutional accounts with which any dealer regularly effects transactions in the same security, if such information is not reasonably known to them?
Yes. Consistent with a reasonable policies and procedures approach to PMP determination, members reasonably may use objective criteria as a proxy for the elements of these steps of the waterfall that they cannot reasonably ascertain, such as whether a customer transaction involves an institutional customer and whether that institutional customer regularly trades in the same security with any dealer. A reasonable approach might assume that transactions at or above a $1,000,000 par amount involve institutional customers, since that size transaction is conventionally considered to be an institutional-sized transaction. In addition, because institutional investors transacting at or above this size threshold are typically sophisticated investors, the same size proxy might be used to assume that the institutional customer regularly transacts with a dealer in the same security.
3.20  Can an “all-to-all” platform (i.e., one that allows non-dealers to participate) qualify as an inter-dealer mechanism at the step of the waterfall that refers to bids and offers for actively traded securities?
Yes, provided that members determine that the prices available on an “all-to-all” platform are generally consistent with inter-dealer prices. Members should include in their policies and procedures how they will periodically review a platform’s activity to make such a determination.
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3.22  In considering bids and offers for actively traded securities made through an inter-dealer mechanism, how can a dealer determine that transactions generally occur at the displayed quotations on the inter-dealer mechanism?
Consistent with a reasonable policies and procedures approach, a dealer could request and assess from the platform relevant statistics and relevant information reasonably sufficient to conclude that the inter-dealer mechanism meets the applicable requirements under the guidance. A dealer could then periodically request and assess updated statistics and relevant information to confirm that the inter-dealer mechanism continues to satisfy the requirements.
3.23  At the similar securities stage of the waterfall analysis, how can a dealer determine on a systematic basis that an inter-dealer quotation is “validated”?
Consistent with a reasonable and consistently applied policies and procedures approach to PMP determination, for example, a dealer could determine that a bid (offer) quotation is validated if it is quoted on an inter-dealer mechanism (including the all-to-all platforms that qualify, as discussed above). With respect to a member’s own bids or offers, members are reminded of their existing regulatory obligations under applicable FINRA rules regarding bona fide quotations, for example, Rule 5210.
FINRA understands that the MSRB may provide different guidance on this point, based on the unique characteristics of the market for municipal securities.
3.24  May a dealer use the same process it uses to identify a “similar” security for best-execution purposes to identify “similar” securities for prevailing market price purposes?
Yes. Assuming the dealer’s process for identifying “similar” securities for best-execution purposes is reasonable, a dealer may rely on the same process in connection with identifying similar securities under the PMP guidance.
FINRA understands that the MSRB may provide different guidance on this point, based on the unique characteristics of the market for municipal securities.
3.25  How is the “relative weight” provision in paragraphs (b)(5) and (b)(6) of Rule 2121, Supplementary Material .02 meant to be used in operation?
This provision is meant to be used when there is more than one comparison transaction or quotation within the categories specified in paragraph (b)(5) and when there is more than one comparison transaction or quotation within (b)(6). In these cases, a member may consider the facts and circumstances of the comparison transactions or quotations to determine the weight or degree of influence to attribute to a particular transaction or quotation. For example, a member might give greater weight to more recent (timely) comparison transactions or quotations. Similarly, to the extent a member considers comparison transactions or quotations in which that member is on the same side of the market as the dealer in the subject transaction (if known from dealer customer trade reports), a member might give relatively less weight or influence to such information in determining PMP than information from transactions or quotations in which the member was on the opposite side of the market from the member in the subject transaction.
Consistent with a reasonable policies and procedures approach to the PMP determination, a member may adopt a reasonable methodology that it will consistently apply when considering the facts and circumstances of comparison transactions or quotations and assigning relative weight to such transactions or quotations. For example, a dealer might employ an average weighted price methodology (if all relevant trade sizes are publicly available) or last price methodology, provided its policies and procedures called for the reasonable and consistent use of the methodology and did not ignore potentially relevant facts and circumstances such as side of the market.
FINRA understands that the MSRB may provide different guidance on this point, based on the unique characteristics of the market for municipal securities.
3.26  When dealers consider the hierarchy factors of the waterfall under Rule 2121, Supplementary Material .02(b)(5), or similar securities under paragraph (b)(6), may they consider the size of comparison transactions to determine their relative weight?
Yes. Paragraphs (b)(5) and (b)(6) include a non-exhaustive list of facts and circumstances that may impact the “relative weight” of comparison transactions or quotations that may be considered at that point in the waterfall analysis. FINRA believes it would be reasonable to consider the size of a comparison transaction when considering its relative weight.
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3.28  Must dealers keep their PMP determination for each trade in their books and records?
FINRA believes that members should keep records to demonstrate their compliance with Rule 2121, particularly where they have the evidentiary burden to demonstrate why a contemporaneous transaction was not the best measure of PMP for a given trade. FINRA further notes that it would expect PMP documentation to be an important component of a firm’s system to supervise compliance with Rules 2121 and 2232.
3.29  Is there a difference between the PMP that is determined for mark-up disclosure purposes under Rule 2232 and for fair pricing purposes under Rule 2121?
As noted during the rulemaking process, FINRA recognizes that by allowing members to determine PMP for mark-up disclosure purposes at the time of entry of information into systems for confirmation generation, a mark-up disclosed on a confirmation may not reflect subsequent trades that could be considered “contemporaneous” under existing Rule 2121 guidance. However, FINRA does not believe it is necessary to make a formal distinction between a PMP determined for disclosure purposes and a PMP determined for other regulatory purposes. Still, in connection with any post-transaction fair pricing review process, members should not disregard any new information relevant under Supplementary Material .02 that occurs after the mark-up determination (e.g., contemporaneous proceeds obtained after the customer transaction).

Section 4:  Time of Execution and Security-Specific URL Disclosures

4.1  When must members disclose the time of execution on a customer confirmation?
Under Rule 2232, members must disclose the time of execution, expressed to the second, for all non-institutional customer trades in corporate and agency debt securities. This time of trade disclosure requirement is not limited to circumstances where mark-up disclosure is triggered; because it applies to all non-institutional customer trades in corporate and agency debt securities, it is required where mark-up disclosure is not. Trades not subject to this rule may nevertheless be subject to other requirements concerning time of execution disclosure, for example under SEC Rule 10b-10.
4.2  How should the time of execution be disclosed?
Members should disclose the time of execution, expressed to the second, as they report it to TRACE.
FINRA understands that the MSRB may provide different guidance on this point, based on its different reporting requirements.
4.3  When must members disclose a security-specific URL on a customer confirmation?
Under Rule 2232, members must disclose a security-specific URL, in a format specified by FINRA as discussed below, for all non-institutional customer trades in corporate and agency debt securities. This URL disclosure requirement is not limited to circumstances where mark-up disclosure is triggered; because it applies to all non-institutional customer trades in corporate and agency debt securities, it is required where mark-up disclosure is not.
4.4  What is the security-specific URL that must be disclosed?
The template for the URL that must be disclosed under Rule 2232 is: http://‌bondfacts.finra.org/<CUSIP>. The URL is currently live and operational. Paper confirmations must include this URL with the security-specific CUSIP in print form; electronic confirmations must include the security-specific URL as a hyperlink to the web page.
The MSRB has provided its own security-specific URL template in its guidance.
4.5  Do members need to provide any other disclosure concerning the security-specific URL?
Yes, members must include a brief description of the type of information that is available on the security-specific web page for the subject security, which will include information about the prices of other transactions in the same bond, as well as additional market data and educational material that FINRA believes will be useful to retail investors.
4.6  Is disclosure of the time of execution or security-specific URL required by Rule 2232 for transactions that involve a dealer and a registered investment adviser?
No. Disclosure of the time of execution and security-specific URL is not required for transactions with an institutional customer. Under Rule 4512(c), an “institutional account” includes the accounts of registered investment advisers; accordingly, disclosure is not required for these transactions. This is the case even if the registered investment adviser with whom the dealer transacted later allocates all or a portion of the securities to a retail account or where the transaction is executed directly for a retail account if the investment adviser has discretion over the transaction. FINRA notes that this answer is specific to the time of execution and security-specific URL disclosure requirements in Rule 2232; it is not intended to alter any other obligations.