Regulatory Notice 15-27

Guidance Relating to Firm Short Positions and Fails-to-Receive in Municipal Securities

Executive Summary

FINRA is issuing this Notice to remind firms engaging in municipal securities transactions that their written supervisory procedures should identify the process for detecting, resolving and preventing the consequences of firm short positions and fails-to-receive in municipal securities, as well as the controls for ensuring that communications with customers regarding municipal securities transactions, including the tax status of interest payments, are not false or misleading. FINRA examinations have found that, as a result of trading errors and inadequate firm controls, some customers who purchased tax-exempt municipal securities have been paid substitute interest, which is not tax-exempt under the Internal Revenue Code.

Questions concerning this Notice should be directed to:

  • Mark Frankenberg, Director, Risk Oversight and Operational Regulation, at (646) 315-8816;
  • Cynthia Friedlander, Director, Fixed Income Regulation, Regulatory Operations, at (202) 728-8133; or
  • Andrew Madar, Associate General Counsel, Office of General Counsel, at (202) 728-8056.