WASHINGTON — The Financial Industry Regulatory Authority has released guidance to help securities firms implement a new rule requiring enhanced price disclosure to retail investors for trades in corporate and agency bonds. The new requirements go into effect May 14, 2018.
The guidance, in the form of answers to frequently asked questions (FAQ), covers such topics as when the new disclosure requirements are triggered; the scope of securities and transactions subject to the new rule; the required content and form of disclosure; and the determination of prevailing market price.
The FAQ from FINRA coincide with parallel guidance from the Municipal Securities Rulemaking Board (MSRB), which is implementing comparable requirements at the same time, exemplifying coordination and harmonized requirements across the different regulators.
“We are providing guidance to facilitate a smooth and effective implementation, which we have coordinated with the MSRB and consulted on with SEC staff,” said Robert L.D. Colby, FINRA’s Chief Legal Officer. FINRA welcomes feedback and additional questions to be considered for future FAQ. FINRA also plans to continue its active engagement with the industry on this issue, including participating in a half-day seminar hosted by the MSRB on Nov. 2, 2017, to further facilitate compliance.
The new rule, approved by the Securities and Exchange Commission in November 2016, will require that firms disclose on retail-customer confirmations the “mark-up” or “mark-down” for certain transactions in corporate and agency bonds. FINRA has found that some individual investors pay considerably more than others for similar trades, and believes that providing meaningful and useful pricing information will assist customers in monitoring costs and help enhance investor confidence in the market.
Specifically, under the new rule, if a firm sells or buys a corporate or agency bond to or from a retail customer, and on the same day buys or sells the same security as a principal from another party in an equal or greater amount, the firm will have to disclose on the customer confirmation the firm’s mark-up or mark-down from the prevailing market price for the security, subject to limited exceptions. The new rule also requires all retail confirmations for corporate and agency bond trades to include the execution time and a reference (and hyperlink if the confirmation is electronic) to trade-price data in the security from TRACE, FINRA’s Trade Reporting and Compliance Engine.
FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit finra.org.