FINRA Requests Comments on Applicability of Certain Rules to Government and other Debt Securities
Commentary by Steven Lofchie
FINRA requested comments on the application of certain of its rules to government securities, and, as to certain of these rules as to how they should apply to all securities. In Regulatory Notice 18-05, FINRA noted that many of its rules do not apply to government securities. (FINRA rules that apply to government securities are listed in FINRA Rule 0150.) FINRA is seeking input on the benefits or harms and implications of these exclusions. The review requested by the SEC Division of Trading and Markets.
FINRA is soliciting comments on the following rules:
-
FINRA Rule 2242 ("Debt Research Analysts and Debt Research Reports");
-
FINRA Rule 5320 ("Prohibition Against Trading Ahead of Customer Orders") [seeking comment as to application to all debt securities];
-
NASD Rule 1032(f) ("Securities Trader") [seeking comment as to application to all debt securities];
-
NASD Rule 1032(i) ("Limited Representative – Investment Banking"); and
-
NASD Rule 1050 ("Registration of Research Analysts") [seeking comment as to application to all debt securities].
FINRA provided background information and questions for consideration concerning each of the rules listed above.
FINRA encouraged commenters to include empirical data or other factual support for their comments. Comments must be submitted by April 9, 2018.
Commentary
This is a very significant request for comments. While the request is seemingly focused on governments (FINRA should also make a broad study of the applicability of its rules to transactions in municipals), that focus may not be the most significant aspect of the request. Firms should be particularly mindful of the significance of the request for comments that is directed at debt securities generally. Depending on how FINRA (and the SEC) ultimately determine that its rules should apply to trading in debt securities, one can imagine the potential for very significant changes in the way that debt securities trade; e.g., moving from a principal market to a semi-agency market.