FINRA and MSRB Propose Requiring Confirmation Disclosure of Pricing Information in Fixed Income Securities Transactions (FINRA Reg. Notice 14-52; MSRB Reg. Notice 2014-20)
FINRA and the MSRB issued separate Regulatory Notices requesting comments on companion rule proposals that would require firms to disclose additional information on customer confirmations for transactions in fixed income securities. Although the proposals are similar, FINRA and the MSRB seek input on factors that are unique to the corporate and municipal bond markets, respectively.
Although they differ in terms of details, the proposals have similar broad policy aims. Both proposals would require firms to disclose, in confirmations for "retail-size" transactions with customers, the price of certain same-day principal trades in the same security. The proposals would also require the disclosure of the difference between the "reference" price and the customer's price.
Comments on the proposals are due by January 20, 2015.
See: MSRB Reg. Notice 2014-20; FINRA Reg. Notice 14-52; FINRA Rule 2232; MSRB Rule G-30; BD Guide - Trading Chapter, § XII.
Related news: SEC Chair White Discusses Intermediation in Securities Market; Focuses on Debt Markets, Particularly Munis (with Lofchie Comment) (June 20, 2014); SEC Commissioner Gallagher Discusses Muni Market Issues (with Lofchie Comment) (May 29, 2014).
Commentary
These two proposals follow years of reports and discussions by the securities industry and regulators on disclosure practices in fixed income securities. Over twenty years ago, the SEC proposed amending Exchange Act Rule 10b-10 to require the disclosure of markups on debt securities. See Exchange Act Release No. 34-34962. More recently (see links below), the issue has been raised by multiple SEC commissioners, leading one commenter to say that "it seems likely that very significant additional regulation is on the horizon."
The proposals are likely to encourage more reports and discussions. If enacted, the proposals would impose significant costs on firms transacting in retail sizes in debt securities. FINRA staff says it will estimate those costs based on information received through the public comment process.