FINRA’s Mark-Up and Commission Requirements Extended to Government Securities Transactions
Commentary by Steven Lofchie
The SEC approved a proposed rule change to FINRA Rule 0150 ("Application of Rules to Exempted Securities Except Municipal Securities") that applies to FINRA Rule 2121 ("Fair Prices and Commissions") and its Supplementary Material .01 ("Mark-up Policy") and .02 ("Additional Mark-up Policy for Transactions in Debt Securities, Except Municipal Securities") to transactions in exempted securities that are government securities. The SEC's rule change approval was published in the Federal Register.
Commentary
Historically, FINRA's mark-up rules had not applied to government securities, either because the SEC was deferring to the authority of Treasury, or because of a more general concern that applying any requirements to government transactions would damage the liquidity of the market. While there are certainly many places where legitimate concerns of bad rules damaging the market should be taken very seriously, this is not one of them. There is no reason that retail investors should not be protected with respect to excessive markups on sales of highly-liquid and creditworthy securities. To the extent that the regulators are to be concerned as to how rules affect the market, for good or worse, it would make much more sense to look at how the mark-up rules work on the other end of the investment spectrum; i.e., sales of distressed bonds to institutional investors.