November 24, 2024
Volume XIV, Number 329
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Financial Industry Regulatory Authority Files Proposed Amendment to FINRA Rule 2232
Friday, August 19, 2016

On August 15, the Securities and Exchange Commission published the Financial Industry Regulatory Authority’s proposed amendment to FINRA Rule 2232, which will require FINRA members to provide additional price disclosures to retail customers in relation to certain transactions in fixed income securities. FINRA believes the proposed amendment will allow customers to better evaluate the cost and quality of execution services provided by FINRA members, promote transparency into firms’ pricing practices, and encourage communications between firms and their customers with respect to pricing in fixed income transactions.

Specifically, the proposed amendment would require a FINRA member to disclose its mark-up or mark-down from the prevailing market price of a security where the FINRA member (1) engages in a transaction in corporate debt or agency debt securities as a principal opposite a retail customer and (2) executes one or more offsetting principal transactions on the same day in the same security that, in the aggregate, meet or exceed the size of the customer transaction.

Where a FINRA member engages in an offsetting transaction with an affiliate, the proposed amendment would require the member to “look through” its transaction with the affiliate to the affiliate’s transaction with a third party if the offsetting principal transaction is not conducted on an arm’s length basis. A transaction is conducted on an arm’s length basis if there is a competitive process in which non-affiliate firms are also able to participate and the affiliate relationship does not influence the price paid or proceeds received by the FINRA member.

The proposed amendment contains two exceptions from the disclosure requirement: the first exception pertains to same day, offsetting principal trades conducted by a trading desk functionally separate from the desk that executed the transaction with the retail customer, and the second exception pertains to certain fixed-price offerings.

Comments concerning the proposed amendment must be submitted within 21 days of its publication in the Federal Register. The SEC’s publication is available here.

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