On June 7, 2016, the SEC’s Investor Advisory Committee (the “Committee”)4 provided recommendations (the “Recommendations”)5 regarding certain proposals set forth in FINRA’s Regulatory Notice 15-36 and the Municipal Securities Rulemaking Board (“MSRB”) Regulatory Notice 2015-16.6 The Recommendations reflect the SEC’s ongoing efforts to enhance transparency in the market for fixed income securities.
FINRA Regulatory Notice 15-36 was released in October 2015 and set forth proposed rules for FINRA members to disclose additional information on customer confirmations, such as requiring them to disclose the bond price that the member paid, if the member acquired the security near in time to the resale, so an investor could see the markup or markdown on the customer confirmation.7 The Recommendations advise the SEC to work with FINRA and MSRB to implement rules based on these proposals. The Recommendations further seek to provide enhanced disclosure of full transaction bond costs, enhanced access to material information prior to the investment decision and greater transparency in the bond market.
First, the Committee recommends that the SEC work with MSRB and FINRA to require dealers to provide more price information to retail investors regarding the transaction costs of purchasing or selling bonds on both an agency and principal basis.8
In the longer term, the Recommendations also ask the SEC to work with brokers, FINRA and the MSRB to provide full transaction cost information to investors prior to the purchase or sale of any bond. Brokers generally provide price and yield information to potential investors before a transaction occurs. The Recommendations would require that full transaction costs, including broker-dealer fees and commissions (“transaction costs”), be fully disclosed to potential investors with other bond-specific information prior to the transaction.
Finally, the Committee is recommending that the SEC work with the MSRB and FINRA to improve and enhance investor access and transparency regarding recent transactions in the bond market for municipal, agency and corporate bonds. Currently, the MSRB manages the Electronic Municipal Market Access (“EMMA”) website, which provides information on recent municipal bond transactions, but is not necessarily easy to navigate. Similarly, the Recommendations suggest that FINRA’s TRACE system could provide additional data to make it more useful to retail investors.