On January 20, the Securities and Exchange Commission commented on the Financial Industry Regulatory Authority’s proposed amendment to FINRA Rule 2232 regarding transparency on prices in certain retail transactions in fixed-income securities.
The proposed rule amendment would require disclosure of the price of the member firm’s offsetting trade with respect to retail-sized trades and the price differential when the offsetting trade occurs within the same trading day.
The SEC stated that while individual investors have access to FINRA’s Trade Reporting and Compliance Engine (TRACE), customer confirmations are not required to include prices of securities, and it may be difficult for individual investors to determine the value of a security using publicly available information. The proposed rule would also bring transparency to FINRA member firms’ practice of offsetting trades within the same day, potentially preventing such member firms from charging excessive mark-ups.
The SEC urged FINRA to retain the provision in the proposed rule requiring member firms to disclose the price paid or received by the member firm in third-party transactions, stating that it would be much less burdensome for member firms than investors to provide such information. The SEC also stated that even small price differentials should be disclosed. Finally, the SEC supported the rule proposal’s broad reach, requiring pricing information disclosures for all trades, not just “riskless principal” trades, as a broader approach provides a clear standard for member firm compliance.
Click here to read the SEC comment letter.