The Financial Industry Regulatory Authority (FINRA) has proposed NASD Rule 2231, which would mandate enhanced informational disclosures to investors in TRACE-Eligible debt securities. Proposed disclosures on the customer’s confirmation would include specific debt security information such as CUSIP and TRACE symbol, broker-dealer transaction charges or that a mark-up or mark-down was charged in a principal transaction, lowest credit rating of the bond (including source), and cash flow information including the frequency of interest and/or principal payments. Other proposed confirmation disclosures include yield to maturity and call feature information, and variable coupon rate information. Members would be required to inform customers that transaction price information is publicly available at no charge on the FINRA web site at www.bondinfo.com.
The proposed rule would require members to disclose in account statements to customers buying or selling TRACE-Eligible debt securities that a FINRA-prepared document titled, “Important Information You Need to Know About Investing in Corporate Bonds” is available either on the web at www.finra.org, or from their broker-dealer upon written request. The document must be provided within three business days of a customer’s written request, or ten business days if the request is received more than six months after the transaction.
The investor education piece provides investors with basic information on bond investing, including corporate bond basics (yield, price, call features), corporate bond risks (investment risk, call and reinvestment risk, refundingrisk and sinking funds provisions, default and credit risk, liquidity risk) and special features (floating rate bonds, zero-coupon bonds, secured bonds, convertible bonds and junior or subordinated bonds). The FINRA-prepared document also includes a section on broker compensation for selling bonds, and information about what a similar bond might cost.