The Financial Industry Regulatory Authority issued a regulatory notice requesting comment to revisions on a proposed rule that would enhance information disclosure standards for retail-size customer trades of corporate and agency debt securities. The proposed rule would require a firm engaged in these transactions to disclose on every customer confirmation the price to the customer, the price to the firm of the same-day trade and the difference between those prices.
After receiving 30 comments questioning the burdens and applicability of the original proposal, FINRA proposed several revisions. First, FINRA initially proposed that the new disclosure requirements would apply to transactions involving 100 bonds or less or bonds with a face value of $100,000 or less. FINRA proposed replacing this qualifying size requirement with a blanket exclusion for transactions involving institutional accounts. Second, FINRA had proposed several methodologies that firms could use to determine the reference price for disclosure when a transaction involved multiple firm trades. FINRA’s revised proposal allows for greater flexibility by permitting firms to use reasonable alternative methodologies as long as they are adequately documented and consistently used. Third, the original proposal forced firms to disclose market prices even when certain events, such as a credit downgrade, materially impacted those prices. In response, FINRA’s amended proposal would permit firms to avoid disclosing reference prices in these circumstances or allow for clarifying information to be provided. Fourth, the original proposal required firms to disclose price information if a principal trade occurred on the same date as a customer trade. FINRA’s revised proposal would exclude firm-side transactions from these disclosure requirements as long as the firm implements policies and procedures that separate and distinguish institutional and retail trading desk activity. Fifth, FINRA decided to distinguish the types of principal trades that would trigger disclosure. In doing so, the revised proposal would exclude principal trades with affiliates involving positions the affiliate acquired on a previous trading day. Sixth, the original proposal did not exempt fixed price offerings from disclosure requirements. The revised proposal would exclude fixed price offering transactions from disclosure obligations but maintain these responsibilities for variable price offerings.
In addition to these changes, FINRA rejected proposals that would relieve firms from disclosure responsibilities if they provided TRACE data to customers. Instead, FINRA emphasized that customers need to receive both the TRACE data and the price disclosure information.