FINRA and the MSRB updated FAQs (MSRB version here) regarding the confirmation disclosure requirements for fixed-income transactions. The requirements, which were amended in MSRB Rule G-15 and FINRA Rule 2232 and approved by the SEC in November 2016, are scheduled to become effective on May 14, 2018.
The enhanced confirmation disclosure requirements will affect brokers, dealers and municipal securities dealers. The FAQs review the new requirements concerning the confirmation disclosure of mark-ups and mark-downs, as well as time of execution. The FAQs also address the purpose of the URL hosted by FINRA and MSRB, which must be given on a customer's confirmation.
The updates to the FAQs include, among other things:
- a clarification that position moves between separate desks are not "transactions" under the rule;
- a list of factors to be considered in determining whether a transaction is an "arm's-length transaction" under the rules;
- a clarification that all hybrid securities that are TRACE-eligible are subject to mark-up disclosure under Rule 2232;
- details on how firms should determine the "prevailing market price" for purposes of the rule; and
- an indication that FINRA expects firms to employ supervisory review processes to consider the reliability of their market price determinations, and what that might entail.
Commentary / Nihal Patel
All firms that engage in fixed-income transactions with retail customers should closely review the updated FAQs, particularly given that the requirements go into effect in less than two months. Firms should also note that the FINRA and MSRB FAQs are similar but not identical. FINRA noted that there are differences in the FAQs based on differences between municipals and other types of debt, and that the MSRB included certain FAQs specific to their rules but not relevant to the FINRA requirements.
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