FINRA Posts Guidance on Disclosure to Retail Customers

The Financial Industry Regulatory Authority has released guidance to help securities firms implement a new rule requiring enhanced price disclosure to retail customers for trades in corporate and agency bonds. The new requirements go into effect May 14, 2018.

The guidance, in the form of answers to frequently asked questions (FAQ), covers such topics as when the new disclosure requirements are triggered; the scope of securities and transactions subject to the new rule; the required content and form of disclosure; and the determination of prevailing market price.

The new rule, approved by the Securities and Exchange Commission in November 2016, will require that firms disclose on retail customer confirmations the “mark-up” or “mark-down” for certain transactions in corporate and agency bonds. FINRA has found that some individual investors pay considerably more than others for similar trades, and believes that providing meaningful and useful pricing information will assist customers in monitoring costs and help enhance investor confidence in the market.

Specifically, under the new rule, if a firm sells or buys a corporate or agency bond to or from retail customers, and on the same day buys or sells the same security as a principal from another party in an equal or greater amount, the firm will have to disclose on the customer confirmation the firm’s mark-up or mark-down from the prevailing market price for the security, subject to limited exceptions. The new rule also requires all retail confirmations for corporate and agency bond trades to include the execution time and a reference (and hyperlink if the confirmation is electronic) to trade-price data in the security from TRACE, FINRA’s Trade Reporting and Compliance Engine.