fixed-income securities

On October 16, the Financial Industry Regulatory Authority (FINRA) published its 2019 Report on Examination Findings and Observations (Report). Unlike previous years, the Report delineates between examination “findings” and examination “observations.” “Findings” describe violations of a rule or regulation, whereas “observations” refer to suggestions regarding how firms can improve controls and mitigate risk. The annual Report summarizes various findings and observations from recent examinations of its member firms on a range of topics, including the following:
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On April 12, the Financial Industry Regulatory Authority (FINRA) published a regulatory notice (the “Notice”) requesting comment on a proposed pilot program to study proposed changes regarding corporate bond block trade dissemination based upon recommendations by the Fixed Income Market Structure Advisory Committee (FIMSAC) of the Securities and Exchange Commission. The changes are aimed at improving corporate bond block trade dissemination—mainly, by increasing block liquidity without imposing significant costs on market participants. Currently, FINRA’s Trade Reporting and Compliance Engine (TRACE) provides information to the marketplace regarding corporate bonds and other debt securities. It is intended that the pilot program will study FIMSAC’s recommendations to determine whether such recommendations can enhance current TRACE protocols.
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The Financial Industry Regulatory Authority (FINRA) has filed with the Securities and Exchange Commission a proposed rule change to establish a new issue reference data service for corporate bonds. FINRA currently requires underwriters of initial offerings for corporate bonds to submit information relating to the bonds to FINRA under Rule 6760. This information is limited to a handful of data fields generally needed to set up a bond on TRACE for trade reporting purposes. If adopted, the rule change will expand the number of fields to include a more comprehensive set of data for corporate bond new issues.
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The Securities and Exchange Commission has approved amendments to Financial Industry Regulatory Authority (FINRA) Rule 2232 (Customer Confirmations) that require FINRA-member firms to disclose additional information to retail customers with respect to transactions in certain fixed income securities (the “Final Rules”). The Final Rules require the disclosure in customer confirmations of (1) the mark-up or mark-down applicable to certain transactions in corporate or agency debt securities; (2) a reference and hyperlink (if the confirmation is electronic) to the website established by FINRA, which contains publicly available trade data; and (3) the execution time of the transaction such that a customer may locate its individual transactions when accessing FINRA’s website.
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On August 15, the Securities and Exchange Commission published the Financial Industry Regulatory Authority’s proposed amendment to FINRA Rule 2232, which will require FINRA members to provide additional price disclosures to retail customers in relation to certain transactions in fixed income securities. FINRA believes the proposed amendment will allow customers to better evaluate the cost and quality of execution services provided by FINRA members, promote transparency into firms’ pricing practices, and encourage communications between firms and their customers with respect to pricing in fixed income transactions.
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