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April 11, 2014 at 10:06 AM
(Bloomberg) — The Financial Industry Regulatory Authority is examining whether Wall Street firms overcharge investors on some bond trades and whether they unfairly allocate new corporate debt issues to reward certain clients.
Richard Ketchum, the chairman and chief executive officer of Wall Street’s self-regulator, said FINRA is looking at trading data to see if brokers sometimes earn unusually large profits on bond trades, according to a report in the Wall Street Journal. The investigation could lead to enforcement action or an instruction to reduce the spread between buying and selling prices, the report said. Nancy Condon, a spokeswoman for FINRA, confirmed the report in an e-mail.
In matched trades, where banks and other dealers join a buyer to a seller, profits of more than 1.5 percent to 2 percent would be “questionable,” Ketchum said, according to the newspaper’s account of the interview.
FINRA is also working with the Securities and Exchange Commission to examine whether underwriters give the largest portions of new debt issues to their biggest customers, according to the report. That could allow the buyers to make a quick profit by selling them at a higher price to investors shut out of the initial deal.
The SEC is looking at the practice of dealers showing clients different prices for the same securities on electronic bond-trading platforms, a person with direct knowledge of the inquiry told Bloomberg last month. Regulators are examining whether being able to turn quotes on and off allows market manipulation, and whether smaller buyers are given worse prices, the person said.
Regulatory scrutiny
