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FINRA, MSRB Plan to Require More Fixed-Income Pricing Disclosure

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The Financial Industry Regulatory Authority and the Municipal Securities Rulemaking Board released Monday companion proposals that would require disclosure of pricing reference information on customer confirmations for transactions in fixed income securities.

The proposals, which are substantially similar, seek input on factors unique to the corporate and municipal bond markets.

Under the FINRA and MSRB proposals, bond dealers in retail-sized fixed income transactions would be required to disclose on the customer’s confirmation the price of certain same-day principal trades in the same security, as well as the difference between this reference price and the customer’s price.

Comments on the FINRA and MSRB proposals are due by Jan. 20.

“Requiring additional pricing-related disclosure to investors as part of the customer confirmation promotes price transparency and will benefit customers in retail-sized trades,” said Robert Colby, FINRA’s chief legal officer, in a statement.

Trade prices are publicly available for corporate bonds on FINRA’s Trade Reporting and Compliance Engine (TRACE) and for municipal securities on the MSRB’s Electronic Municipal Market Access (EMMA) website.

Jonathan Sokobin, FINRA’s chief economist, said in the statement that both bodies invite commenters “to provide data where possible to inform our analysis of the potential economic impact of the current proposals and any alternative approaches,” including a potential markup disclosure requirement targeting trades that could be considered riskless principal transactions.

MSRB Executive Director Lynnette Kelly added in the statement that MSRB’s “approach takes information already available to the public online but provides it directly to retail investors at the time of the transaction, enabling them to more easily evaluate their transaction costs.”

Kelly said that publishing the proposals simultaneously “will allow for efficient responses to both proposals and facilitate consideration of whether any differences between the municipal securities and corporate bond markets justify differences in regulations in this area.”

The Securities and Exchange Commission recommended that the MSRB consider requiring disclosure of pricing reference information to retail investors as part of a series of recommendations related to price transparency in the SEC’s 2012 Report on the Municipal Securities Market.

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