The Financial Industry Regulatory Authority recently updated its COVID-19 frequently asked questions guidance to address broker-dealers providing customers with fixed income markup disclosure information as well as providing payment relief for funding portals.
FINRA states that volatile market conditions resulting from the COVID-19 pandemic may impact the rate at which broker-dealers disclose fixed income markups under FINRA Rule 2232.
Rule 2232 requires firms to provide retail customers with markup disclosure (and other related disclosures) for trades in corporate and agency debt securities that firms offset on the same day with other principal trades in the same security, FINRA explains.
Disclosed markups must be calculated from a security’s Prevailing Market Price (PMP), consistent with FINRA Rule 2121 and applicable FAQ guidance.
“FINRA recognizes that the volatile market conditions due to the COVID-19 pandemic may make it more difficult to determine PMP according to a firm’s existing procedures, the updated FAQ explains.
In particular, “where customer trades are not tied to immediately offsetting principal trades, it may be more difficult for a firm to evaluate whether its offsetting principal trades remain reasonably indicative of PMP, based on the factors identified in Rule 2121 and applicable guidance, given such volatile market conditions. Accordingly, while these current market conditions persist, FINRA understands that firms may generate a higher number of exceptions that they evaluate as part of their supervisory review process.”
Firms that perform an exception review process after they issue confirmations with markup disclosure should continue to follow existing guidance on providing corrected confirmations when needed, FINRA states.
“In all cases, firms should take particular care to document the basis for correcting a Prevailing Market Price and to apply their policies and procedures consistently, in line with applicable guidance,” according to FINRA.
Funding portals registered with FINRA will also be allowed to spread out payment of their gross income assessment.
While FINRA’s funding portal members are not identified as small firms under the FINRA by-Laws because they do not have registered persons, they are similarly situated to small firms in terms of the Gross Income Assessment, FINRA said.
FINRA is therefore providing relief to funding portal members similar in fashion to small firms.
Ordinarily, invoices for the FPGIA are distributed in April of each year and are due in full within 30 days. However, FINRA is permitting funding portal members to treat the invoices as billed as of Aug.1, 2020, rather than as due in full within 30 days of the invoice.
Further, funding portal members that choose to do so will be allowed to pay 50% of the amount due on Sept. 1, and the remaining 50% on Dec. 1.
A funding portal member that exits FINRA membership before Sept. 1 will not be expected to pay the FPGIA for 2020.