WASHINGTON — Two self-regulatory organizations will host a joint educational webinar on proposed rules that would require dealers acting as principals to disclose to customers on their confirmations a "reference price" of the same security traded that same day as well as the difference between that price and the customer's price.
The free webinar, sponsored by the Municipal Securities Rulemaking Board and the Financial Industry Regulatory Authority will take place Dec. 18 and is intended to help market participants as they prepare to submit comments on the proposals that they unveiled earlier this month, according to a release. The MSRB proposal covers municipal bonds. FINRA has responsibility for enforcing MSRB rules under Securities and Exchange Commission supervision. FINRA's proposal covers fixed income securities in general.
The proposals are an attempt to address concerns about hidden markups in so-called "riskless principal transactions," when bonds are bought and sold within a short period of time so the dealer has little risk the market will change. There have been increasingly loud calls for dealers to disclose their markups on riskless principal transactions, with Securities and Exchange Commission chair Mary Jo White and Commissioners Michael Piwowar and Daniel Gallagher sounding the call in recent months.
The SEC recommended that the MSRB consider requiring disclosure of pricing reference information to retail investors as part of a series of price transparency recommendations in its unanimously-approved 2012 Report on the Municipal Securities Market.
The proposal does not actually require disclosure of markups, but the board decided that the reference price disclosure would still provide help to retail investors who often pay more than institutional investors for the same security. The proposals categorize a transaction of a par amount under $100,000 or involving 100 bonds or fewer as a retail-size transaction subject to the new disclosures, but the board might consider alternative approaches.
The MSRB and FINRA proposals have asked for input on likely economic implications and alternative regulatory approaches, including a potential markup disclosure requirement targeting trades that could be considered riskless principal transactions. Comments are due no later than Jan. 20.
