FINRA Sets Effective Date for Mark-up/Mark-down Disclosure Requirements

FINRA notified member firms that the SEC approved FINRA amendments to Rule 2232 in order to require the disclosure of markups on certain transactions in corporate debt or agency securities with retail customers (i.e., customers that are not institutional accounts as defined in FINRA Rule 4512(c)). For covered transactions, the amendments require dealers to disclose mark-ups or mark-downs from the prevailing market price for the relevant security on the customer confirmation that the dealer sells or buys the security to or from a retail customer, and then buys or sells the same security as principal in an equal or greater amount on the same day from another party.

FINRA noted that the final amendments will become effective on May 14, 2018, which is the same date as the effective date for the MSRB’s parallel confirmation disclosure requirements.

Lofchie Comment: Firms should allow sufficient time for putting the technology and processes in place to comply with the new rules, which could be fairly complicated to implement given the need to “match” prices on particular purchases and sales that often will not bear any particular relationship to one another. Markups will be required to be disclosed on certain transactions for which there is deemed to be an offset, but not on similar trades that cannot be matched to a trade on the other side of the market. Even after the trade matching and markup calculation system is implemented, ongoing checks will be required in order to ensure that it is functioning.

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