Subscribe to our mailing list

* indicates required







We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.


Stay Informed with the latest fanancialish news.




Compliance Concepts

Fixed Income Mark-Up Disclosures (FINRA Exam Findings – Part 3)

December 14, 2018

[Image: Book Cover to 'Fixed Income Securities, 2nd Edition / by Frank J. Fabozzi] 


by Howard Haykin


In 2018, FINRA and the MSRB amended FINRA Rule 2232 (Customer Confirmations) and MSRB Rule G-15, requiring firms to provide or disclose:


  • additional transaction-related information to retail customers for trades in corporate, agency and muni bond securities - including the mark-up/mark-down amount (in $ and %) for principal trades with retail customers that a firm offsets on the same day with other principal trades in the same security.
  • time of execution and a security-specific link to the FINRA or MSRB website where additional information about the transaction is available, along with a brief description of the information available on the website.


FINRA 2018 FINDINGS – WHAT WENT WRONG.    Some member firms failed to comply in full with these rule changes, due to issues related to their confirmation review processes, systems and vendors. Here are FINRA’s selected findings:


  • Failure to Enter Information into Firms’ Order Entry Systems – Traders didn’t enter all necessary info – e.g., the Percentage of Prevailing Market Price (“PMP”) - into the firms’ order entry systems. This resulted in inaccurate mark-ups or mark-downs, or failures to disclose when required.


  • Improper Adjustments to PMP – Some firms adjusted the PMP in their order entry systems to subtract registered reps’ concession or sales credit from the mark-up. This resulted in inaccurate disclosures on customer confirms.


  • Inadequate Disclosure for Trades Conducted on an Agency Basis – Some firms failed to provide the security-specific hyperlink and time of execution on trade confirms.


  • Failure to Provide Disclosure for Structured Notes – Some firms didn’t realize that trades in TRACE-reportable structured note are subject to FINRA Rule 2232. In some cases, clearing firms didn’t provide the mark-up on confirms because they hadn’t received the PMP from the structured note distributors.


  • Incorrect Designation of Institutional Accounts – Some firms failed to provide disclosures to certain customers that were misidentified as “institutional,” even though they did not meet that definition in FINRA Rule 4512(c) (Customer Acct Information) or MSRB Rule G-8(a)(xi).


  • Improper Security-Specific Hyperlinks and Brief Descriptions – Several firms failed to include a brief description and/or the security-specific hyperlink; such information is available on the security-specific web page.


  • Vendor Challenges – Some vendors didn’t always identify the correct PMP from which to calculate mark-ups and mark-downs – e.g., instead of using the prices of a firm’s own contemporaneous trades, which were available to be considered, a vendor’s program incorrectly identified PMPs using lower levels of the “waterfall” as described in FINRA Rule 2121.02 (Fair Prices and Commissions) or MSRB Rule G-30.06.



This being the 3rd post in a series of postings on FINRA findings from its 2018 examinations, we invite you to read other Financialish posts in this series: