Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
September 24, 2014 Presented by: Daniel Nathan Jonathan Stein ©2014 Morrison & Foerster LLP | All Rights Reserved | mofo.com Fixed Income Securities Mark-Ups Introduction • Fixed Income Pricing is the last frontier of compliance • FINRA and SEC Guidance tends to be in the form of “regulation by enforcement” • FINRA often falls back on bringing charges for failure to supervise • FINRA, SEC Regulatory Priorities 2 Mark-ups, Generally • Fact-specific inquiry • Definition of mark-up • These types of transactions: • Riskless principal • A transaction in which the member sells a security to a customer from inventory • A transaction in which a member purchases a security from a customer • A transaction in which the member acts as agent • Exception for QIBs • Municipal Securities – MSRB Rule G-30 “Prices and Commissions” 3 Statutory Framework • Federal Securities Laws • Anti-fraud provisions • Shingle theory • SEC fraud actions • FINRA Rule 2121, Fair Prices and Commissions • FINRA 5% Policy • Rule 2010 and Rule 2121 are violated by entering into any transaction with a customer in any security at any price not reasonably related to the current market price of the security or to charge a commission which is not reasonable. • May not justify mark-ups on the basis of expenses which are excessive. • Look at each individual transaction, not the average mark-up per customer. 4 Fixed Income Securities – Additional Mark-up Policies • Prevailing Market Price • "Similar" Securities 5 Non-Investment Grade Debt • “Customer” does not include a qualified institutional buyer ("QIB") as defined in Rule 144A • Rule 144A definition Non-investment grade debt • Distressed debt 6 Legal Standard for Whether a Markup is Excessive • • • • What is reasonable? In FINRA enforcement proceedings In courts/SEC proceedings Examples of ~3% Markups Described As Excessive or Unfair 7 Municipal Securities • MSRB Rule G-30 • “Fair and reasonable” defined • Dealer’s responsibility to exercise diligence 8 Supervision A firm should have procedures for weighing and applying (including how to weigh and apply) the various factors in Rule 2121. 9 Practices on Retail Desk • Exception Reports • Treatment of Customers 10 Contact Us Daniel A. Nathan Morrison & Foerster LLP Partner Washington D.C., (202) 887-1687 New York, (212) 486-8146 Jonathan H. Stein Esq. Raymond James Financial, Inc. Vice President and Managing Attorney St. Petersburg, FL, (727) 567-5181 11