Tag: dealer

Exam Alert: MSRB establishes regulation of broker’s brokers and related dealers

Effective December 22, 2012, the MSRB will implement a new rule that imposes fairness obligations on both broker’s brokers and the dealers who interact with them. The MSRB will also put in effect related amendments and interpretive guidance. Continue reading

Effective December 22, 2012, the MSRB will implement a new rule that imposes fairness obligations on both broker’s brokers and the dealers who interact with them.  The MSRB will also put in effect related amendments and interpretive guidance.  For broker’s brokers:

-The new rule requires broker’s brokers to make a reasonable attempt to buy securities at a fair price and that requires them to sell securities at a fair price.

-The rule puts in place safeguards regarding the use of a “bid-wanted,” which is where a broker’s broker seeks out bids for a bond that a dealer wishes to sell.

-The new rule also requires broker’s brokers to establish and publicly disclose policies designed to ensure that the broker maintains their place as a market intermediary.

-Amendments to existing rules impose additional recordkeeping requirements.

 

For dealers who interact with broker’s brokers:

-The rule prohibits dealers from making “throw-away” bids (bids below the fair market value of a security) on a bid-wanted in order to shut other dealers out of the market.

-An interpretive guidance warns dealers who use broker’s brokers that the dealer retains the responsibility to ensure a fair price for their customers, and that they cannot rely on a bid-wanted to produce a fair price.

-The guidance advises against “screening” out other dealers when selling securities through a broker’s broker, unless the dealer has a legitimate reason to do so (one that is not anti-competitive).

-The guidance adds that a dealer should not assume that a customer values fast trade execution over getting a better price.

 

Source: MSRB Receives SEC Approval to Implement Measures to Strengthen Regulation of Broker’s Brokers

This alert applies to the Series 7.

Exam Alert: SEC adopts definitions for security-based swap rules

Under the Dodd-Frank Act, the SEC and CFTC (Commodity Futures Trading Commission) regulate the OTC swaps market. On April 18, 2012, the SEC adopted rules that provide definitions for terms used in the law, specifying who will be subject to regulation. Continue reading

Under the Dodd-Frank Act, the SEC and CFTC (Commodity Futures Trading Commission) regulate the OTC swaps market.  On April 18, 2012, the SEC adopted rules that provide definitions for terms used in the law, specifying who will be subject to regulation.

The rules provide two categories of persons subject to SEC registration: “security-based swap dealers” and “major security-based swap participants.”  In essence, a security-based dealer is a person that regularly trades security-based swaps for their own account.  A de minimis exemption exists for dealers who traded up to $3 billion worth of credit default swaps over the past year and up to $150 million worth of other security-based swaps.  Note that there is a different de minimis threshold of $25 million for security-based swaps involving “special entities,” including certain government agencies.

A major security-based swap participant is a person who maintains a “substantial position” in any of the major security-based swap categories, or whose outstanding security-based swaps create “substantial counterparty exposure.”  Note that hedging positions are not counted towards the “substantial position” threshold if the person is not a “highly leveraged financial entity,” meaning a financial entity with a ratio of liabilities to equity in excess of 12-to-1.  Two tests are provided for determining “substantial position,” and two thresholds are provided for “substantial counterparty exposure.”  The specifics of these tests and thresholds may be found in the SEC release, along with background information, a plan to phase-in the de minimis rule, a safe harbor to avoid being considered a major participant, and other details.

The rule will become effective 60 days after publication in the Federal Register, though the deadline for registration will be given in SEC’s final rules for registration of dealers and major participants.

Source: SEC Release 2012-67

This exam alert applies to the Series 62, Series 79, Series 99, Series 65, and Series 66.