At a fixed-income conference in New York on Monday, FINRA CEO Richard Ketchum
announced that FINRA has plans to increase inquiries into the $2.9 trillion
municipal bond market ("Finra Steps Up Review of Muni Dealers,"
Wall Street Journal, March 8, 2011). The regulatory agency's plans also include bringing
a series of new enforcement actions against the dealer firms that underwrite
According to the
WSJ, FINRA is mostly concerned with:
- The quality of disclosures made to retail investors prior to the purchase
of individual bonds;
- Dealers who use taxpayer funds to ply issuer officials with food, drinks,
and entertainment; and
- Dealers who seek to influence rating agency officials through the provision
of "excessive entertainment."
Ketchum said FINRA also expects to bring enforcement actions against and
impose sanctions on firms that fail to provide bond offering documents
to investors within the time frames specified by MSRB rules, use bond
proceeds to pay dealer-controlled political action committees (PACs),
and/or make false reports of issuer payments ("2nd UPDATE: Finra
Chief Outlines Muni Enforcement Efforts,"
Wall Street Journal, March 7, 2011).
This week also marked FINRA's first enforcement action of a 2005 amendment
to an MSRB rule that prohibits municipal dealers from paying unaffiliated
consultants to solicit business on their behalf. Dallas-based Southwest
Securities, Inc. was fined $500,000 for violating the amendment over a
period of about two-and-a-half years.