Fixed Income ConferenceMar 08, 2012 · The FINRA Fixed Income Conference Video is reproduced by permission of the Financial Industry Regulatory Authority, Inc. (FINRA) under a non-

Fixed Income Conference

March 8, 2012

© 2012 by FINRA. All Rights Reserved. The FINRA Fixed Income Conference Video is reproduced by permission of the Financial Industry Regulatory Authority, Inc. (FINRA) under a non-exclusive license and may not be rebroadcasted, reproduced, or repurposed without the express written consent of FINRA. FINRA is not responsible for any errors in or omissions from the information contained in the FINRA Fixed Income Conference Video. All such information is provided "as is" without warranty of any kind and FINRA makes no representations and disclaims all express, implied and statutory warranties of any kind to the user and/or any third party, including any warranties of accuracy, timeliness, completeness, merchantability and fitness for any particular purpose. FINRA reserves the right to amend the Fixed Income Conference Video at its discretion.

Keynote Address

Rick Ketchum, FINRA Chairman and CEO

Debt Research Reports

2012 Fixed Income Conference March 8, 2012 © 2012 FINRA. All rights reserved.

Panelists

Raymond T. Abbott – Bank of America Merrill Lynch

Chris Mahon – AllianceBernstein

Pam Torres – Goldman Sachs

Philip Shaikun – FINRA Office of General Counsel

3


Background

How did we get here? Equity research rules Bond Market Association (BMA) guiding principles Examinations Auction rate securities (ARS) allegations Regulation AC and international research conflict rules Consolidated FINRA rulebook SEC concerns

4


Debt Research and Trading

Debt market dynamics Price transparency Market moving factors

“Research coverage”

Essential communications between research and trading Coverage determinations Creditworthiness assessments Pricing Customer interests Trading ideas

5


Debt Research Proposal – FINRA Regulatory Notice 12-09 Structure and Definitions

Tiered structure Retail debt research Institutional debt research

Definitions Debt security Debt research report Debt research analyst Institutional investor

6


Debt Research Proposal – FINRA Regulatory Notice 12-09 Conflicts Management

Prepublication review

Supervision

Coverage input

Budget determinations

Debt research analyst compensation

7


Debt Research Proposal – FINRA Regulatory Notice 12-09 Conflicts Management

Prohibited or restricted conduct Solicitation of investment banking Marketing Personal trading Promises of favorable research Retaliation

8


Debt Research Proposal – FINRA Regulatory Notice 12-09 Content and Disclosures

Content and disclosures Recommendations and ratings Personal financial interest Investment banking relationships Receipt of compensation from issuer Principal trading Other material conflicts of interest

Public appearances

9


Debt Research Proposal – FINRA Regulatory Notice 12-09 Communications Firewalls

Permissible communications Creditworthiness Pricing / valuation Customer interests Customized analysis and trading ideas

Prohibited communications Trading personnel attempting to influence analysts view for

purpose of benefiting firm or clients Analyst recommendations inconsistent with published

research Timing or investment conclusions of a pending research report

10


Debt Research Proposal – FINRA Regulatory Notice 12-09 Institutional Debt Research

Exemptions for institutional debt research Supervision Coverage Budget and compensation Retail disclosures

Affirmative opt-in requirement

“Health warning”

11


Debt Research Proposal – FINRA Regulatory Notice 12-09 Other Provisions

Distribution of third-party research

Exemption for firms with limited investment banking activity

Selective dissemination

12


Conference resumes at 10:00 a.m.

View related resources on finra.org: Debt Research Reports FINRA Regulatory Notice 12-09, FINRA Requests Comment on a Proposal to Identify and Manage Conflicts Involving the Preparation and Distribution of Debt Research Reports (February 2012) www.finra.org/Industry/Regulation/Notices/2012/P125616

http://www.finra.org/Industry/Regulation/Notices/2012/P125616

High-Yield Investments


Panelists

Richard Agster – Raymond James & Associates, Inc.

Samuel Israel – FINRA Enforcement

Scott Kimmel – Barclays Capital

Suzanne Michaud – Fidelity Investments

Sharon Zackula – FINRA Office of General Counsel

15


Conference resumes at 11:30 a.m.

View related resources on finra.org: FINRA Annual Conference May 21 – 23, 2012 • Washington, DC Features over 30 sessions on regulatory and compliance topics, including fixed-income related topics: Municipal Securities Research Fixed Income Developments Trading and Market Developments

www.finra.org/annualconference

http://www.finra.org/annualconference

TRACE Developments


Panelists

Gina Accolla – First Empire Securities

Bruce Bracco – Freddie Mac

Ola Persson – FINRA Transparency Services

Elliot Levine – FINRA Transparency Services

18


Conference resumes at 1:45 p.m.

View related resources on finra.org: TRACE Fact Book An historical perspective on the OTC U.S. corporate and agency bond markets Fact Book features: Market performance indicators Ranking of the most actively traded issues Transaction and par value data

www.finra.org/trace/factbook

http://www.finra.org/trace/factbook

Municipal Securities


Panelists

Elaine Greenberg – Securities and Exchange Commission

Peg Henry – Municipal Securities Rulemaking Board

Craig Noble – Wells Fargo Advisors

Mac Northam – FINRA Member Regulation, Sales Practice

21

Municipal Securities Craig Noble

Director of Fixed Income Trading

February, 2012

FINANCIAL PROFESSIONAL USE ONLY

23 23

WFA: Municipal Resources Point of Sale Tools for Financial Advisors:

Offerings Listed on BondDesk (Trading Platform): Display Municipal Insurance and Rating information

V-Link (MarketView): MSRB Data - Price Transparency for 2 and 30 Day Trading History

M-Link (MuniPoints): Material Events, OS Information, Related News – can be emailed to client

Order Entry Window: Requires order-by-order electronic attestation by FA that any material events were disclosed to client, a link to the material events is provided to the FA

Customer Confirmation: Includes web link to EMMA site on every transaction in municipal securities

Research: Client approved Moody’s research reports are now accessible via BondDesk for various offerings

Investment Objective: Firm is considering using systemic hard edits that would block certain accounts from purchasing certain municipal securities

FINANCIAL PROFESSIONAL USE ONLY Provided by Wells Fargo Advisors, LLC

24 24

WFA: Municipal Resources Continuing Disclosure Efforts:

ASG Notification to Financial Advisors – scrape vs. client holdings for certain material events and downgrades

Proxy Department mailings to clients based on EMMA notices


25 25

WFA: Municipal Resources Ongoing Client & Financial Advisor Educational Efforts:

Continuing Education for Financial Advisors regarding Municipal Securities

“Guide to Investing in Municipal Securities”, client approved

“Important Information about Municipal Securities”, statement insert that was sent to all WFA clients – written by Patrick Early, Chief Municipal Analyst


26 26

BondDesk V- link: FA Desktop Access to live MSRB DATA


27 27

M- link: MuniPOINTS


28 28

Material Events: available in buy ticket


29 29

© 2012 Wells Fargo Advisors, LLC. All rights reserved. 0212-2949

FINANCIAL PROFESSIONAL USE ONLY


Conference resumes at 3:00 p.m.

View related resources on finra.org: Report Center Secure access to data and reports designed to support firms’ compliance activities MSRB G-32 Report Card Municipal Continuing Disclosure Report Municipal Primary Offering Disclosure Report TRACE Quality of Markets Report Cards

www.finra.org/reportcenter

Examinations and Enforcement


Panelists

Patrick Geraghty – FINRA Market Regulation

Samuel Israel – FINRA Enforcement

Jeffrey Pasquerella – FINRA New York District Office

Anand Ramtahal – FINRA Member Regulation, Office of Risk Oversight and Operational Regulation

Cindy Friedlander – FINRA Member Regulation, Sales Practice

32

Market Regulation


TRACE Transaction Reporting Sweeps

Late reporting (corporate and agency)

Excessive commissions (corporate and agency)

Dealer mis-match / under or mis-reporting (corporate and agency)

Negative yields (corporate and agency)

Contra execution times (corporate and agency)

Large (blocks) and late (corporate and agency)

FINRA Rule 6760-Underwriter Late Notice (corporate and agency)

34

Presenter

Presentation Notes


ABS, MBS, CMO, and TBA Transaction Reporting Sweeps

Late reporting

Excessive commissions

Dealer mis-match / under or mis-reporting

Contra execution times

FINRA Rule 6760-Underwriter Late Notice

35

Presenter

Presentation Notes


Municipal Transaction Reporting Sweeps

Late reporting

Negative yield

Excessive commissions

Time of trade

Large (blocks) and late

Contra execution times

Mismatched destination codes

Late submissions to SHORT

36


Municipal Reviews

MSRB Notice 2011-62 Supervision of Municipal Transactions

Mismatched Destination Codes – MSRB Notice 2003-20 Step-outs vs. actual trades

Late trade compliance rates

37

Presenter

Presentation Notes


TRACE Corporate and Agency Reviews

Compliance trends

Recent migration to MPP Reporting of commissions Reporting of volume Reporting of settlement date

Trade Reporting Notice (December 2011) FAQ’s addressing use of P1 and knowing your counterparty

38

Presenter

Presentation Notes


Fixed Income Investigations

Fair pricing reviews Morgan Stanley case Additional matters

Continued focus on markups above and below five percent

New surveillance patterns Fair pricing for mortgage backed securities (MBSs) and

collateralized mortgage obligations (CMOs) Wash sales

39

Presenter

Presentation Notes


FINRA Report Cards

Securitized products has peer groups

Report cards contain information regarding mis-matched inter-dealer transactions (summary and detailed)

January 2012 report card contains summary statistics from February 1st through 3rd

40

Presenter

Presentation Notes

Member Regulation


Overview of Amendments to MSRB Rules G-16 and G-9

Amendments to MSRB Rule G-16 on Periodic Compliance Examination Effective on 12/16/11 and establishes a risk-based compliance

examination program for members of FINRA and the MSRB. The rule change facilitates the modernization of the

examination process, permits greater flexibility in the administration of periodic compliance exams, and permits us to focus more closely on firms that by virtue of various risk factors, pose the greatest risk to investors and other market participants, as well as to the municipal securities market on a systemic basis. Firms must now be examined at least once every four calendar

years for compliance with applicable MSRB rules and federal securities laws.

42


Overview of Amendments to MSRB Rules G-16 and G-9

Amendments to MSRB Rule G-9 on Preservation of Records Effective on 6/16/12 to provide dealers with sufficient time to

modify their policies and systems to comply with the new record retention period. Dealers that are FINRA members must retain certain records

for four years, rather than for three years in order to ensure that the records are available at those firms that are examined every four calendar years.

43


Municipal Regulatory and Examination Priorities

Representative underwriting risks: Bid rigging and potential collusion to secure competitive

offerings Pay to play to secure negotiated offerings Political contributions and PACs

Representative trading risks: Failure to disclose material risks to retail investors or issuers Unfair pricing and suitability issues

– Yield chasing – “Daisy Chain”

Failure to maintain adequate supervisory controls – Rogue broker issues

Trade reporting and clearing firm reliance

44


Risk Based Planning Approach

Transactional and underwriting data was used to identify those firms that comprise the bulk of the market Complaints, disclosures and matters data was leveraged to

identify firms with a history of sales practice violations that were consistent with municipal exam priorities.

What does this mean for you? Majority of firms will have less frequent onsite reviews of their

municipal business and, thus, have exams in line with their regular cycle examination. A small subset of firms will experience more frequent onsite

reviews due to the size and risk of their municipal activity.

45


ROOR Update

2012 Examination Priorities

Examination Issues

Reporting and Interpretive Issues

46


Enforcement Priorities

Structured products Approval process for new products Sales practice issues, especially suitability and disclosures Training and supervision of staff

Municipal underwriting Solicitation of municipal underwriting Ratings trips and entertainment Unfair practices

Markups on fixed income securities transactions

47

Fixed Income ConferenceMar 08, 2012 · The FINRA Fixed Income Conference Video is reproduced by permission of the Financial Industry Regulatory Authority, Inc. (FINRA) under a non-

Documents