Regulatory Reporting and Disclosures

This section covers the broader regulatory framework for disclosures and reporting: Regulation FD (Fair Disclosure) for issuers, Municipal Securities Rulemaking Board (MSRB) rules for municipal dealers, and Cboe rules for options reporting.

What Does Regulation FD Require of Issuers?

Regulation FD applies to issuers (not broker-dealers directly), but it is tested because broker-dealers must understand the rules about selective disclosure of material information.

Core principle: When an issuer discloses material nonpublic information to certain recipients (analysts, institutional investors), it must simultaneously make the information public.

Intentional vs. Unintentional Disclosure

• A disclosure is intentional when the person making it knows (or is reckless in not knowing) that the information is both material and nonpublic

Think of it this way: If a CEO deliberately tells an analyst about upcoming earnings before the public announcement, that is intentional selective disclosure. The company must release the same information to the public at the same time. If the CEO accidentally lets something slip at a dinner party, the company has until the next trading session (or 24 hours, whichever is later) to make it public.

Exceptions to Regulation FD

Disclosures to persons who owe a duty of trust or confidentiality are exempt:

• Attorneys
• Accountants
• Rating agencies (under confidentiality agreements)
• Temporary insiders acting in a professional capacity

Exam Tip: Gotchas

• Intentional = simultaneous; unintentional = promptly. The timing distinction between these two is frequently tested.
• Reg FD applies to issuers, not broker-dealers. A broker-dealer receiving selective disclosure is not the one violating Reg FD; the issuer is.

How Do MSRB Rules Mirror FINRA and SEC Rules?

For municipal securities transactions, the MSRB has its own set of disclosure, recordkeeping, and transfer rules that parallel the general-securities framework:

• Municipal customer-confirmation rule: Governs confirmations, clearance, settlement, and uniform practice requirements for customer transactions in municipal securities
  • Confirmations must include: security description, CUSIP (Committee on Uniform Securities Identification Procedures) number, trade date, time of execution, settlement date, yield/price, the final-money detail (including accrued interest), capacity (whether the dealer acted as principal, or as agent for the customer or another party), and the total dollar amount
  • Settlement date for a "regular way" municipal transaction is the first business day following trade date
  • A dealer's mark-up or mark-down must appear on the confirmation for a principal transaction with a non-institutional customer when the dealer traded the same security in an offsetting transaction of matching or greater size on the same day, expressed as both a dollar amount and a percentage of the prevailing market price
• Municipal recordkeeping and retention rules (Books and Records): one rule specifies which municipal-securities books and records a dealer must create; a companion rule sets the retention period for each, on a 6-year / 4-year / life-of-enterprise split rather than FINRA's 6-year/3-year split (see the books-and-records-retention lesson for the full table)
• Municipal account-transfer rule (Customer Account Transfers): Governs customer account transfers for municipal securities, parallel to FINRA's customer-account-transfer rule (ACATS) for general securities, on the same 1 business day to validate, 3 business days to complete timeline. The carrying party must freeze the account upon validation, and a receiving party may reject only the entire account, never a partial position

Think of it this way: MSRB rules mirror FINRA rules but apply specifically to municipal securities. The municipal customer-confirmation rule is the muni version of the SEC trade-confirmation rule, and the municipal account-transfer rule is the muni version of the FINRA customer-account-transfer rule (ACATS).

Exam Tip: Gotchas

• The municipal customer-confirmation rule covers customer transactions only. Inter-dealer municipal transactions have separate rules.
• The MSRB municipal account-transfer rule parallels the FINRA customer-account-transfer rule (ACATS). Both govern account transfers, but the MSRB rule applies specifically to municipal securities positions.

What Do Cboe Reporting Rules Add?

The Cboe (Chicago Board Options Exchange) has its own reporting requirements that supplement FINRA rules:

Exam Tip: Gotchas

• Cboe rules supplement, not replace, FINRA rules. Options firms must comply with both Cboe and FINRA reporting requirements.
• A dedicated report covers uncovered short positions. This reporting requirement reflects the higher risk of uncovered (naked) options writing.

What Should You Check on Exam Day?

• Reg FD binds issuers, not broker-dealers; intentional selective disclosure = simultaneous public release, unintentional = promptly (24 hours or next trading session, whichever is later)
• The municipal customer-confirmation rule parallels SEC/FINRA content requirements, including the capacity and mark-up/mark-down disclosures
• Municipal recordkeeping and retention is not the same 6-year/3-year split as FINRA; know the muni-specific buckets
• The municipal account-transfer rule mirrors ACATS timing (1 day to validate, 3 to complete) for municipal account transfers
• Cboe reporting rules supplement, not replace, FINRA rules for options firms