Client Alert

The Financial Industry Regulatory Authority recently issued a Regulatory Notice to remind firms that their written supervisory procedures should identify the process for detecting, resolving, and preventing the consequences of short positions and fails-to-receive in municipal securities. The notice also notes that procedures should include controls for ensuring that communications with customers regarding municipal securities transactions, including the tax status of interest payments, are not false or misleading. The guidance follows a series of FINRA examinations finding that some customers who purchased tax-exempt municipal securities have been paid non-tax-exempt substitute interest as a result of trading errors and inadequate firm controls. FINRA also notes that municipal short positions remain an area of focus for FINRA examiners.

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