FINRA Examining on the Violation of Puerto Rico Bond Sales

Posted on March 31st, 2014 at 4:40 PM

From the Desk of Jim Eccleston at Eccleston Law Offices:

In order to avoid Puerto Rico bonds being sold to retail customers who might not fully appreciate the risk of holding them, the minimum denomination requires broker-dealers to trade bonds from Puerto Rico to customers in size not less than $100,000.

After the Bond Buyer released that broker-dealers in some 70 transactions executed sold, the Puerto Rico bonds to customers in amounts below $100,000, FINRA starts examining allegations that broker-dealers violated the minimum denomination rule. Meanwhile, the Securities Industry and Financial Markets Association (“SIFMA”) sent out a notice to members urging them to make sure they are complying with the minimum denomination requirement.

The MSRB's Rule G-15 on uniform practice requirements prohibits broker-dealers from executing trades in sizes below the minimum denomination set by the issuer, except in very limited circumstances. The board's guidance on Rule G-17 on fair dealing says that a dealer would violate that rule if it fails to disclose to a customer that it is buying bonds below a required minimum denomination and that this could affect the liquidity of the customer's position.

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston


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Mike L.


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