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Watchdog FINRA probes banks' bond transactions: WSJ

Richard Ketchum, chairman and CEO of FINRA, speaks during the Investment Company Institute's (ICI) Capital Markets Conference in New York, O
Richard Ketchum, chairman and CEO of FINRA, speaks during the Investment Company Institute's (ICI) Capital Markets Conference in New York, O

(Reuters) - Wall Street watchdog FINRA is taking a broad look at the trading profits of banks and other middlemen in some bond transactions to examine whether some money managers are favored at the expense of other investors, the Wall Street Journal reported.

FINRA is crunching through reams of trading data, looking for instances in which the middlemen have earned unusually large profits on bond deals, the Journal said, citing officials.

The inquiry could lead to a regulatory instruction to the banks to reduce the spreads between buying and selling prices they charge on certain trades, or even to enforcement action, the newspaper said. (http://r.reuters.com/jur48v)

FINRA is also investigating how banks apportion hot bond offerings among investors, FINRA Chief Executive Richard Ketchum said in an interview with the Journal.

FINRA is scrutinizing the profits banks and other dealers make, known as markups and markdowns — the difference between selling and buying prices, the Journal said.

In matched trades, where banks and other dealers join a buyer to a seller, profits of more than 1.5 percent to 2 percent would be "questionable," Ketchum told the Journal.

FINRA could not be reached immediately for comment outside regular business hours.

The spotlight on bond markets comes as regulators have launched several inquiries into potential inequities in the stock and commodities markets, where elite groups of traders have greater access to information at the expense of other participants.

Last month, reports said that the U.S. Securities and Exchange Commission launched an investigation into the increasing number of complex bond deals on Wall Street that may create new opportunities for fraud.

(Reporting by Supriya Kurane and Ankush Sharma in Bangalore; Editing by Gopakumar Warrier)

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