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ASA Sends Letter to FINRA on Pennying

Calls regulation-by-anecdote fundamentally at odds with the principles of smart, effective data-driven regulation




WASHINGTON – The American Securities Association (ASA) today sent a letter to the Financial Industry Regulatory Authority (FINRA) following a request for comment regarding the practice of “pennying” in the corporate bond market.

“We are concerned this initiative will ultimately lead regulators to unnecessarily interfere with micro-structure of bond markets,” ASA CEO Chris Iacovella wrote in the letter. “Rather than creating new terms and disincentivizing beneficial market practices, we believe that FINRA and the SEC should focus on the robust oversight and enforcement of the best execution rule which exists to protect investors and clearly encompasses any concerns that FIMSAC or others have raised to micro-manage various U.S. fixed income markets.”

“The only workable solution for market participants that will not harm investors, obfuscate transparency, or impair liquidity is to adopt a policy where (1) every fixed income desk in every fixed income market must be allowed to have the option to participate in offering a bid to their clients; and (2) the desk can exercise this option by engaging in a blind bidding process along with other dealers.”

In the letter, ASA outlined how FIMSAC recommendations made no mention of any academic or market research supporting the theory that pennying was a widespread or harmful practice. A 2018 Municipal Securities Rulemaking Board (MSRB) request for comment also acknowledged that the MSRB is “not aware of any economic literature analyzing pennying in the municipal market.”



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