The Investment Industry Regulatory Organization of Canada today published a proposed rule and guidance note to address fair pricing of over-the-counter (OTC) traded securities including fixed income securities such as bonds.

The proposal would amend existing trade confirmation requirements. It will require firms to disclose on confirmations sent to retail clients for OTC transactions if the dealer’s remuneration has been added to the price in the case of a purchase or deducted in the case of a sale. The general purpose of these proposed amendments is to enhance the fairness of pricing and transparency of OTC market transactions, IIROC says.

The proposed rule is intended to ensure that clients, in particular retail clients, are provided bid and offer prices for OTC securities (both fixed income and equity) that are fair and reasonable in relation to prevailing market conditions. IIROC-regulated firms currently have a duty to deal fairly when marketing, entering into, executing and administering trades in the domestic debt market.

According to IIROC, “the proposed amendments establish clear, principles-based standards to ensure that the firm has in place, and supervises and enforces, policies and procedures so that the price paid or received by the end client is a fair and reasonable one.”

Retail investors in particular have less access to OTC security pricing (and yield) information than they do in the listed securities markets, IIROC says. The proposed yield disclosure requirement is intended to provide investors with sufficient information to enable them to determine if they are in fact receiving a fair price for a product.

“The proposed rule would set enhanced standards of fairness and transparency which will benefit investors who purchase OTC traded securities,” says Susan Wolburgh Jenah, IIROC president and CEO.

“These proposals, once implemented, represent an important step forward in enhancing our ability to conduct oversight and enforce compliance against a set of standards”.

The proposed rule is now available for a 90-day public comment period.