Seeking transparency

The markets for corporate, municipal and U.S. agency bonds draw flocks of ordinary investors. Many are unaware that they may be paying more than they should to invest because bond trading has long lacked transparency.

Wall Street’s own watchdog, the Financial Industry Regulatory Authority, has found that some individual bond investors pay far more than others do for similar trades. So it’s proposing that the Securities and Exchange Commission require that bond firms give customers more specific information on transaction costs.

The proposal would apply to corporate bonds and to government-backed securities like those issued by mortgage financers Fannie Mae and Freddie Mac.

If a firm sells or buys a bond for an individual customer and on the same day trades the same bond with anyone else on its own account, it would have to tell the customer whether — and by how much — the price it charged deviated from the market price.

About 93 percent of retail corporate bond trades are followed by a similar trade with another investor within 10 minutes, according to Finra. It also found that 5 percent of retail orders for corporate bonds fetched prices more than 2 percent above market prices.