UPDATE 1-U.S. regulator eyeing Puerto Rico bond trades

Fri Mar 21, 2014 5:03pm EDT

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NEW YORK, March 21 (Reuters) - Securities-sector regulator FINRA said on Friday it was examining secondary trades in Puerto Rico's blockbuster $3.5 billion bond deal for possible violations of rules requiring minimum sales of $100,000.

"FINRA is aware of this situation and is examining trading activity in this CUSIP," FINRA spokesman George Smaragdis said, referring to the identity number for the Caribbean island's single-maturity, general-obligation bond deal.

The Financial Industry Regulatory Authority gave no details of its inquiry into dozens of suspect trades, which were first reported earlier this week by The Bond Buyer.

Broker-dealers had executed 70 transactions of the bonds between March 11 and March 18 in amounts below $100,000, in apparent violation of municipal market rules and documents for the deal aimed at hedge funds and other institutional buyers, according to the newspaper.

Since it was issued, the tax-free bond has frequently changed hands and on Monday, it was the most actively traded security in the $3.7 trillion muni market, according to Municipal Securities Rulemaking Board data showing 122 trades that day with an average tax-free yield of 8.61 percent.

Almost all of the trades this week have been for more than $100,000, but in three instances customers bought $60,000 or less of the bonds, MSRB data shows. There were also six inter-dealer trades of less than $100,000. On Tuesday, a customer bought $50,000 of bonds at a yield of 8.438 percent - one of the smallest yields all week. (Reporting By Michael Connor in New York; Additional Reporting By Lisa Lambert in Washington; Editing by Diane Craft)

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