WASHINGTON -- The Securities, and Exchange Commission shed a little more light on what it considers to be an excessive markup in municipal securities when it reduced the fine that regulators recently levied on a Honolulu broker.

The SEC announced yesterday that it has concluded that First Honolulu Securities and Charles F. Jacobson, the firm's former chairman, should not be fined for mark-ups below 5% because industry participants may not have realized when the transactions took place in 1990 that such markups might violate the Municipal Securities Rulemaking Board's rules of fair practice.

The National Association of Securities Dealers found in an earlier proceeding that First Honolulu charged excessive markups in transactions involving two municipal bond issues and one corporate bond issue. The municipal bond issues are Special Facility Revenue Bonds, Series 1990 (Continental Airlines Inc.), Department of Transportation of the State of Hawaii, Term Bonds 9.6%, due. June 1, 2008, and Term Bonds 9.7%, due June 1, 2020.

The NASD censured the firm and Jacobson and fined them $12,900 on the finding that they charged excessive markups. On the municipal bonds, the markups ranged from 3.26% to 5.86% in a total of 24 sales from July 5, 1990, to Sept. 28, 1990. One of the three issues was a corporate bond.

But the SEC noted that it was only recently that regulators have made clear to the industry that markups exceeding 4% can be excessive, pointing to a decision last July 28 against Investment Planning Inc. in Dubuque, Iowa, which involved the sale of high-quality zero coupon bonds.

"Under all the circumstances before us here, it may not have been clear to [First Honolulu] in 1990 that markups on municipal securities of over 4% usually are unfair," the SEC said. "Accordingly, we have determined to set aside the findings of violation for the markups at issue between 4% and 5%."

The SEC reduced the NASD's fine to $7,400, which covers sales of the bonds where the price markup was over 5%.

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