The Financial Industry Regulatory Authority (FINRA) is requesting comments on proposed FINRA Rule 5320 which will prohibit a member firm from trading for its own account ahead of customer limit and market orders. The proposal represents a cooperative effort between FINRA and NYSE Regulation to harmonize approaches and achieve greater consistency and simplified compliance obligations for dual members. The proposal would integrate NASD Interpretive Material 2110-2 and NASD Rule 2111 into a single rule governing member firms’ treatment of customer orders and would apply the new rule uniformly to all equity securities with the following exceptions:  

  • Large Order and Institutional Account Exceptions: a member firm may negotiate specific terms and conditions regarding institutional account orders and orders of 10,000 shares or more (unless such orders are less than $100,000 in value) as long as the member firm discloses these terms and conditions to the customer placing such an order.
  • No-Knowledge Exception: would expand FINRA’s “no-knowledge” interpretation to include a member firm’s market-making desks with respect to exchange-listed securities and would require a member firm to disclose to customers the extent it “walls off” customer order flow in exchange-listed securities from the market-making desks.  
  • Odd Lots and Bona Fide Errors: applies to all customer orders except for a member firm’s proprietary trade that either offsets a customer odd lot order or corrects a bona fide error.  

The proposed rule would apply at all times a customer order may be executed, even outside normal market hours and after hours.  

Comments are due to FINRA by April 24.  

http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p118127.pdf