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  • 2100. GENERAL STANDARDS

    • 2110. Standards of Commercial Honor and Principles of Trade

      This rule is no longer applicable. NASD Rule 2110 has been superseded by FINRA Rule 2010. Please consult the appropriate FINRA Rule.

      A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.
      Cross References–

      IM-1000-1, Filing of Misleading Information as to Membership or Registration
      IM-1000-3, Failure to Register Personnel
      2790, Restrictions on the Purchase and Sale of Initial Equity Public Offerings
      IM-2110-2, Trading Ahead of Customer Limit Order
      IM-2110-3, Front Running Policy
      IM-2230, "Third Market" Confirmations
      IM-2310-2, Fair Dealing with Customers
      IM-2440, Mark-Up Policy
      IM-2830-1, "Breakpoint" Sales
      IM-3310, Manipulative and Deceptive Quotations
      IM-3320, Firmness of Quotations
      IM-10100, Failure to Act Under Provisions of Code of Arbitration Procedure
      IM-11110, Refusal to Abide by Rulings of the Committee

      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006

      Selected SEC Decisions:
      Albert P. Fosha, SEC Rel. No. 34-22815 (1986).
      C. Brock Lippitt, Thomas M. Svalberg and Gerald B. Fitzgerald, SEC Rel. No. 34-23495 (1986).
      Robert J. Jautz, SEC Rel. No. 34-24346 (1987).
      Robert S.C. Peterson, Inc. and Robert S.C. Peterson, SEC Rel. No. 34-24688 (1987).
      Rita Delaney, SEC Rel. No. 34-25119 (1987).
      Gary D. Cohee, SEC Rel. No. 34-25210 (1987).
      Traiger Energy Investments and Michael A. Traiger, SEC Rel. No. 34-25306 (1988).
      E.F. Hutton & Co., Inc. (n/k/a) Shearson Lehman Hutton, Inc., SEC Rel. No. 34-25587 (1988).
      Stephen M. Carter, SEC Rel. No. 34-26264 (1988).
      Cosse International Securities, Inc. and Charles B. Cosse, SEC Rel. No. 34-26424 (1989).
      L.C. Thomas and Stephen V. Wallace, SEC Rel. No. 34-26530 (1989).
      Stanley D. Gardenswartz, SEC Rel. No. 34-27194 (1989).
      Walter Capital Corp. and Frank R. Grillo, SEC Rel. No. 34-27536 (1989).

      Selected Notices: 96-44.

      • IM-2110-2. Trading Ahead of Customer Limit Order

        This rule is no longer applicable. NASD IM-2110-2 has been superseded by FINRA Rule 5320. Please consult the appropriate FINRA Rule.

        (a) General Application
        To continue to ensure investor protection and enhance market quality, NASD's Board of Governors is issuing an interpretation to NASD Rules dealing with member firms' treatment of their customer limit orders in NMS stocks and OTC equity securities. This interpretation, which is applicable from 9:30 a.m. to 6:30 p.m. Eastern Time, will require members to handle their customer limit orders with all due care so that members do not "trade ahead" of those limit orders. Thus, members that handle customer limit orders, whether received from their own customers or from another member, are prohibited from trading at prices equal or superior to that of the limit order without executing the limit order. In the interests of investor protection, NASD is eliminating the so-called disclosure "safe harbor" previously established for members that fully disclosed to their customers the practice of trading ahead of a customer limit order by a market-making firm.1 For purposes of this interpretation, (1) "NMS stock" shall have the meaning set forth in SEC Rule 600(b)(47) of Regulation NMS and (2) "OTC equity security" shall have the meaning set forth in Rule 6610(d).
        Rule 2110 states that:
        A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade.
        Rule 2320, the Best Execution Rule, states that:
        In any transaction for or with a customer, a member and persons associated with a member shall use reasonable diligence to ascertain the best inter-dealer market for the subject security and buy or sell in such a market so that the resultant price to the customer is as favorable as possible to the customer under prevailing market conditions.
        Interpretation
        The following interpretation of Rule 2110 has been approved by the Board:
        A member firm that accepts and holds an unexecuted limit order from its customer (whether its own customer or a customer of another member) in an NMS stock or OTC equity security and that continues to trade the subject security for its own account at prices that would satisfy the customer's limit order, without executing that limit order, shall be deemed to have acted in a manner inconsistent with just and equitable principles of trade, in violation of Rule 2110, provided that a member firm may negotiate specific terms and conditions applicable to the acceptance of limit orders only with respect to limit orders that are: (a) for customer accounts that meet the definition of an "institutional account" as that term is defined in Rule 3110(c)(4); or (b) 10,000 shares or more, unless such orders are less than $100,000 in value. In the event that a member trades ahead of an unexecuted customer limit order at a price that is better than the unexecuted limit order, such member is required to execute the limit order at the price received by the member or better. Nothing in this interpretation, however, requires members to accept limit orders from any customer.
        By rescinding the safe harbor position and adopting this interpretation, NASD wishes to emphasize that members may not trade ahead of their customer limit orders even if the member had in the past fully disclosed the practice to its customers prior to accepting limit orders. NASD believes that, pursuant to Rule 2110, members accepting and holding unexecuted customer limit orders owe certain duties to their customers and the customers of other member firms that may not be overcome or cured with disclosure of trading practices that include trading ahead of the customer's order. The terms and conditions under which institutional account or appropriately sized customer limit orders are accepted must be made clear to customers at the time the order is accepted by the firm so that trading ahead in the firm's market-making capacity does not occur.
        The minimum amount of price improvement necessary for a member to execute an order on a proprietary basis when holding an unexecuted limit order in that same security, and not be required to execute the held limit order is as follows:
        1) For customer limit orders priced greater than or equal to $1.00, the minimum amount of price improvement required is $0.01 for NMS stocks and the lesser of $0.01 or one-half (1/2) of the current inside spread for OTC equity securities;
        2) For customer limit orders priced greater than or equal to $.01 and less than $1.00, the minimum amount of price improvement required is the lesser of $0.01 or one-half (1/2) of the current inside spread;
        3) For customer limit orders priced less than $.01 but greater than or equal to $0.001, the minimum amount of price improvement required is the lesser of $0.001 or one-half (1/2) of the current inside spread;
        4) For customer limit orders priced less than $.001 but greater than or equal to $0.0001, the minimum amount of price improvement required is the lesser of $0.0001 or one-half (1/2) of the current inside spread;
        5) For customer limit orders priced less than $.0001 but greater than or equal to $0.00001, the minimum amount of price improvement required is the lesser of $0.00001 or one-half (1/2) of the current inside spread;
        6) For customer limit orders priced less than $.00001, the minimum amount of price improvement required is the lesser of $0.000001 or one-half (1/2) of the current inside spread; and
        7) For customer limit orders priced outside the best inside market, the minimum amount of price improvement required must either meet the requirements set forth above or the member must trade at a price at or inside the best inside market for the security.
        For purposes of determining the minimum price improvement standards for customer limit orders in OTC equity securities priced below $1.00 where there is no published current inside spread, members may calculate a current inside spread by contacting and obtaining priced quotations from at least two unaffiliated dealers and using the highest bid and lowest offer obtained in calculating the current inside spread. Where there is only a one-sided quote in an OTC equity security priced below $1.00, members may calculate the current inside spread by contacting and obtaining priced quotations from at least two unaffiliated dealers and using the best price obtained on the other side of the quote. Members must document the name of each dealer contacted and the quotations received for purposes of determining the current inside spread.
        In addition, if the minimum price improvement standards above would trigger the protection of a pending customer limit order, any better-priced customer limit order(s) must also be protected under this IM, even if those better-priced limit orders would not be directly triggered under the minimum price-improvement standards above.
        NASD also wishes to emphasize that all members accepting customer limit orders owe those customers duties of "best execution" regardless of whether the orders are executed through the member or sent to another member for execution. As set out above, the Best Execution Rule requires members to use reasonable diligence to ascertain the best inter-dealer market for the security and buy or sell in such a market so that the price to the customer is as favorable as possible under prevailing market conditions. NASD emphasizes that order entry firms should continue to monitor routinely the handling of their customers' limit orders regarding the quality of the execution received.
        (b) Exclusion for Limit Orders that are Marketable at Time of Receipt
        NASD has previously recognized the functional equivalency of marketable limit orders and market orders. Accordingly, it has adopted the following interpretation. IM-2110-2 shall not apply to a customer limit order if the limit order is marketable at the time it is received by a member. These orders shall be treated as market orders for purposes of determining execution priority; however, these orders must continue to be executed at their limit price or better.
        The exclusion for marketable customer limit orders from the general application of IM-2110-2 is limited solely to customer limit orders that are marketable when received by a member. If a customer limit order is not marketable when received by a member, the limit order must be accorded the full protections of IM-2110-2. In addition, if the limit order was marketable when received and then becomes non-marketable, once the limit order becomes non-marketable it must be accorded the full protections of IM-2110-2.
        The following scenario illustrates the application of the exclusion. The market in XYZ stock is 25 bid–25 1/16 ask, the volume of trading in XYZ stock is extremely active, and Market Maker A ("MMA") has a queue of market orders to buy and sell. Assume the following order receipt scenario. Each sell market order in the queue is for 1,000 shares and there are no special conditions attached to the orders. MMA then receives a customer limit order to sell 1,000 shares at 25. The customer limit order is marketable at the time it is received by MMA. MMA hits another market maker's bid at 25 for 1,000 shares. Normally, IM-2110-2 would require that the customer limit order be executed before the market orders in the queue. However, because the marketable limit order and the market orders should be treated as functionally equivalent in determining execution priority, the marketable customer limit order shall not be given execution priority over the market orders that were already in the queue. When the limit order is executed, however, it must be executed at the limit price or better.
        In addition, if in the scenario just described the limit order does not get executed and the inside market in XYZ becomes 24 7/16 bid, the member would have to protect the limit order as required by IM 2110-2 if the member trades at the limit order price or better.
        (c) Exemption for the Facilitation on a Riskless Principal Basis of Other Customer Orders
        A member shall be exempt from the obligation to execute a customer limit order in a manner consistent with this interpretation if such member engages in trading activity to facilitate the execution, on a riskless principal basis, of another order from its customer (whether its own customer or the customer of another member) (the "facilitated order"), provided that all of the following requirements are satisfied:
        (1) The handling and execution of the facilitated order must satisfy the definition of a "riskless" principal transaction, as that term is defined in NASD Rules 4632(d)(3)(B), 4642(d)(3)(B) and 4652(d)(3)(B);
        (2) A member that relies on this exemption to this interpretation must give the facilitated order the same per-share price at which the member accumulated or sold shares to satisfy the facilitated order, exclusive of any markup or markdown, commission equivalent or other fee;
        (3) A member must submit, contemporaneously with the execution of the facilitated order, a report as defined in NASD Rules 4632(d)(3)(B)(ii), 4642(d)(3)(B)(ii) and 4652(d)(3)(B)(ii) to the Automated Confirmation Transaction Service;
        (4) Members must have written policies and procedures to assure that riskless principal transactions relied upon for this exemption comply with NASD Rules 4632(d)(3)(B), 4642(d)(3)(B) and 4652(d)(3)(B). At a minimum these policies and procedures must require that the customer order was received prior to the offsetting transactions, and that the offsetting transactions are allocated to a riskless principal or customer account in a consistent manner and within 60 seconds of execution. Members must have supervisory systems in place that produce records that enable the member and NASD to accurately and readily reconstruct, in a time-sequenced manner, all orders on which a member relies in claiming this exemption.
        (d) Intermarket Sweep Order Exemption
        A member shall be exempt from the obligation to execute a customer limit order in a manner consistent with this interpretation with regard to trading for its own account that is the result of an intermarket sweep order routed in compliance with Rule 600(b)(30)(ii) of Regulation NMS ("ISO") where the customer limit order is received after the member routed the ISO. A member also shall be exempt with respect to trading for its own account that is the result of an ISO where the member executes the ISO to facilitate a customer limit order and that customer has consented to not receiving the better prices obtained by the ISO.

        1 For purposes of the operation of certain transaction and quotation reporting systems and facilities during the period from 4 p.m. to 6:30 p.m. Eastern Time, members may generally limit the life of a customer limit order to the period of 9:30 a.m. to 4 p.m. Eastern Time. If a customer does not formally assent ("opt-in") to processing of the customer's limit order(s) during the extended hours period commencing after the normal close of the market, limit order protection will not apply to that customer's order(s).

        Amended by SR-FINRA-2009-037 eff. June 29, 2009.
        Amended by SR-FINRA-2008-064 eff. Feb. 11, 2009.
        Amended by SR-FINRA-2007-023 eff. Nov. 16, 2007; amended by SR-FINRA-2007-038 eff. Dec. 21, 2007; amended by SR-NASD-2007-041 Nov. 11, 2008.
        Amended by SR-FINRA-2007-039 eff. May 6, 2008.
        Amended by SR-NASD-2007-039 eff. July 26, 2007.
        Amended by SR-NASD-2005-146 eff. July 26, 2007.
        Amended by SR-NASD-2006-134 eff. Dec. 8, 2006.
        Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
        Amended by SR-NASD-2006-069 eff. July 1, 2006.
        Amended by SR-NASD-2006-035 eff. April 14, 2006.
        Amended by SR-NASD-2004-089 eff. Jan. 2, 2006.
        Amended by SR-NASD-2005-085 eff. July 1, 2005.
        Amended by SR-NASD-2003-14 eff. January 31, 2003.
        Amended by SR-NASD-2002-66 eff. Dec. 13, 2002.
        Amended by SR-NASD-2001-27 eff. April 6, 2001.
        Amended by SR-NASD-2001-09 eff. March 2, 2001.
        Amended by SR-NASD-99-57 eff. Oct. 25, 1999.
        Amended by SR-NASD-99-44 eff. Sept. 10, 1999.
        Amended by SR-NASD-94-62 eff. June 21, 1995.
        Adopted by SR-NASD-93-58 eff. July 7, 1994.

        Selected Notices: 89-39, 90-37, 95-43, 95-67, 05-64, 07-19, 08-49, 09-14.

      • IM-2110-3. Front Running Policy

        This rule is no longer applicable. NASD IM-2110-3 has been superseded by FINRA Rule 5270. Please consult the appropriate FINRA Rule.

        It shall be considered conduct inconsistent with just and equitable principles of trade for a member or person associated with a member, for an account in which such member or person associated with a member has an interest, for an account with respect to which such member or person associated with a member exercises investment discretion, or for certain customer accounts, to cause to be executed:
        (a) an order to buy or sell an option or a security future when such member or person associated with a member causing such order to be executed has material, non-public market information concerning an imminent block transaction in the underlying security, or when a customer has been provided such material, non-public market information by the member or any person associated with a member; or
        (b) an order to buy or sell an underlying security when such member or person associated with a member causing such order to be executed has material, non-public market information concerning an imminent block transaction in an option or a security future overlying that security, or when a customer has been provided such material, non-public market information by the member or any person associated with a member; prior to the time information concerning the block transaction has been made publicly available.
        The violative practice noted above may include transactions which are executed based upon knowledge of less than all of the terms of the block transaction, so long as there is knowledge that all of the material terms of the transaction have been or will be agreed upon imminently.
        The general prohibitions stated above shall not apply to transactions executed by member participants in automatic execution systems in those instances where participants must accept automatic executions.
        These prohibitions also do not include situations in which a member or person associated with a member receives a customer's order of block size relating to both an option and the underlying security or both a security future and the underlying security. In such cases, the member and person associated with a member may position the other side of one or both components of the order. However, in these instances, the member and person associated with a member would not be able to cover any resulting proprietary position(s) by entering an offsetting order until information concerning the block transaction involved has been made publicly available.
        The application of this front running policy is limited to transactions that are required to be reported on the last sale reporting systems administered by Nasdaq, Consolidated Tape Association (CTA), or Option Price Reporting Authority (OPRA). The front running policy also applies to security futures transactions regardless of whether such products are reported pursuant to such systems. Information as to a block transaction shall be considered to be publicly available when it has been disseminated via the tape or high speed communications line of one of those systems, a similar system of a national securities exchange under Section 6 of the Act, an alternative trading system under Regulation ATS, or by a third-party news wire service.
        A transaction involving 10,000 shares or more of an underlying security, or options or security futures covering such number of shares is generally deemed to be a block transaction, although a transaction of less than 10,000 shares could be considered a block transaction in appropriate cases. A block transaction that has been agreed upon does not lose its identity as such by arranging for partial executions of the full transaction in portions which themselves are not of block size if the execution of the full transaction may have a material impact on the market. In this situation, the requirement that information concerning the block transaction be made publicly available will not be satisfied until the entire block transaction has been completed and publicly reported.
        Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
        Adopted by SR-NASD-87-45 eff. Dec. 30, 1987.

        Selected Notice: 96-66.

      • IM-2110-4. Trading Ahead of Research Reports

        This rule is no longer applicable. NASD IM-2110-4 has been superseded by FINRA Rule 5280. Please consult the appropriate FINRA Rule.

        The Board of Governors, under its statutory obligation to protect investors and enhance market quality, is issuing an interpretation to the Rules regarding a member firm's trading activities that occur in anticipation of a firm's issuance of a research report regarding a security. The Board of Governors is concerned with activities of member firms that purposefully establish or adjust the firm's inventory position in an exchange-listed security traded otherwise than on an exchange or a derivative security based primarily on a specific exchange-listed security in anticipation of the issuance of a research report in that same security. For example, a firm's research department may prepare a research report recommending the purchase of a particular Nasdaq-listed security. Prior to the publication and dissemination of the report, however, the trading department of the member firm might purposefully accumulate a position in that security to meet anticipated customer demand for that security. After the firm had established its position, the firm would issue the report, and thereafter fill customer orders from the member firm's inventory positions.
        The Association believes that such activity is conduct that is inconsistent with just and equitable principles of trade, and not in the best interests of the investors. Thus, this interpretation prohibits a member from purposefully establishing, creating or changing the firm's inventory position in an exchange-listed security traded otherwise than on an exchange , or a derivative security related to the underlying equity security, in anticipation of the issuance of a research report regarding such security by the member firm.
        In accordance with Article VII, Section 1(a)(ii) of the NASD By-Laws, the Association's Board of Governors has approved the following interpretation of Rule 2110:
        Trading activity purposefully establishing, increasing, decreasing, or liquidating a position in an exchange-listed security traded otherwise than on an exchange or a derivative security based primarily upon a specific exchange-listed security, in anticipation of the issuance of a research report in that security, is inconsistent with just and equitable principles of trade and is a violation of Rule 2110.
        For the purposes of this interpretation, a "purposeful" change in the firm's inventory position means any trading activities undertaken with the intent of altering a firm's position in a security in anticipation of accommodating investor interest once the research report has been published. Hence, the interpretation does not apply to changes in an inventory position related to unsolicited order flow from a firm's retail or broker/dealer client base or to research done solely for in-house trading and not in any way used for external publication.
        Under this interpretation, the Board recommends, but does not require, that member firms develop and implement policies and procedures to establish effective internal control systems and procedures that would isolate specific information within research and other relevant departments of the firm so as to prevent the trading department from utilizing the advance knowledge of the issuance of a research report. Firms that choose not to develop "Chinese Wall" procedures bear the burden of demonstrating that the basis for changes in inventory positions in advance of research reports was not purposeful.
        Amended by SR-NASD-2005-087 eff. Aug. 1, 2006
        Amended by SR-NASD-98-86 eff. Nov. 19, 1998.
        Adopted by SR-NASD-95-28 eff. Aug. 15, 1995.

        Selected Notice: 95-75.

      • IM-2110-5. Anti-Intimidation/Coordination

        This rule is no longer applicable. NASD IM-2110-5 has been superseded by FINRA Rule 5240. Please consult the appropriate FINRA Rule.

        The Board of Governors is issuing this interpretation to codify a longstanding policy. It is conduct inconsistent with just and equitable principles of trade for any member or person associated with a member to coordinate the prices (including quotations), trades, or trade reports of such member with any other member or person associated with a member; to direct or request another member to alter a price (including a quotation); or to engage, directly or indirectly, in any conduct that threatens, harasses, coerces, intimidates, or otherwise attempts improperly to influence another member or person associated with a member. This includes, but is not limited to, any attempt to influence another member or person associated with a member to adjust or maintain a price or quotation, whether displayed on any facility operated by NASD or otherwise, or refusals to trade or other conduct that retaliates against or discourages the competitive activities of another market maker or market participant. Nothing in this interpretation respecting coordination of quotes, trades, or trade reports shall be deemed to limit, constrain, or otherwise inhibit the freedom of a member or person associated with a member to:
        (1) set unilaterally its own bid or ask in any security, the prices at which it is willing to buy or sell any security, and the quantity of shares of any security that it is willing to buy or sell;

        (2) set unilaterally its own dealer spread, quote increment, or quantity of shares for its quotations (or set any relationship between or among its dealer spread, inside spread, or the size of any quote increment) in any security;

        (3) communicate its own bid or ask, or the prices at or the quantity of shares in which it is willing to buy or sell any security to any person, for the purpose of exploring the possibility of a purchase or sale of that security, and to negotiate for or agree to such purchase or sale;

        (4) communicate its own bid or ask, or the price at or the quantity of shares in which it is willing to buy or sell any security, to any person for the purpose of retaining such person as an agent or subagent for the member or for a customer of the member (or for the purpose of seeking to be retained as an agent or subagent), and to negotiate for or agree to such purchase or sale;

        (5) engage in any underwriting (or any syndicate for the underwriting) of securities to the extent permitted by the federal securities laws;

        (6) take any unilateral action or make any unilateral decision regarding the market makers with which it will trade and the terms on which it will trade unless such action is prohibited by the second and third sentences of this Interpretation; and

        (7) deliver an order to another member for handling,

        provided, however, that the conduct described in (1) through (7) is otherwise in compliance with all applicable law.

        Amended by SR-NASD-2002-97 eff. July 29, 2002.
        Adopted by SR-NASD-97-37 eff. July 17, 1997.

      • IM-2110-6. Confirmation of Callable Common Stock

        This rule is no longer applicable.

        Any member providing a customer confirmation pursuant to SEC Rule 10b-10 in connection with any transaction in callable common stock shall disclose on such confirmation that:
        •   The security is callable common stock; and
        •   A customer may contact the member for more information concerning the security.
        Adopted by SR-NASD-2000-24 eff. April 25, 2000.

        Selected Notice: 00-33.

      • IM-2110-7. Interfering With the Transfer of Customer Accounts in the Context of Employment Disputes

        This rule is no longer applicable. NASD IM-2110-7 has been superseded by FINRA Rule 2140. Please consult the appropriate FINRA Rule.

        It shall be inconsistent with just and equitable principles of trade for a member or person associated with a member to interfere with a customer's request to transfer his or her account in connection with the change in employment of the customer's registered representative, provided that the account is not subject to any lien for monies owed by the customer or other bona fide claim. Prohibited interference includes, but is not limited to, seeking a judicial order or decree that would bar or restrict the submission, delivery or acceptance of a written request from a customer to transfer his or her account. Nothing in this interpretation shall affect the operation of Rule 11870.
        Adopted by SR-NASD-2001-95 eff. Dec. 21, 2001.

        Selected Notice: 02-07.

    • 2111. Trading Ahead of Customer Market Orders

      This rule is no longer applicable. NASD Rule 2111 has been superseded by FINRA Rule 5320. Please consult the appropriate FINRA Rule.

      (a) A member must make every effort to execute a customer market order that it receives fully and promptly.
      (b) A member that accepts and holds a market order of its own customer or a customer of another broker-dealer in a Nasdaq or exchange-listed security without immediately executing the order is prohibited from trading that security on the same side of the market for its own account, unless it immediately thereafter executes the customer market order up to the size and at the same price at which it traded for its own account or at a better price.
      (c)(1) A member that is holding a customer market order that has not been immediately executed must make every effort to cross such order with any market order, marketable limit order, or non-marketable limit order priced better than the best bid or offer, received by the member on the other side of the market up to the size of such order at a price that is no less than the best bid and no greater than the best offer at the time that the subsequent market order, marketable limit order or non-marketable limit order is received by the member and that is consistent with the terms of the orders.
      (2) In the event that a member is holding multiple orders on both sides of the market that have not been executed, the member must make every effort to cross or otherwise execute such orders in a manner that is reasonable, and is consistent with the objectives of this rule and with the terms of the orders.
      (3) For purposes of this paragraph (c), a member can satisfy the crossing requirement by contemporaneously buying from the seller and selling to the buyer at the same price.
      (4) A member must have a written methodology in place governing the execution and priority of all pending orders that is consistent with the requirements of this rule. A member also must ensure that this methodology is consistently applied.
      (d) A member may negotiate specific terms and conditions applicable to the acceptance of a market order only with respect to market orders that are: (1) for customer accounts that meet the definition of an "institutional account" as that term is defined in Rule 3110(c)(4), or (2) 10,000 shares or more, unless such orders are less than $100,000 in value.
      (e) This rule applies to limit orders that are marketable at the time they are received by the member or become marketable at a later time. Such limit orders shall be treated as market orders for purposes of this rule, however, these orders must continue to be executed at their limit price or better. If a customer limit order is not marketable when received, the limit order must be provided the full protections of IM-2110-2. In addition, if the limit order was marketable when received and then becomes non-marketable, once the limit order becomes non-marketable, it must be provided the full protections of IM-2110-2.
      (f) The obligations under this rule shall not apply to a member's proprietary trade if such proprietary trade is for the purposes of facilitating the execution, on a riskless principal basis, of another order from a customer (whether its own customer or the customer of another broker-dealer) (the "facilitated order"), provided that all of the following requirements are satisfied:
      (1) The handling and execution of the facilitated order must satisfy the definition of a "riskless" principal transaction, as that term is defined in NASD Rules 4632(d)(3)(B), 4642(d)(3)(B), 4652(d)(3)(B), 4632A(e)(1)(C) or 6420(d)(3)(B);
      (2) A member that relies on this exclusion to the rule must give the facilitated order the same per-share price at which the member accumulated or sold shares to satisfy the facilitated order, exclusive of any markup or markdown, commission equivalent or other fee;
      (3) A member must submit, contemporaneously with the execution of the facilitated order, a report as defined in NASD Rules 4632(d)(3)(B)(ii), 4642(d)(3)(B)(ii), 4652(d)(3)(B)(ii), 6420(d)(3)(B)(ii) and 4632A(e)(1)(C)(ii), or a substantially similar report to another trade reporting system; and
      (4) Members must have written policies and procedures to assure that riskless principal transactions relied upon for this exclusion comply with applicable NASD rules. At a minimum these policies and procedures must require that the customer order was received prior to the offsetting transactions, and that the offsetting transactions are allocated to a riskless principal or customer account in a consistent manner and within 60 seconds of execution. Members must have supervisory systems in place that produce records that enable the member and NASD to reconstruct accurately, readily, and in a time-sequenced manner all orders on which a member relies in claiming this exception.
      (g) The obligations under this rule shall not apply to trading for a member's own account that is the result of an intermarket sweep order routed in compliance with Rule 600(b)(30)(ii) of Regulation NMS (“ISO”) where the customer market order is received after the member routed the ISO. The obligations under this rule also shall not apply with respect to trading for a member's own account that is the result of an ISO where the member executes the ISO to facilitate a customer market order and that customer has consented to not receiving the better prices obtained by the ISO.
      (h) Nothing in this rule changes the application of Rule 2320 with respect to a member's obligations to customer orders.
      Amended by SR-FINRA-2007-039 eff. May 6, 2008.
      Amended by SR-NASD-2005-139 eff. Jan. 9, 2006.
      Adopted by SR-NASD-2004-045 eff. Jan. 9, 2006.

      Selected Notices: 05-69, 08-31.

    • 2120. Use of Manipulative, Deceptive or Other Fraudulent Devices

      This rule is no longer applicable. NASD Rule 2120 has been superseded by FINRA Rule 2020. Please consult the appropriate FINRA Rule.

      No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.
      Cross References–

      IM-2310-2, Fair Dealing with Customers
      IM-3310, Manipulative and Deceptive Quotations

    • 2130. Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD System)

      This rule is no longer applicable. NASD Rule 2130 has been superseded by FINRA Rule 2080. Please consult the appropriate FINRA Rule.

      (a) Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.
      (b) Members or associated persons petitioning a court for expungement relief or seeking judicial confirmation of an arbitration award containing expungement relief must name NASD as an additional party and serve NASD with all appropriate documents unless this requirement is waived pursuant to subparagraph (1) or (2) below.
      (1) Upon request, NASD may waive the obligation to name NASD as a party if NASD determines that the expungement relief is based on affirmative judicial or arbitral findings that:
      (A) the claim, allegation or information is factually impossible or clearly erroneous;
      (B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; or
      (C) the claim, allegation, or information is false.
      (2) If the expungement relief is based on judicial or arbitral findings other than those described above, NASD, in its sole discretion and under extraordinary circumstances, also may waive the obligation to name NASD as a party if it determines that:
      (A) the expungement relief and accompanying findings on which it is based are meritorious; and
      (B) the expungement would have no material adverse effect on investor protection, the integrity of the CRD system, or regulatory requirements.
      (c) For purposes of this rule, the terms "sales practice violation," "investment-related," and "involved" shall have the meanings set forth in the Uniform Application for Securities Industry Registration or Transfer ("Form U4") in effect at the time of issuance of the subject expungement order.
      Amended by SR-NASD-2003-200 eff. April 12, 2004.
      Adopted by SR-NASD-2002-168 eff. April 12, 2004.

      Selected Notice: 04-16.