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  • 5200. QUOTATION AND TRADING OBLIGATIONS AND PRACTICES

    • 5210. Publication of Transactions and Quotations

      No member shall publish or circulate, or cause to be published or circulated, any notice, circular, advertisement, newspaper article, investment service, or communication of any kind which purports to report any transaction as a purchase or sale of any security unless such member believes that such transaction was a bona fide purchase or sale of such security; or which purports to quote the bid price or asked price for any security, unless such member believes that such quotation represents a bona fide bid for, or offer of, such security.

      • • • Supplementary Material: --------------

      .01 Manipulative and Deceptive Quotations. It shall be deemed inconsistent with Rules 2010 (Standards of Commercial Honor and Principles of Trade), 2020 (Use of Manipulative, Deceptive or Other Fraudulent Devices) and 5210 (Publication of Transactions and Quotations) for a member to publish or circulate or cause to be published or circulated, by any means whatsoever, any report of any securities transaction or of any purchase or sale of any security unless such member knows or has reason to believe that such transaction was a bona fide transaction, purchase or sale.

      Similarly, it shall be deemed inconsistent with Rules 2010, 2020 and 5210 for a member, for itself or for any other person, to publish or circulate or to cause to be published or circulated, by any means whatsoever, any quotation for any security without having reasonable cause to believe that such quotation is a bona fide quotation, is not fictitious and is not published or circulated or caused to be published or circulated for any fraudulent, deceptive or manipulative purpose.

      For the purposes of this Rule, the term "quotation" shall include any bid or offer or any formula, such as "bid wanted" or "offer wanted," designed to induce any person to make or submit any bid or offer.

      .02 Self-Trades. Transactions in a security resulting from the unintentional interaction of orders originating from the same firm that involve no change in the beneficial ownership of the security, (“self- trades”) generally are bona fide transactions for purposes of Rule 5210; however, members must have policies and procedures in place that are reasonably designed to review their trading activity for, and prevent, a pattern or practice of self-trades resulting from orders originating from a single algorithm or trading desk, or related algorithms or trading desks. Transactions resulting from orders that originate from unrelated algorithms or separate and distinct trading strategies within the same firm would generally be considered bona fide self-trades. Algorithms or trading strategies within the most discrete unit of an effective system of internal controls at a member firm are presumed to be related. This Supplementary Material does not change members' existing obligations under Rules 2010 and 3110.

      .03 Disruptive Quoting and Trading Activity Prohibited

      (a) No member shall engage in or facilitate disruptive quoting and trading activity as described in paragraph (b), including acting in concert with other persons to effect such activity.
      (b) Disruptive quoting and trading activity shall include a frequent pattern in which the following facts are present:
      (1) Disruptive Quoting and Trading Activity Type 1:
      (A) a party enters multiple limit orders on one side of the market at various price levels (the "Displayed Orders"); and
      (B) following the entry of the Displayed Orders, the level of supply and demand for the security changes; and
      (C) the party enters one or more orders on the opposite side of the market of the Displayed Orders (the "Contra-Side Orders") that are subsequently executed; and
      (D) following the execution of the Contra-Side Orders, the party cancels the Displayed Orders.
      (2) Disruptive Quoting and Trading Activity Type 2:
      (A) a party narrows the spread for a security by placing an order inside the national best bid and national best offer ("NBBO"); and
      (B) the party then executes an order on the opposite side of the market that executes against another market participant that joined the new inside market established by the order described in subparagraph (A).
      (c) For purposes of this Supplementary Material .03, disruptive quoting and trading activity shall include a frequent pattern in which the facts listed above are present. Unless otherwise indicated, the order of the events indicating the pattern does not modify the applicability of the Supplementary Material. Further, disruptive quoting and trading activity includes a pattern or practice in which all of the quoting and trading activity is conducted on a single venue as well as a pattern or practice in which some portion of the quoting and trading activity is conducted on a one venue and the other portions of the quoting and trading activity are conducted on one or more other venues.
      Amended by SR-FINRA-2017-004 eff. April 3, 2017.
      Amended by SR-FINRA-2016-043 eff. Dec. 15, 2016.
      Amended by SR-FINRA-2014-045 eff. Dec. 1, 2014.
      Amended by SR-FINRA-2013-036 eff. Aug. 25, 2014.
      Amended by SR-FINRA-2009-055 eff. Feb. 15, 2010.

      Selected Notices: 09-72, 14-28, 17-22.

    • 5220. Offers at Stated Prices

      No member shall make an offer to buy from or sell to any person any security at a stated price unless such member is prepared to purchase or sell, as the case may be, at such price and under such conditions as are stated at the time of such offer to buy or sell.

      • • • Supplementary Material: --------------

      .01 Firmness of Quotations. Members and persons associated with members in the over-the-counter market make trading decisions and set prices for customers upon the basis of telephone and electronic quotations, including quotations displayed in an inter-dealer quotation system. In some instances a dealer's quotations, purportedly firm, are, in fact, so qualified upon further inquiry as to constitute "backing away" by the quoting dealer. Further, dealers who publish quotations in inter-dealer quotation systems have been found to be unwilling to make firm bids or offers upon inquiry in such a way as to pose a question as to the validity of the quotations originally published. Such "backing away" from quotations disrupts the normal operation of the over-the-counter market.
      Members, of course, change inter-dealer quotations constantly in the course of trading, but under normal circumstances where the member is making a "firm trading market" in any security, it is expected at least to buy or sell a normal unit of trading in the quoted stock at its then prevailing quotations unless clearly designated as not firm or firm for less than a normal unit of trading when supplied by the member. However, if at the time an order for the purchase or sale of the quoted security is presented, the member is in the process of effecting a transaction in such quoted security, and immediately after the completion of such transaction, communicates a revised quotation size, such member shall not be obligated to purchase or sell the quoted security in an amount greater than such revised quotation size.
      In order to ensure the integrity of quotations, every member has an obligation to correctly identify the nature of its quotations when they are supplied to others. In addition, each member furnishing quotations must ensure that it is adequately staffed to respond to inquiries during the normal business hours of such member.
      It shall be deemed inconsistent with Rules 2010 (Standards of Commercial Honor and Principles of Trade) and 5220 (Offers at Stated Prices) if a member fails to fulfill its obligations as outlined above.
      For the purposes of this Rule, the term "inter-dealer quotation system" is as defined in Rule 6420.
      Amended by SR-FINRA-2012-027 eff. July 9, 2012.
      Amended by SR-FINRA-2009-055 eff. Feb. 15, 2010.
      Amended by the NASD Board on May 4, 1965.

      Selected Notice: 09-72.

    • 5230. Payments Involving Publications that Influence the Market Price of a Security

      (a) Except as provided in paragraph (b), no member shall, directly or indirectly, give, permit to be given, or offer to give, anything of value to any person for the purpose of influencing or rewarding the action of such person in connection with the publication or circulation in any electronic or other public media, including any investment service or similar publication, Web site, newspaper, magazine or other periodical, radio, or television program of any matter that has, or is intended to have, an effect upon the market price of any security.
      (b) The prohibitions in paragraph (a) shall not apply to compensation paid to a person in connection with the publication or circulation of:
      (1) a communication that is clearly distinguishable as paid advertising;
      (2) a communication that discloses the receipt of compensation and the amount thereof in accordance with Section 17(b) of the Securities Act; or
      (3) a research report, as that term is defined in Rule 2241.
      Amended by SR-FINRA-2015-050 eff. Dec. 24, 2015.
      Amended by SR-FINRA-2009-048 eff. Dec. 14, 2009.

      Selected Notice: 09-60.

    • 5240. Anti-Intimidation/Coordination

      (a) No member or person associated with a member shall:
      (1) coordinate the prices (including quotations), trades or trade reports of such member with any other member or person associated with a member, or any other person;
      (2) direct or request another member to alter a price (including a quotation); or
      (3) engage, directly or indirectly, in any conduct that threatens, harasses, coerces, intimidates or otherwise attempts improperly to influence another member, a person associated with a member, or any other person.
      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 FINRA or otherwise, or refusals to trade or other conduct that retaliates against or discourages the competitive activities of another market maker or market participant.
      (b) Provided that the conduct in subparagraphs (1) through (7) below is otherwise in compliance with all applicable law, nothing in this Rule 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 paragraph (a) of this Rule; and

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

      Amended by SR-FINRA-2008-061 eff. June 15, 2009.
      Amended by SR-NASD-2002-97 eff. July 29, 2002.
      Adopted by SR-NASD-97-37 eff. July 17, 1997.

      Selected Notice: 09-20.

    • 5250. Payments for Market Making

      (a) No member or person associated with a member shall accept any payment or other consideration, directly or indirectly, from an issuer of a security, or any affiliate or promoter thereof, for publishing a quotation, acting as market maker in a security, or submitting an application in connection therewith.
      (b) The provisions of paragraph (a) shall not preclude a member from accepting:
      (1) payment for bona fide services, including, but not limited to, investment banking services (including underwriting compensation and fees);
      (2) reimbursement of any payment for registration imposed by the SEC or state regulatory authorities and for listing of an issue of securities imposed by a self-regulatory organization; and
      (3) any payment expressly provided for under the rules of a national securities exchange that are effective after being filed with, or filed with and approved by, the SEC pursuant to the requirements of the Exchange Act.
      (c) For purposes of this Rule, the following terms shall have the stated meanings:
      (1) "affiliate" shall have the same definition as used in Rule 5121;
      (2) "promoter" means any person who founded or organized the business or enterprise of an issuer, is a director or employee of an issuer, acts or has acted as a consultant, advisor, accountant or attorney to an issuer, is the beneficial owner of any of an issuer's securities that are considered "restricted securities" under Securities Act Rule 144, or is the beneficial owner of five percent (5%) or more of the public float of any class of an issuer's securities, and any other person with a similar interest in promoting the entry of quotations or market making in an issuer's securities; and
      (3) "quotation" shall mean any bid or offer at a specified price with respect to a security, or any indication of interest by a member in receiving bids or offers from others for a security, or an indication by a member that it wishes to advertise its general interest in buying or selling a particular security.
      Amended by SR-FINRA-2013-020 eff. May 15, 2013.
      Amended by SR-FINRA-2010-060 eff. Dec. 15, 2010.
      Amended by SR-FINRA-2009-036 eff. Dec. 14, 2009.
      Amended by SR-NASD-97-85 eff. Dec. 1, 1997.
      Adopted by SR-NASD-97-29, eff. July 3, 1997.

      Selected Notices: 75-16, 92-50, 96-83, 97-46, 09-60.

    • 5260. Prohibition on Transactions, Publication of Quotations, or Publication of Indications of Interest During Trading Halts

      (a) No member or person associated with a member shall, directly or indirectly, effect any transaction or publish a quotation, a priced bid and/or offer, an unpriced indication of interest (including "bid wanted" and "offer wanted" and name only indications), or a bid or offer accompanied by a modifier to reflect unsolicited customer interest, in any security as to which a trading halt is currently in effect, except as permitted under the Regulation NMS Plan to Address Extraordinary Market Volatility. If FINRA closes trading in a security pursuant to its authority under Rule 6120(a)(3), members would not be prohibited from trading through other markets for which trading is not halted.
      (b) No member or person associated with a member shall, directly or indirectly, effect any transaction or publish a quotation, a priced bid and/or offer, an unpriced indication of interest (including "bid wanted" and "offer wanted" and name only indications), or a bid or offer, accompanied by a modifier to reflect unsolicited customer interest, in:
      (1) a future for a single security when the underlying security has a regulatory trading halt that is currently in effect; and
      (2) a future on a narrow-based securities index when one or more underlying securities that constitute 50% or more of the market capitalization of the index has a regulatory trading halt that is currently in effect.
      Cross Reference–

      Rule 6120, Trading Halts

      Amended by SR-FINRA-2013-016 eff. April 8, 2013.
      Amended by SR-FINRA-2009-044 eff. Dec. 14, 2009.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Amended by SR-NASD-2001-47 eff. March 31, 2003.
      Amended by SR-NASD-2002-97 eff. July 29, 2002.
      Amended by SR-NASD-2000-33 eff. August 13, 2001.
      Adopted by SR-NASD-87-13 eff. May 5, 1988.

      Selected Notices: 86-13, 88-46, 89-2, 98-26, 01-47, 02-82, 09-60, 13-12.

    • 5270. Front Running of Block Transactions

      (a) No member or person associated with a member shall cause to be executed an order to buy or sell a security or a related financial instrument 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 that security, a related financial instrument or a security underlying the related financial instrument prior to the time information concerning the block transaction has been made publicly available or has otherwise become stale or obsolete.
      (b) This Rule applies to orders caused to be executed for any account in which such member or person associated with the member has an interest, any account with respect to which such member or person associated with a member exercises investment discretion, or for accounts of customers or affiliates of the member when the customer or affiliate has been provided such material, non-public market information by the member or any person associated with the member.
      (c) For purposes of this Rule, the term "related financial instrument" shall mean any option, derivative, security-based swap, or other financial instrument overlying a security, the value of which is materially related to, or otherwise acts as a substitute for, such security, as well as any contract that is the functional economic equivalent of a position in such security.

      • • • Supplementary Material: ------------------

      .01 Knowledge of Block Transactions. The violative practices in Rule 5270 may include transactions that 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.

      .02 Publicly Available Information. Information as to a block transaction shall be considered to be publicly available when it has been disseminated via a last sale reporting system or high speed communications line of one of those systems, a similar system of a national securities exchange under Section 6 of the Exchange Act, an alternative trading system under SEC Regulation ATS, or by a third-party news wire service. 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.

      .03 Examples of Block Transactions. In the context of equity securities, a transaction involving 10,000 shares or more of a security, an underlying security, or a related financial instrument overlying such number of shares, is generally deemed to be a block transaction, although a transaction of fewer than 10,000 shares could be considered a block transaction. 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.

      .04 Permitted Transactions.

      (a) Rule 5270 does not preclude transactions that the member can demonstrate are unrelated to the material, non-public market information received in connection with the customer order. These types of transactions may include:
      (1) transactions where the member has information barriers established to prevent internal disclosure of such information;
      (2) transactions in the same security related to a prior customer order in that security;
      (3) transactions to correct bona fide errors; or
      (4) transactions to offset odd-lot orders.
      (b) Rule 5270 does not preclude transactions undertaken for the purpose of fulfilling, or facilitating the execution of, the customer block order. However, when engaging in trading activity that could affect the market for the security that is the subject of the customer block order, the member must minimize any potential disadvantage or harm in the execution of the customer's order, must not place the member's financial interests ahead of those of its customer, and must obtain the customer's consent to such trading activity. A member may obtain its customers' consent through affirmative written consent or through the use of a negative consent letter. The negative consent letter must clearly disclose to the customer the terms and conditions for handling the customer's orders; if the customer does not object, then the member may reasonably conclude that the customer has consented and the member may rely on such letter for all or a portion of the customer's orders. In addition, a member may provide clear and comprehensive oral disclosure to and obtain consent from the customer on an order-by-order basis, provided that the member documents who provided such consent and such consent evidences the customer's understanding of the terms and conditions for handling the customer's order.
      (c) The prohibitions in Rule 5270 shall not apply if the member's trading activity is undertaken in compliance with the marketplace rules of a national securities exchange and at least one leg of the trading activity is executed on that exchange.

      .05 Front Running of Non-Block Transactions. Although the prohibitions in Rule 5270 are limited to imminent block transactions, the front running of other types of orders that place the financial interests of the member or persons associated with a member ahead of those of its customer or the misuse of knowledge of an imminent customer order may violate other FINRA rules, including Rule 2010 and Rule 5320, or provisions of the federal securities laws.

      Amended by SR-FINRA-2012-025 and SR-FINRA-2013-021 eff. Sept. 3, 2013.
      Amended by SR-NASD-2002-40 eff. Oct. 15, 2002.
      Adopted by SR-NASD-87-45 eff. Dec. 30, 1987.

      Selected Notices: 96-66, 12-52.

    • 5280. Trading Ahead of Research Reports

      (a) No member shall establish, increase, decrease or liquidate an inventory position in a security or a derivative of such security based on non-public advance knowledge of the content or timing of a research report in that security.
      (b) A member must establish, maintain and enforce policies and procedures reasonably designed to restrict or limit the information flow between research department personnel, or other persons with knowledge of the content or timing of a research report, and trading department personnel, so as to prevent trading department personnel from utilizing non-public advance knowledge of the issuance or content of a research report for the benefit of the member or any other person.


      Amended by SR-FINRA-2008-054 eff. Apr. 20, 2009.
      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 Notices: 95-75, 09-11.

    • 5290. Order Entry and Execution Practices

      No member or associated person shall engage in conduct that has the intent or effect of splitting any order into multiple smaller orders for execution or any execution into multiple smaller executions for transaction reporting for the primary purpose of maximizing a monetary or in-kind amount to be received by the member or associated person as a result of the execution of such orders or the transaction reporting of such executions. For purposes of this Rule, “monetary or in-kind amount” shall be defined to include, but not be limited to, any credits, commissions, gratuities, payments for or rebates of fees, or any other payments of value to the member or associated person.
      Amended by SR-FINRA-2009-067 eff. Feb. 15, 2010.
      Adopted by SR-NASD-2005-144 eff. May 25, 2006.

      Selected Notices: 06-19, 09-72.