FINRA Rule 5320 – Trading Ahead of Customer Orders
Broker-dealers must execute marketable (both market and limit) customer orders fully and promptly, to the best of their abilities. If a broker-dealer has a pending, unfilled customer order for an equity security, they may not execute any trades on the same side of the market for their own account at a price that would satisfy the customer’s order, unless they immediately afterwards execute the customer’s order at the same price or better. Exceptions exist for:
- • Institutional customer accounts
- • Large orders – orders that are for 10,000+ shares and for at least $100,000
- • “No-knowledge” – a trading unit is not responsible for customer orders held by other trading units if appropriate information barriers are in place
- • Riskless principal transactions
- • Intermarket sweep orders
- • Odd lot transactions
- • Bona fide error transactions
Note: FINRA Rule 5320 became effective in September 2011 and incorporates NASD Rule 2110, known as the Manning rule (or Manning interpretation), which is still listed on the Series 24 outline published by FINRA. The Manning rule requires that when customers place a limit order with a member firm, the firm must not buy or sell shares of the same security for its own account at a price that would satisfy the limit order. If the firm does choose to trade ahead of a customer, they must give the customer price improvement, meaning they must