SIE: 8.6.4. Fair Prices And Commissions

8.6.4.  Fair Prices and Commissions

FINRA expects charges for services performed to be reasonable and not unfairly discriminatory between customers. When a member firm trades with a customer for its own account, it must buy or sell at a price that is fair, taking into consideration the market, the expense involved, and the firm’s right to a profit. Likewise, if a broker acts as agent for a customer, he must charge a fair commission, taking into consideration market conditions at the time of the transaction, the expense of executing the order, and the value of any service he may have rendered, factoring in his experience and knowledge.

A standard FINRA rule of thumb for determining pricing fairness has been the 5% Policy, a policy that markups, markdowns, and commissions should hover in the neighborhood of 5% of sales. That said, depending on the security, a pattern of markups of 5% or less may be considered unfair or unreasonable. While the 5% Policy is a generally accepted practice, FINRA ad