Exam Alert: SEC approves consolidated FINRA Best Execution rule

The SEC has approved changes to FINRA’s Best Execution rule that will take effect on May 31, 2012. Four new pieces of supplementary material were added to the rule that address the following topics: securities with limited quotation or pricing information, orders for securities with no U.S. market, customer instructions regarding the routing of orders, and regular and rigorous reviews of execution quality. The new rule is otherwise generally similar to the old rule. Continue reading

The SEC has approved changes to FINRA’s Best Execution rule that will take effect on May 31, 2012.  Four new pieces of supplementary material were added to the rule that address the following topics: securities with limited quotation or pricing information, orders for securities with no U.S. market, customer instructions regarding the routing of orders, and regular and rigorous reviews of execution quality.  The new rule is otherwise generally similar to the old rule.

 

Here is a breakdown of the new supplementary material:

1. Supplementary Material .06: Securities with Limited Quotation or Pricing Information

This material replaces the old “Three Quote Rule.”  The new material does not specify a minimum number of quotes that must be obtained – rather, it emphasizes that members must be diligent in complying with best execution practices when there are customer orders for securities with limited quotation or pricing information.  The material requires that the member have written policies in place to ensure that they meet their best execution requirements.

 

2. Supplementary Material .07: Orders for Foreign Securities with No U.S. Market

This material states that in order to determine if a firm used reasonable diligence in executing orders in a given market, the firm must analyze the “facts and circumstances” of the situation.  The material requires that if a firm trades in a security that does not trade in the U.S., the firm must have written policies in place to ensure best execution of customer orders.  The policies must be reviewed regularly.

 

3. Supplementary Material .08: Customer Instructions Regarding the Routing of Orders

This material specifies that when a customer requests the firm to route their order to a specific market, the firm is not required to make a best execution determination beyond the customer’s instructions. The firm must still process the customer’s order promptly, however.

 

4. Supplementary Material .09: Regular and Rigorous Review of Execution Quality

This material codifies existing requirements for reviewing the firm’s execution quality.  These requirements were previously established through SEC releases and FINRA notices.

 

Source: FINRA Regulatory Notice 12-13

This alert applies to the Series 62, Series 55, Series 24, and Series 99.

Leave a Reply

Your email address will not be published. Required fields are marked *