5320. Prohibition Against Trading Ahead of Customer Orders
• • • Supplementary Material: --------------
.01 Large Orders and Institutional Account Exceptions. With respect to orders for customer accounts that meet the definition of an "institutional account" as defined in Rule 4512(c), or for orders of 10,000 shares or more (unless such orders are less than $100,000 in value), a member is permitted to trade a security on the same side of the market for its own account at a price that would satisfy such customer order, provided that the member has provided clear and comprehensive written disclosure to such customer at account opening and annually thereafter that:
.02 No-Knowledge Exception
.03 Riskless Principal Exception. 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 an order from a customer (whether its own customer or the customer of another broker-dealer) (the "facilitated order"), provided that the member:
.04 ISO Exception. A member shall be exempt from the obligation to execute a customer order in a manner consistent with this Rule 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 SEC Regulation NMS ("ISO") where the customer order is received after the member routed the ISO. Where a member routes an ISO to facilitate a customer order and that customer has consented to not receiving the better prices obtained by the ISO, the member also shall be exempt with respect to any trading for its own account that is the result of the ISO with respect to the consenting customer's order.
.05 Odd Lot and Bona Fide Error Transaction Exceptions. The obligations under this Rule shall not apply to a member's proprietary trade that is (1) to offset a customer order that is in an amount less than a normal unit of trading; or (2) to correct a bona fide error. Members are required to demonstrate and document the basis upon which a transaction meets the bona fide error exception.
.06 Minimum Price Improvement Standards. 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:
.07 Order Handling Procedures. A member must make every effort to execute a marketable customer order that it receives fully and promptly. A member that is holding a customer order that is marketable and has not been immediately executed must make every effort to cross such order with any other order 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 order is received by the member and that is consistent with the terms of the orders. 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 consistent with the objectives of this Rule and with the terms of the orders. A member can satisfy the crossing requirement by contemporaneously buying from the seller and selling to the buyer at the same price.
.08 Trading Outside Normal Market Hours. Members generally may limit the life of a customer order to the period of normal market hours of 9:30 a.m. to 4:00 p.m. Eastern Time. However, if the customer and member agree to the processing of the customer's order outside normal market hours, the protections of this Rule shall apply to that customer's order(s) at all times the customer order is executable by the member.
Amended by SR-FINRA-2012-027 eff. July 9, 2012.
Amended by SR-FINRA-2011-063 eff. Apr. 16, 2012.
Amended by SR-FINRA-2011-065 eff. Dec. 5, 2011.
Amended by SR-FINRA-2009-090 eff. Sept. 12, 2011.
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-2005-139 eff. Jan. 9, 2006.
Amended by SR-NASD-2004-045 eff. Jan. 9, 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, 05-69, 07-19, 08-31, 08-49, 09-14, 11-24.
- Regulatory Notice 18-29September 12, 2018
- Regulatory Notice 18-05February 06, 2018
- Regulatory Notice 13-22June 28, 2013
- Regulatory Notice 12-52December 03, 2012
- Regulatory Notice 12-13March 02, 2012