For the second time in two years, the watchdog for broker-dealers is warning traders they are obligated to send clients accurate indications of interest.
FINRA is proposing to amend its Rule 5210 which prohibits brokers from calling an IOI "natural" when it is not. FINRA wants broker-dealers to label an IOI as "natural" only when they have a real customer order in their order management systems or order tickets. In addition,a broker-dealer could not continue to display a quotation or IOI as a customer order after the order was executed or cancelled.
Comments are due by October 21.
IOIs reflect mesages sent by broker-dealers to fund managers about prices and sizes of orders ito generate trading interest. The "unnatural" IOIs: those which broker dealers claim to be natural but which are not -- namely proprietary positions. Or the broker-dealer may not even have any order behind the IOI or it may be for a much smaller size than indicated..
In May 2009, FINRA also told broker-dealers they could not send clients false IOIs. Large fund managers often receive thousands of IOIs daily. FINRA is concerned that fund managers may not be able to siphon out "natural IOIs" from IOIs which do not reflect customer orders which a broker-dealer is actually working.
-- This article first appeared on Securities Technology Monitor.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access