The Financial Industry Regulatory Authority (FINRA) is pleased to announce the SEC’s recent approval of a FINRA rule change to limit self-trading.
This change to FINRA Rule 5210 requires firms to have policies and procedures in place that are reasonably designed to review their trading activity for, and prevent, a pattern or practice of self-trades resulting from orders originating from a single algorithm or trading desk, or related algorithms or trading desks.
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Self-trades are "[t]ransactions in a security resulting from the unintentional interaction of orders originating from the same firm that involve no change in the beneficial ownership of the security." Self-trades by single or related algorithms or trading desks raise heightened concerns because this type of trading may not reflect genuine trading interest, particularly if there is a pattern or practice of such trades.
Thomas Gira, executive vice president, Market Regulation, FINRA, said: "FINRA’s cross-market surveillance program canvasses 90 percent of the listed equities market, and this important new rule change will significantly increase FINRA’s ability to deter self-trading that, while not involving fraudulent or manipulative intent, is disruptive to the marketplace."
FINRA will announce an effective date for this change to FINRA Rule 5210 in a Regulatory Notice to be published in the near future.
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