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FINRA Issues Notice Regarding Disruptive Quoting and Trading Activity Rule Changes

On June 7, the Financial Industry Regulatory Authority published Regulatory Notice 17-22, which addresses two rule changes implemented in December 2016 regarding disruptive quoting and trading activity. The first rule change adopts new Supplementary Material .03 to Rule 5210, which defines two types of prohibited activities and states that a “frequent pattern or practice” of these activities is considered disruptive quoting and trading activity. The first prohibited activity involves a scenario where: (1) a party enters multiple limit orders on one side of the market that changes the level of supply and demand for the security; (2) the party enters one or more orders on the opposite side of the market which are subsequently executed; and (3) the party then cancels its original orders. The second prohibited activity consists of a scenario where: (1) a party places an order inside the national best bid and offer; and (2) the party then submits an order on the opposite side of the market that executes against another market participant that joined the new inside market.

The second rule change amends FINRA’s procedural rules regarding temporary cease and desist orders. This amendment creates a process whereby FINRA can issue a permanent cease and desist order on an expedited basis against a respondent that engages in a frequent pattern or practice of the prohibited activities defined under Supplementary Material .03 to Rule 5210.

©2017 Katten Muchin Rosenman LLP

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About this Author

Special Counsel

Michael Foley represents broker-dealers, investment advisers and other financial services industry participants with respect to a broad spectrum of legal and regulatory matters arising under the federal securities laws.

Michael has nearly 20 years of experience in private practice and in-house at both a large, full-service broker-dealer and at an online discount broker-dealer, advising broker-dealers and other financial institutions regarding compliance with the federal securities and commodities laws, and with the regulations of the US Securities and Exchange...

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