FINRA Requests Comment on Proposed Consolidated FINRA Rules Governing Markups, Commissions, and Fees

FINRA Regulatory Notice 11-08

February 10, 2011

As part of the process of developing a consolidated rulebook, FINRA is requesting comments on new rules to govern markups, markdowns, commissions and fees. New FINRA Rules 2121-23 would transfer, with "significant changes," NASD Rules 2430 and 2440, NASD IM-2440-1 and -2, and NYSE Rule 375. Among other things, the new rules would make the following changes:

• (1) Deletion of the "5% Policy." FINRA notes that the policy is outdated, as 5% is frequently an excessively high markup or markdown. Rather than propose a new percentage, FINRA sets forth a set of factors firms must consider in setting markups or markdowns, based primarily on IM-2440-1(a).
• (2) Deletion of the "Proceeds Provision." FINRA deleted the provision that required firms to use the proceeds of a securities sale to pay for a new position when a customer sells one security and buys another at the same time (e.g., so that only one markup/markdown/commission applied). Instead, FINRA states that the "more rational approach" is to determine transaction remuneration on a "fair basis" as to each transaction.
• (3) Commission Schedules. The new rule would require a member to establish and make available to retail customers a schedule of the standard commissions for transactions in equity securities.
• (4) Incorporation of NYSE Rule 375. FINRA would add the requirements of NYSE Rule 375, which prohibits a member from charging a commission without the customer's knowledge and consent on an order if the firm accepted the order for execution, and takes for its own account the securities named in the order.
• (5) Schedule of Fees and Charges. FINRA proposes to require firms to establish and make available to retail customers schedules of the firm's standards fees and charges for services.

Please contact any of the following Cadwalader attorneys if you have any questions about this item:

Steven Lofchie; [email protected]

Jeffrey Robins; [email protected]

Maurine Bartlett; [email protected]

Glen Barrentine; [email protected]

Cross References

NASD Rules 2430, 2440

NASD IM-2440-1 and IM-2440-2

NYSE Rule 375

FINRA Rules 2121, 2122, 2123 (proposed)

FINRA Regulatory Notice 10-54 (requesting comment on concept proposal to require a disclosure statement for retail customers)

SEC Staff Study on Investment Advisers and Broker-Dealers (Jan. 2011)