FINRA Files Amendment to Proposed Rule Change Relating to Wash Sale Transaction, Self-Trades and FINRA Rule 5210

FINRA has filed with the SEC an amendment to the proposed rule change to FINRA Rule 5210("Publication of Transactions and Quotations"), which was originally filed in August.

In the initial rule filing, FINRA proposed to add "Supplementary Material .02" to FINRA Rule 5210 to emphasize that wash sale transactions are generally non-bona fide transactions, and that members have an obligation to put policies and procedures in place to review their trading activity for, and to prevent, wash sale transactions. The SEC received five comment letters regarding the proposed rule, and FINRA filed Amendment No. 1 in response to the comments. Amendment No. 1 would amend the proposed rule change in the following ways:

• replacing the term "wash sale" with "self-trade";
• clarifying that self-trades are "transactions 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, and are bona fide transactions";
• clarifying that the policies and procedures required by Rule 5210 must be "reasonably designed" to review trading activity for, and to prevent, a pattern or practice of self-trades resulting from orders originating from a single algorithm or trading desk;
• clarifying that transactions resulting from orders that originate from unrelated algorithms, or separate and distinct trading strategies within the same firm, would generally be considered bona fide self-trades; and
• removing examples from the proposed rule text of the types of algorithms or trading desks that FINRA would presume to be related for purposes of Rule 5210.

See: Text of Amendment No. 1.Related news: FINRA Proposed Rule on Wash Sale Transactions (with Lofchie Comment) (August 16, 2013); MFA Comment Letter on Unintentional Wash Sales (September 26, 2013).