FINRA Proposes Keeping the 5% Rule on Markups; Also Plans to Revise QIB Standards on Debt Securities


Habits can be tough to break. In 2011, FINRA attempted to break the broker-dealer industry’s habit of relying upon a 5% ceiling for equity markups by proposing a new FINRA Rule 2121 that would eliminate the so-called “5% policy” currently embodied in NASD IM-2440-1. Last week, at the two-year anniversary of that proposal, and following its processing of comments on the proposal, FINRA chose to maintain the 5% policy, probably as much for its usefulness to FINRA in regulating fair pricing as for the member firms’ reliance on a bright line standard to supervise their practices.

FINRA is seeking comments—by April 1—on that proposal and the other changes in the markup proposal, including the plan to eliminate FINRA’s requirement proposed two years ago that firms establish and make available to retail customers schedule(s) of standard commission charges for transactions in equity securities with retail customers. This Alert will also discuss proposed changes to the criteria that firms must apply in qualifying for the exception from markup standards when selling distressed debt to QIBs.

Please see full alert below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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