General Sales Practices
Under FINRA General Standards of Business Conduct, a member, in the conduct of his or her business, must observe high standards of commercial honor and just and equitable principles of trade. Under Rule 2110, the following conduct is prohibited:

  • Front-running- The unethical practice of a member or associated person  trading a security  for their own account prior to entering an order for  his or her client for the same security. The person who front runs an order is entering the order with the knowledge that their client is about to enter a large order that will move the price of the stock and are trying to profit from the knowledge of the order at the expense of the client.
     
  • Trading ahead of research reports - A member may not purposefully establish, create or change the firm's inventory position in a security in anticipation of the issuance of a research report by the member firm regarding that security. Any action taken based on the knowledge that the firm will be issuing a research report would be trading ahead and a violation
     
  • Trading ahead of customer orders  (front running)- A member must make every effort to execute a customer market order fully and promptly. If any member accepts an order without immediately executing the order, that member is prohibited from trading the security on the same side of the market for its own account unless immediately thereafter, the member executes the customer market order up to the size and at the same or a better price than that at which it traded the security for its own account.

Members are also forbidden from using any manipulative, deceptive or other fraudulent devices in any dealings with the public under FINRA Rule 2120, which is cross referenced with SEC Rule 10b-5. This rule defines such behavior as the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange:

  • To employ any device, scheme or artifice to defraud
     
  • To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading
     
  • To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security.


Supervision

Related Articles
  1. Investing

    Explaining Market Orders

    A market order is the most common order used to purchase a financial security.
  2. Insights

    FINRA: How It Protects Investors

    Find out the history of FINRA, and how it's organized to monitor the markets and protect investors.
  3. Insights

    Duck These Illegal Sales Tactics Used By Brokers

    Many unscrupulous brokers employ illegal swindling tactics to sell bad securities. Here are sales strategies that should indicate red flags to investors.
  4. Financial Advisor

    SEC's CARDS Plan Creates Controversy for Brokers

    The securities industry isn't happy with the hand it may be dealt with the SEC's proposed CARDS rules.
  5. Financial Advisor

    What Financial Advisors and Brokers Need to Know About Rule 407

    Learn about NYSE Rule 407 and how it may impact you as a financial advisor or investment broker. What you don't know about this regulation can hurt you.
  6. Financial Advisor

    FINRA Rule 2273: Your Recruiting Questions Answered

    An in-depth look at and Q&A on FINRA's new recruiting practices rule, which goes into effect in November.
  7. Trading

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
Frequently Asked Questions
  1. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
  4. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ...
Trading Center