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. Financial Advisor

    Investigating The Securities Police

    Learn about the history of FINRA and how this organization protects investors.
  4. 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.
  5. Financial Advisor

    What Advisors Need to Know About Rule 3210

    Here's what advisors and brokers need to know about FINRA Rule 3210.
  6. 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. How do you calculate r-squared in Excel?

    Calculate R-squared in Microsoft Excel by creating two data ranges to correlate. Use the Correlation formula to correlate ...
  2. What is the Difference Between International Monetary Fund and the World Bank?

    Learn about the International Monetary Fund and the World Bank and how they are differentiated by their respective functions ...
  3. Where Did the Bull and Bear Market Get Their Names?

    The terms bull and bear are used to describe general actions and attitudes, or sentiment, either of an individual (bear and ...
  4. What's the difference between Google's GOOG and GOOGL stock tickers?

    Learn the difference between Google's GOOG and GOOGL ticker symbols. Splitting shares into classes prevents management from ...
Trading Center