FINRA, for the second time in the past two years, is chastising broker-dealers for their abuse of "natural" indications of interest.  Specifically, the regulator is proposing to amend its Rule 5210 in order to bar brokers from labeling an IOI as a "natural" if it is not.  It's yet another move aimed at stemming proprietary trading. For an IOI to be considered natural, it must represent a customer order and not a proprietary position.  FINRA says some brokers are claiming their IOIs are naturals when they are not holding a customer order.

Indications of interest are quote-like messages sent by the sellside to the buyside containing price and size information. They are intended to draw out trading interest from the buyside.  IOIs are central to communication between the buy and sell sides, and what concerns FINRA and others is their use to manipulate prices, which offers traders an unfair advantage.

As proposed, ... brokers would only be able to label an IOI as a natural if it has a customer order in its order management system or on an order ticket.   FINRA requests comments by 10/21/11.   As noted above, it's the second time FINRA has blasted brokerages for their IOI practices.  In 2009, new rules were written with the intention of banning the improper labeling of proprietary IOIs.  FINRA also fined several firms millions of dollars over improper IOI practices.    [Trader's Magazine, 10/7/11]