[ by Howard Haykin ]

FINRA submitted to the SEC for immediate effectiveness its plans to amend FINRA Rule 5250, "Payments for Market Making."   The idea is to create an exception for payments to members that are expressly provided for under the rules of a national securities exchange.

Behind the Rule Change.   FINRA Rule 5250 explicitly prohibits any payment by issuers or issuers' affiliates and promoters, directly or indirectly, to a member for publishing a quotation, acting as a market maker, or submitting an application in connection therewith.  The objective, here, is to ensure that the member firm - making a market in an issuer's securities - acts in an independent capacity.

FINRA staff has received inquiries regarding the application of the Rule as it relates to various types of programs or arrangements at a national securities exchange. 

• e.g., the SEC approved a voluntary program for market makers at Nasdaq that would be funded through fees by the issuer or an affiliate of the issuer.

• e.g., the SEC also currently is considering a voluntary market maker program proposed rule change by NYSE Arca for certain exchange-traded products that would be funded through fees by the issuer, as well.

While FINRA believes that certain exchange program structures could be deemed to be an indirect payment under Rule 5250, it doesn't believe that such arrangements should be prohibited under the Rule.  Why?  Because those those payments would be made as part of a transparent structure put in place by another SRO via a rule change, that's subject to SEC approval. 

FINRA Concludes:   Where a market maker payment is addressed under the rules of an exchange with the approval of the SEC, FINRA takes the position the payment should not be prohibited under Rule 5250.

For further details, go to:   [ FINRA Rule Filing 13-20, 4/15/13 ].