FINRA has proposed new "markup rules" for governing markups, markdowns and commissions in transactions with customers.  Comments are requested by 3/28.  First, FINRA would transfer NASD Rule 2440, NASD IM-2440-1 and NYSE Rule 375 to the Consolidated FINRA Rulebook as FINRA Rule 2121, Fair Prices
and Markups, Markdowns and Commissions, subject to significant changes. 

Among other things, FINRA would eliminate the "5% policy" and the "proceeds provision" in NASD
Rule IM-2440-1.  FINRA also would require firms to provide commission schedule(s) for equity securities to retail customers, and to notify and obtain consent from a customer to charge a commission when a firm misses the market and trades with the customer on a principal basis.

    FINRA also proposes to ...  transfer the requirements set forth in NASD IM-2440-2 to the Consolidated FINRA Rulebook as FINRA Rule 2122, Markups and Markdowns for Transactions in Debt Securities, Except Municipal Securities, though without significant change.

    FINRA proposes not to ...  incorporate in the Consolidated FINRA Rulebook the substantive provisions of NYSE Rule Interpretation 375/01, Customer Contact and “As of” Reports, which addresses the execution price of orders where a member has missed the market.

    Finally, with respect to service charges and fees ...  FINRA proposes to transfer NASD Rule 2430 to the Consolidated FINRA Rulebook as FINRA Rule 2123, Charges and Fees for Services Performed.  Similar to the proposed commission disclosure requirement, FINRA would require members to provide retail customers with schedule(s) of charges and fees for services.

    With Respect to Market Makers.   FINRA notes that proposed FINRA Rules 2121 and 2122, as is the case with the current markup rules, do not address a market maker’s allowance, subject to the limitations in regulation, to capture the trading spread between the bid and the ask prices.  Nothing in the proposed markup rules affects that body of law and regulation.

    Additional Notes.   FINRA discusses the key elements of proposed Rule 2121 along the following topics:

1. Fair and Reasonable Markups, Markdowns and Commissions (Proposed FINRA Rule 2121(a)).
2. General Considerations; Deletion of the “5% Policy” (Proposed FINRA Rule 2121(b).
3. Deletion of the “Proceeds Provision”.
4. Relevant Factors (Proposed FINRA Rule 2121(c)).
5. Transactions to Which the Rule is Not Applicable (FINRA Rule 2121(d)).
6. Commission Schedules (Proposed FINRA Rule 2121(e).
7. Notice of “Missing the Market” and Consent to Commission Charge (Proposed FINRA Rule 2121(f)).
8. Other Provisions Transferring With Minor Changes or to be Deleted (Paragraphs (a), (b)  and (d) of Proposed FINRA Rule 2121).

For further details on the most significant proposed changes, go to:  [FINRA Regulatory Notice 11-08, February] .