FINRA proposes to amend how member firms handle stop orders, eliminating from Rule 6140 the provisions re: the handling of stop orders, deleting definitions relating to stop stock transactions, and relocating the definition of “initial public offering.” 

    Rule 6140(h) Provisions.  Members currently are permitted - not obligated - to accept stop orders. It further provides that a stop order becomes a market order (or a stop limit order becomes a limit order) when a transaction takes place at or above the stop price (in the case of a buy stop order) or at or below the stop price (in the case of a sell stop order). Thus, as defined in the Rule, a stop order cannot be triggered by the publication of a quotation at the stop price - only by a transaction.

Members have countered rule provisions, saying that quotations may be a better indicator of the current price of a security than transactions, and requested that FINRA provide members the flexibility to determine whether the trigger of a stop order will be based on transactions or quotations in the subject security at the stop price. 

    Comment and Proposed Changes.   FINRA rules typically don't define the parameters of the various order types that members may accept, though the SRO agrees that members should have the ability to define the triggering event for stop orders as well as to design their systems consistent with such determination.  Therefore, FINRA is proposing to delete Rule 6140(h).  FINRA also is deleting Rule 6140(i), which defines the terms “stop stock price” and “stop stock transaction.”

Members that also are members of another SRO will continue to be subject to any applicable provisions adopted by such other SRO with respect to the handling of stop orders.  FINRA expects that, irrespective of whether a transaction or quotation is used as the trigger for a customer stop order, each member will apply the approach consistently firm-wide to all customer orders and fully disclose its practice to its customers.

FINRA also is proposing to move the definition of “initial public offering” from Rule 6220, Definitions, to Rule 6130, Transactions Related to Initial Public Offerings.  FINRA is not proposing substantive changes to the definition of “initial public offering.”  FINRA believes that Rule 6130 is the more appropriate location for the definition of “initial public offering” and that relocating this definition, as proposed, will reduce confusion for members.   [FINRA Rule Filing 10-55, 10/29]