Effective 2/11//11 and 5/9/11, FINRA will extend certain Regulation NMS protections to quoting and trading of OTC Equity Securities.1 For OTC Equity Securities, these new rules:

• defining quotation pricing increments;
• prohibiting locked and crossed quotations;
  
• implementing a cap on access fees; and
• requiring the display of customer limit orders by OTC Market Makers.

    Things to Keep in Mind.   FINRA addresses the following issues: 

• Restrictions on Sub-penny Quoting, FINRA Rule 6434.
• Locked and Crossed Markets, FINRA Rule 6437.
• Access Fee Cap, FINRA Rule 6450.
• Limit Order Display, FINRA Rule 6460.

    FINRA's FAQ's:f Your Dessert, Beginning With FAQ #1.    FINRA Rule 6460 contains a de minimis standard or situations where a customer L/O equals an OTC MM's displayed price,  and that price is equal to the BBO. Will FINRA use 10 percent or less as deminimis, as defined in Reg NMS Rule 604 interpretation.

    “OTC Equity Security”...  means any equity security that's not an “NMS stock,” as defined in 600(b)(47), excluding any Restricted Equity Security.   An “NMS stock” is “any NMS security other than an option.” NMS security means “any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options.” See Rule 600(b)(47) of Regulation NMS.

    "OTC Market Maker" ... refers to a FINRA firm that holds itself out as a market maker by entering proprietary quotations or indications of interest (IOI's) for a particular OTC Equity Security in any inter-dealer quotation system, including any system that the SEC has qualified pursuant to Section 17B of the Exchange Act.  An OTC Market Maker must display market making interest via an inter-dealer quotation system.  See FINRA Rule 6420.

For a complete read, click onto:   [ FINRA RegNote 10-42, September ].

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