More On Legal & Compliancefrom The Advisor's Professional Library
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
The Securities and Exchange Commission approved Thursday the Financial Industry Regulatory Authority’s rule change to limit self-trading.
The change to FINRA Rule 5210 requires firms to have policies and procedures in place that are reasonably designed to review their trading activity for, and prevent, a pattern or practice of self-trades resulting from orders originating from a single algorithm or trading desk, or related algorithms or trading desks.
FINRA said that it will announce an effective date to reflect this change to FINRA Rule 5210 in a regulatory notice to be published in the near future.
“FINRA’s cross-market surveillance program canvasses 90% of the listed equities market, and this important new rule change will significantly increase FINRA’s ability to deter self-trading that, while not involving fraudulent or manipulative intent, is disruptive to the marketplace," said Thomas Gira, FINRA executive vice president of market regulation, in a statement.
FINRA explains that self-trades are “[t]ransactions in a security resulting from the unintentional interaction of orders originating from the same firm that involve no change in the beneficial ownership of the security.”
The self-regulator notes that self-trades by single or related algorithms or trading desks “raise heightened concerns because this type of trading may not reflect genuine trading interest, particularly if there is a pattern or practice of such trades.”