U.S. securities regulators have adopted a rule that requires firms to have policies to prevent patterns of self-trading in the increasingly automated securities markets.
The Financial Industry Regulatory Authority (FINRA) announced Friday that the U.S. Securities and Exchange Commission (SEC) has approved a proposed change to FINRA’s rules designed to limit self-trading.
The revised rule requires firms to have policies and procedures in place to review their trading activity, and to prevent, a pattern of self-trading that results from orders originating from a single algorithm or trading desk, or related algorithms or trading desks.
FINRA notes that there is an increased regulatory concern about self-trades by related algorithms, or trading desks, because this type of trading may not reflect genuine trading interest — particularly if there is a pattern of this sort of trading.
“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, executive vice president, market regulation, at FINRA.
The regulator notes that it will announce an effective date for the rule change in a regulatory notice to be published in the near future.