This section covers the broader FINRA rule framework governing how members quote, trade, and report transactions across different market types.
Quotation and Trade-Reporting Framework - Overview
FINRA's quotation-and-trade-reporting rule book is a comprehensive set of rules governing how members handle quotation, order, and transaction reporting. Key scope areas include:
| Scope Area | What It Covers |
|---|---|
| NMS stocks | Quoting and trading in National Market System (NMS) stocks |
| OTC equities | Quoting and trading in Over-the-Counter (OTC) equity securities |
| OTC Reporting Facility (ORF) | Trade reporting for OTC equity transactions |
| Trade Reporting and Compliance Engine (TRACE) | Fixed-income transaction reporting |
Exam Tip: Gotchas
- The quotation-and-trade-reporting framework covers trading mechanics; the conduct framework covers ethics and customer dealings. Do not confuse them. If a question asks about trading practices or reporting, look for quotation-and-trade-reporting requirements; if it asks about communications, suitability, or supervision, look at conduct rules.
NMS Stock Trading Rules
Key rules for exchange-listed securities:
- Trading otherwise than on an exchange: Governs OTC trading of exchange-listed securities (third market transactions)
- Trading halts: Authorizes FINRA to halt OTC trading when an exchange halts trading in the same security
- Trading halts due to extraordinary market volatility: Coordinates with exchange-imposed halts during extreme market conditions
- Transactions related to initial public offerings (IPOs): Governs secondary-market trading of IPO securities
Exam Tip: Gotchas
- OTC trading halts coordinate with exchange halts. When an exchange halts trading in a security, FINRA halts OTC trading in that same security. They are not independent.
OTC Equity Quotation and Trading
- Governs quotation and trading activities in OTC equity securities not listed on a national exchange
- Includes registration requirements for market makers, quotation obligations, and minimum size requirements
Order Entry and Execution Practices
- Governs how member firms enter and execute orders
- Prohibits practices that would manipulate the market or disadvantage customers
Adjustment of Open Orders
The order-adjustment rule requires adjustment of open orders on the ex-dividend date for certain corporate actions:
- Reduce orders: Open buy limit orders, open sell stop orders, and open stop-limit orders below the market are reduced by the amount of the dividend on the ex-date
- Orders marked "do not reduce" (DNR) are exempt from adjustment
Example: If a stock has a $0.50 cash dividend and a customer has an open buy limit order at $40:
- On the ex-date, the limit price is automatically reduced to $39.50
- Unless the order was marked DNR
Exam Tip: Gotchas
- Sell limit orders are NOT reduced on the ex-date. Only buy limits, sell stops, and stop-limits below the market get adjusted. The customer wants to sell at a higher price, so reducing makes no sense.
- Orders marked DNR are never adjusted, regardless of order type.