FINRA Quotation Rules

Now that you understand how quotes and spreads work, let's look at the rules that govern what market makers can and cannot do with their quotations.

FINRA Rule 5210 - Publication of Transactions and Quotations

  • Prohibits members from publishing or circulating reports of transactions or quotations unless the member believes them to be bona fide
  • A member cannot publish a fictitious transaction or a quote that does not represent genuine trading interest
  • Prevents market manipulation through fake transaction reports or misleading quotes

Think of it this way: Every published quote and trade report must be real. No fake prices, no phantom trades.

FINRA Rule 5220 - Offers at Stated Prices (Anti-Backing Away)

  • No member shall make an offer to buy or sell at a stated price unless prepared to execute at that price and under the stated conditions
  • Backing away (refusing to honor a firm quotation) is a violation
  • Deemed conduct inconsistent with just and equitable principles of trade
  • Applies to all firm quotations in inter-dealer and customer-facing systems

Exam Tip: Gotchas

  • Backing away is a frequently tested concept. If the exam describes a market maker who quotes a stock at $25 ask, then refuses to sell at $25 when a customer wants to buy; that is backing away, violating Rule 5220.

FINRA Rule 5260 - Prohibition During Trading Halts

When a trading halt is in effect for a security, no member may:

  • Effect any transaction in that security
  • Publish a quotation (priced bid/offer)
  • Publish an unpriced indication of interest (including "bid wanted" or "offer wanted")
  • Publish a bid or offer with a modifier reflecting unsolicited customer interest

Exception: Activity permitted under the Limit Up-Limit Down (LULD) plan

Key point: During a trading halt, everything stops; no trading, no quoting, no indications of interest.

Exam Tip: Gotchas

  • Rule 5260 prohibits all activity during a halt, not just trading. Publishing quotes and indications of interest are also prohibited.

SEC Rule 15c2-11 - Initiation or Resumption of Quotations

  • Broker-dealers may not publish quotations in the OTC market unless they have reviewed current and publicly available information about the issuer
  • The broker-dealer must believe the information is accurate and obtained from a reliable source
  • Applies when a broker-dealer initiates or resumes quotation activity in an OTC security
  • Designed to protect investors from trading in securities with inadequate public information
  • Companies that fail to maintain current information may be moved to the OTC Expert Market, where quotations are only visible to broker-dealers (not retail investors)

Since the 2021 amendments took effect, over 2,000 companies were shifted to the Expert Market for failing to maintain current public information.

Exam Tip: Gotchas

  • Rule 15c2-11 applies to OTC quotations specifically, not exchange-listed securities.
  • Expert Market restriction: Retail investors cannot see quotes for non-compliant OTC companies. Only broker-dealers can view them.

SEC Rule 15c2-7 - Identification of Quotations

  • Requires proper identification of the source and nature of published quotations
  • Prevents misleading investors about the type or reliability of a quotation
  • Ensures nominal (informational) quotes are clearly marked as such