The Financial Industry Regulatory Authority is clamping down on misleading indications of interest.
For the third time in the past five years, FINRA is chastising broker-dealers for their abuse of "natural" indications of interest.
Specifically, the regulator is proposing an amendment to its Rule 5210 barring brokers from labeling an IOI as a "natural" if it is not.
A natural IOI is supposed to represent a customer order and not a proprietary position. FINRA says some brokers are claiming their IOIs are naturals when, in fact, they are not holding a customer order.
Indications of interest are quote-like messages sent by the sellside to the buyside containing price and size information. They are intended to draw out trading interest from the buyside.
Under the proposed amendment, posted on its Web site Sept. 20, brokers will only be able to label an IOI as a natural if it has a customer order in its order management system or on an order ticket. The comment period ends Oct. 21.
This is the third time in the past five years FINRA has blasted brokerages for their IOI practices. In 2006 and 2009, it warned its members to only send out "truthful" IOIs.
