Notice 09 28
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ZerohedgeRegulatory Notice 09-28
Indications of Interest May 2009
FINRA Reminds Firms of Their Obligation to Provide
Notice Type
Accurate Information in Disseminating, or Using
➤ Guidance
Services to Disseminate, Indications of Interest
Suggested Routing
Executive Summary ➤ Compliance
➤ Legal
FINRA is issuing this Notice to remind firms of their obligation to
communicate accurate information when disseminating, or using ➤ Trading
services to disseminate, indications of interest to the marketplace.
Key Topic(s)
Questions regarding this Notice may be directed to: Quality of Markets,
➤ Indications of Interest
Market Regulation, (240) 386-2500; The Legal Section, Market Regulation,
at (240) 386-5126; or The Office of General Counsel at (202) 728-8071.
Referenced Rules & Notices
➤ FINRA Rule 2010
Background and Discussion ➤ FINRA Rule 2020
Indications of interest are expressions of trading interest that contain one ➤ NASD Rule 2210
or more of the following elements: security name, side of the market, size, ➤ NASD Rule 3010
capacity, and/or price. Firms have the ability to communicate or advertise
➤ NASD Rule 3310
proprietary or customer trading interest in the form of indications of
interest to the marketplace through their own systems or several service ➤ NTM 06-50
providers that disseminate the information to subscribers and/or the ➤ IM-3310
marketplace.
A firm may choose to disseminate indications of interest to inform other
market participants that it seeks to, or represents trading interest that
seeks to, interact with other order flow in the security. While there is no
prohibition on the dissemination of such indications of interest for this or
other proper, lawful purposes, firms are reminded that, to the extent that
they disseminate or use such services to communicate indications of
interest, such indications must be truthful, accurate and not misleading.1
One attribute that is often associated with an indication of interest is
whether it is what is commonly referred to as a “natural” indication of
interest. However, the meaning of the term “natural” may differ across
firms and service providers.2 In this regard, a “natural” indication of interest
may be considered to solely refer to interest a firm represents on an agency
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basis or refer not only to agency interest but also proprietary interest in certain specific
contexts (e.g., proprietary interest that was established as the result of the facilitation
of a customer order or the execution of a customer order on a riskless principal basis).
Accordingly, FINRA could view as untruthful, inaccurate, or misleading a firm’s
representation of firm proprietary interest as a “natural” indication of interest in
a manner that is inconsistent with disclosures made by a firm with respect to the
content of its indications, or alternatively through a service provider’s system in a
manner contrary to a service provider’s guidelines. Depending on the circumstances,
FINRA also could view as untruthful, inaccurate or misleading a firm’s continuing
dissemination of a “natural” indication of interest to the marketplace when the firm
no longer represents or has any such interest.
The communication of untruthful, inaccurate or misleading information relating to
indications of interest would be considered conduct inconsistent with high standards
of commercial honor and just and equitable principles of trade.3 In addition,
depending on the nature and content of the communication, such communications
may also violate NASD Rule 3310 (Publication of Transactions and Quotations)
and IM-3310 (Manipulative and Deceptive Quotations) as well as FINRA Rule 2020
(Use of Manipulative, Deceptive or Other Fraudulent Devices), NASD Rule 2210
(Communications with the Public) and the anti-fraud provisions of the federal
securities laws.
FINRA also reminds firms that directly disseminate or use services to disseminate
indications of interest that they must establish, maintain and enforce written
supervisory procedures and supervisory systems that are reasonably designed to
ensure, among other things, that the information disseminated by or on behalf
of the firm or its associated persons is truthful, accurate and not misleading.4
Endnotes
1 FINRA also reminds firms that advertising a entries, including the input of “natural”
firm’s trading activity or interest in contexts indications of interest. Firms must familiarize
other than indications of interest is also themselves with these policies and guidelines
subject to FINRA rules and the anti-fraud to ensure that indications of interest or any
provisions of the federal securities laws. See other information submitted are consistent
NASD Notice to Members 06-50 (Sept. 2006). with the applicable service provider guidelines.
2 Each service provider typically provides policies 3 See FINRA Rule 2010.
and user guidelines relating to the manner in
4 See NASD Rule 3010.
which firms should characterize system
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Inc. may not be used without permission. Regulatory Notices attempt to present information to readers in a
format that is easily understandable. However, please be aware that, in case of any misunderstanding, the
rule language prevails.
2 Regulatory Notice