EQUITIES

Algorithmic Trading

Equity Trading Initiatives: Supervision and Control Practices for Algorithmic Trading Strategies

As algorithmic trading strategies, including high frequency trading strategies, have grown to compose a substantial portion of activity on U.S. securities markets, the potential for these strategies to adversely impact market and firm stability has likewise grown. Although a reasonable supervision and control program may not foresee every potential failure or prevent every undesirable consequence, in an effort to reduce the future occurrence of such potential issues, FINRA is providing guidance on effective supervision and control practices for member firms and market participants that use algorithmic strategies. These effective practices are focused on five general areas: General Risk Assessment and Response; Software/Code Development and Implementation; Software Testing and System Validation; Trading Systems; and Compliance.

• FINRA Regulatory Notice 15-09 (March 2015): Guidance on Effective Supervision and Control Practices for Firms Engaging in Algorithmic Trading Strategies

 

FINRA Topic Page:  Algorithmic Trading

 

Execution

Best Execution Rule

In light of the increasingly automated market for equity securities and standardized options, and recent advances in trading technology and communications in the fixed income markets, FINRA reiterates the best execution obligations that apply when firms receive, handle, route or execute customer orders in equities, options and fixed income securities. FINRA reminds firms of their obligations, as previously articulated by the SEC and FINRA, to regularly and rigorously examine execution quality likely to be obtained from the different markets trading a security.

FINRA Regulatory Notice 15-46 (November 2015):  Guidance on Best Execution Obligations in Equity, Options and Fixed Income Markets

General

Understanding Short Sale Volume Data on FINRA’s Website

This Notice provides information to assist market participants in understanding the short sale volume data published on FINRA’s website. FINRA is aware that some market participants, including investors, may occasionally perceive the percentage of short sale volume to be unusually high or inconsistent with reported short interest data. This perception may cause market participants to draw inaccurate conclusions about the level or nature of short selling activity in the relevant security. FINRA is issuing this Notice to further explain the published short sale volume data and provide several key points for market participants to consider when evaluating the data.

FINRA Information Notice (May 10, 2019): FINRA Provides Guidance to Firms Regarding Suspicious Activity Monitoring and Reporting Obligations