FINRA Adopts New Best Execution Rule

private fund attorney NYCThe Financial Industry Regulatory Authority (FINRA) has received approval from the Securities and Exchange Commission to adopt a new best execution rule. FINRA Rule 5310 is the new consolidated rule governing members’ best execution requirements and is based largely on NASD Rule 2320 (Best Execution and Interpositioning), with minor tweaks.  It will take effect May 31, 2012.

As detailed in the Regulatory Notice, FINRA Rule 5310 leaves in place the general requirements of best execution. Consistent with past practice, Rule 5310(a) requires a member firm, in any transaction for or with a customer or a customer of another broker-dealer, to use “reasonable diligence” to ascertain the best market for a security and to buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions.

The noteworthy changes relate to the “Three Quote Rule,” regular and rigorous review of execution quality, orders for foreign securities with no U.S. market, and customer instructions regarding the routing of orders.

The text of FINRA Rule 5310 is available in the online FINRA manual at  Please take the time and review new Rule 5310 and the entire Regulatory Notice.

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