4 FINRA Rules And Tools You Should Know

The Financial Industry Regulation Authority (FINRA) is a self-regulatory organization that was established in its current form in 2007. Broadly speaking, their goal is “to provide investor protection and promote market integrity through effective and efficient regulation of broker-dealers.” 

FINRA’s main mandate is to serve as the watchdog of its member firms and make sure they are acting in the best interests of their clients and complying with fair market principles, among other things. (A full list FINRA-member firms can be found here). 

Here are four helpful FINRA rules and tips for any investor.

Rule #1: Best Execution

FINRA's Best Execution Rule (Rule 5310) concerns one of the most important aspects of trading: order execution. The rule requires that all broker-dealers in any transaction for a customer “use reasonable diligence” to find the best market and obtain the best possible price for the security in question so that the customer gets as favorable price as possible under the current market conditions.  

Rule #2: Trading Ahead of Customer Orders

FINRA Rule 5320 prohibits a broker-dealer from trading in a security for the firm’s own proprietary account when it has an executable customer order for in that security.  

This rule goes hand-in-hand with the best execution rule, as it prevents firms from using their knowledge of customer orders to make money for their own accounts without first completing the customer's order. 

Tip #1: Investor Alerts

FINRA periodically issues investor alerts aimed at warning investors of areas with heightened potential for fraud. Most notably, in the last year, they’ve issued several warnings on cryptocurrency scams, with advice on how to avoid them. You can find the full Investor Alert library here. 

Tip #2: BrokerCheck

FINRA’s BrokerCheck tool is a free resource to research the background and experience of financial brokers, advisors, and firms. 

Investors can easily research and find information on broker-dealer firms and individual investment advisors, including the business the firm is engaged in, its state(s) of operation, registration status, disciplinary history and a host of other information. BrokerCheck is an invaluable resource when deciding through whom to place an order.