FINRA Rule 5240: Anti-Intimidation / Coordination

FINRA rule 5240 is one in a series of regulations that helps to protect investors from fraud and other types of market manipulation. More specifically, rule 5240 prohibits FINRA registered firms from engaging with one another in a manner that manipulates market prices or the free flow of information.

This rule is critical to protect the integrity of financial markets. If you have suffered losses due to a broker’s unlawful intimidation or coordination tactics, please contact an experienced investment losses attorney for immediate legal assistance.

Rule 5240 Prohibits Three Types of Unfair Trading Practices

1. Coordination

   Rule 5240 makes it unlawful for FINRA registered firms to coordinate their activities with one another if their purpose in doing so is to manipulate the market. The rule prohibits inter-broker coordination in any manner that may hurt retail customers. Coordination in an attempt to manipulate any of the following is prohibited:

   • Quotations;
   • Pricing;
   • Trading; and
   • The reporting of trades.

2. Direction

   Additionally, rule 5240 also makes it illegal for a broker to request or direct another firm to alter prices or information in an effort to manipulate the market. Once again, the free flow of valid data is critical to maintain the integrity of markets and to protect investors.

3. Intimidation

   Finally, brokers may not engage in any type of conduct that threatens, harasses, coerces or intimates another member firm or individual associated with FINRA. If that type of conduct occurs in an effort to manipulate the market, the firm has violated rule 5240.

The Difference Between Legitimate Commercial Activity and Market Manipulation

Not only does a healthy market require preventing insider coordination, but it also requires the freedom to engage in legitimate commercial activity. The goal of the FINRA rule 5240 is to put a stop to broker conduct that manipulates the market in unfair ways. The rule is not designed to inhibit valid commercial activity or to inhibit the economic freedom of its member firms. Indeed, within the text of rule 5240, FINRA makes it clear that the following five commercial practices are allowed:

1. Brokers may (unilaterally) set their own bid or ask prices, and they can set them for whatever quantity they desire;
2. Brokers may unilaterally set their own spread for any desired quantity;
3. Brokers can openly communicate and negotiate the buying or selling of securities with other firms;
4. Brokers may underwrite securities in accordance with federal law; and
5. Brokers may deliver an order to another FINRA member for handling and processing.

Were You the Victim of Investment Fraud?

The experienced securities fraud attorneys at the Sonn Law Group are here to help. We have spent nearly thirty years fighting hard to protect the legal rights and financial interests of investors. Our main offices are located in Miami and we proudly serve investors through the United States, Mexico and South America.

If you have been the victim of fraud and you believe any type of broker-related market manipulation was to blame, please do not hesitate to call us today at 1-844-689-5754 a free review of your case.