FINRA Relaxes Interpositioning Rule
FINRA has dispensed with the interpositioning rule and replaced it with a broader analysis of the execution of securities transactions. The old interpositioning rule required that firms obtain better cost execution than the prevailing market when using interpositioned brokers. The new rule recognizes that firms may need to use “intermediaries and third parties to improve the handling of customer orders.” Nevertheless, FINRA warns that interpositioning that “results in customer harm is still prohibited” especially where it results in unnecessary costs to the customer.”
OUR TAKE: The old rule was too draconian by requiring a lower cost when using intermediaries. However, firms should adopt procedures to document how execution quality improves through use of an interpositioned broker.