FINRA Rule 6460, Display of Customer Limit Orders, Effective May 9th

The new rule, effective yesterday, is great for penny stocks. Before this rule market makers would only show 5,000 shares on the bid and ask while traders would have no idea how many shares were available to either buy or sell. It may sound a bit drastic, but a few years from now traders will wonder how they managed to trade without seeing the true share information, much like people today wonder how they ever got around years ago without their cell phones.

The benefits of this rule weren't any clearer than today with FBCD, when market maker ETMM showed 880,000 shares on the bid at $.051. A trader would feel much more comfortable buying a stock when he/she knows that there is over $40,000 worth of demand at a specific price. Its really pretty simple. A strong bid will garner strong buying, a weak bid will likely trigger selling. Those 5,000 block buys to bolster the bid won't last anymore as traders can now see right through them. There is now a true depth to the level II.



This type of transparency is great for penny stocks. It really works both ways as a thin offer could lead to buyers, while a light bid could lead to selling. Either way it allows the market to find the price for a stock without having to wonder how many shares are available for sale or purchase.

FINRA Rule 6460, Display of Customer Limit Orders, Effective Today

May 09, 2011

OTC Markets News Service

FINRA Rule 6460, Display of Customer Limit Orders, Effective Today

May 9, 2011 – NEW YORK – FINRA Rule 6460, Display of Customer Limit Orders, became effective today. This marks the first time that mandatory limit order display, originally implemented for exchange-listed stocks in 1997, will be extended to the OTC marketplace. The limit order display rule requires OTC market makers to display the price and size of any customer limit order that improves the price or size of their own published quote.

Prior to this change, many OTC market makers displayed the best price of customer limit orders as a result of the strong competition between broker-dealers. The limit order display rule will likely not lead to drastic changes in quote prices, although it will affect published quote sizes, since many firms previously displayed quote sizes only up to the minimum quote size tier.

Limit order display is the most recent in a series of new rules in the OTC marketplace that have long applied only to the listed markets. These new rules, most of which became effective during the first half of 2011, govern locked and crossed markets, allow access fees to be included in published quotes, and restrict sub-penny quoting.

To learn more about FINRA's limit order display policies, visit FINRA's website here: www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p122114.pdf.

To learn more about the 2011 FINRA changes affecting the OTC marketplace, please view OTC Markets Group’s Compliance Alert: FINRA Rule Changes.