In a FINRA NTM 13-07 posted last Thursday on its website, FINRA asked for comment on an updated proposal that would keep the 5% guideline in place.

The action follows complaints about an earlier proposal to eliminate the 5% rule for markups and markdowns.

In other words, any FINRA broker/dealer can make up to 5% commission on the front and back end of every trade. This “commission” is hidden on the order ticket called a mark up. Many investors look at the transaction fee which is a usually a low flat consistent fee that they see on every ticket. A mark up is when firms add a cost to the price per share that is their profit. Look for it at the bottom of the order ticket in fine print where it will tell you the per share mark up and multiply by the number of shares you bought and suddenly the $25 you thought you were paying per trade just shot up to over $1,000.00. Yes, the industry is in it to make money for themselves, not for you.

“A majority of the comments received on the initial proposal opposed the elimination of the 5% policy,” FINRA said in the notice. “These commenters stated that the 5% policy generally has been effective in regulating broker-dealers for over 70 years and eliminating it would reduce investor protection.” It is only logical that the industry will oppose what keeps them rich and the investors poor.

In its initial proposal — floated nearly two years ago — FINRA had promised updated guidance to replace the 5% threshold, but commenters warned against eliminating it without setting a new standard.

Nevertheless, industry attorneys don’t like the old 5% limit, which dates from 1943.

It’s really is sending a bad message to member firms that a 5% markup or markdown is generally OK.

FINRA examiners actually use something closer to a 2% to 3% markup, observers say, and FINRA has consistently said the 5% rule is a guideline only.

“It’s like charades; you don’t know what they’re looking for,” Ms. Baird said.

If you have been charged excessive mark ups or mark downs call a securities lawyer at (888) 760-6552 or visit https://www.securitieslawyer.com.

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