September 7, 2010
NASDAQ member firms that are also members of FINRA - and the Commission - should be aware that FINRA has formally proposed a requirement that firms have separate MPIDs for each walled-off business.
See Release No. 34-61168 / File No. SR-FINRA-2009-090, which was filed by FINRA on December 15, 2009. The following is taken directly from the filing:
"In addition, firms that choose to structure their order handling practices in NMS stocks to 'wall off' customer order flow from their market-making desks must obtain and use a unique market participant identifier (MPID) for the market-making desk. For example, if customer order flow is sent directly to an agency desk and is walled-off from the firms market-making desk, those two desks must use different MPIDs."
Further, in its response to comment letters received for SR-FINRA-2009-090, FINRA states:
"FINRA recognizes that this proposed requirement may impose additional costs and burdens on members however, FINRA continues to believe it is important that members use a separate MPID in concert with effective internal controls and disclosure to customers regarding the members order handling practices. A separate MPID would serve as an important tool in the surveillance process and makes it possible for FINRA to determine from automated trade reporting data which trades were executed from each walled-off desk."
NASDAQ is seeking to capitalize on a proposal made by the SRO performing regulatory services on its behalf. There is an obvious conflict of interest here, which has not been disclosed or addressed by NASDAQ. The Commission should NOT approve this proposed rule change.