On March 18, the Financial Industry Regulatory Authority (FINRA) published Regulatory Notice 21-12 (Notice), which reminds member firms of their obligations during extreme market conditions with respect to handling customer orders, maintaining appropriate margin requirements and effectively managing their liquidity.

FINRA is reminding member firms that they should maintain strong procedures, thoughtfully crafted in advance, to reasonably ensure they can continue to provide investors access to the securities markets during times of extreme market volatility, as in the past several months. These procedures include order handling procedures designed to maintain best execution for customers; margin procedures to prevent a firm from becoming overextended from lending in support of customer trades; and liquidity management practices to ensure the firm is able to continue to provide customers with access to the markets despite abnormal liquidity demands.

The Notice focused on reminding member firms of (1) the principles of fair dealing, and that the duty of best execution requires the fair, consistent and reasonable treatment of customer orders at all times, (2) the importance of informing customers about member firms’ order handling procedures, particularly during volatile market periods and that member firms should look to prior guidance from FINRA that addresses the kinds of disclosures firms should consider making in connection with their fair dealing obligations, and (3) considering the need for additional margin consistent with Rule 4210 and reviewing FINRA’s guidance on sound liquidity practices that firms can use to meet their obligations to maintain reasonable funding and liquidity risk management.

FINRA Regulatory Notice 21-12.