FINRA Regulatory Priorities for Cross-Product Surveillance

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On July 10, 2018 the STA Foundation held an Open Call with Gene DeMaio, Senior Vice President, FINRA, to discuss FINRA's regulatory priorities for cross product surveillance of the listed options & equity markets.

During the call, Gene DeMaio, Senior Vice President at FINRA, highlighted several key priorities for options-related surveillance. These priorities focused largely on specific manipulative behaviors that FINRA is monitoring within the options space.

Key Behaviors Noted:

  • Pre-Hedging - Pre-hedging or anticipatory hedging of any portion of a block trade in the same product or a closely related product based upon a solicitation to participate in a block trade.
  • Marking the Close - An attempt to influence the closing price of a security by executing buy or sell orders at or around the close of trading.
  • "Mini-Manipulation" - Defined by FINRA as, "situations whereby the underlying price of an equity security is manipulated with what is often a small order that affects the price of a listed option on that equity security enabling a position to either be established or liquidated at advantageous prices."

Nasdaq's SMARTS Trade Surveillance solution offers 210+ preconfigured alerts scenarios to enable market participants to comply with these types of regulatory standards. This includes a package of alerts that are focused on market abuse carried out across or between an equity/asset and its related put/call option, including the following scenarios:


SMARTS Trade Surveillance Coverage

Pre Hedging

The alert identifies where a Trader executes a partial or completed hedge to a block trade prior to execution of that trade - alerts identifies Pre-

Hedging in the same security or in Option contracts with the same underlying security.

Marking the Close

The alert identifies a trading pattern at or near the close of trading which generates a price movement over that period, which is unusual given the trading history of that security.


This alert identifies where a broker house, proprietary account or trader trades in a related instrument ahead of information in the form of client order flows, which is not generally available and is price sensitive. Specifically, the alert identifies a Broker house participants trades in an option or stock future ahead of significant client executed volume in the related underlying equity security for that derivative.


The alert identifies where a participant attempts to benefit from their position in a derivative by creating or contributing towards a short term price movement in an underlying security.

Learn more about the SMARTS Trade Surveillance offering and alert coverage.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: News Headlines , MarketInsite

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