Wash Sale Transactions

SIFMA provides comments to the Securities and Exchange Commission (SEC) on a proposal by the Financial Industry Regulatory Authority (FINRA) to change “wash sale” transactions and FINRA Rule 5210, SR-FINRA-2013-036.

Under the proposed rule change, FINRA would add Supplementary Material to FINRA Rule 5210 (Publication of Transactions and Quotations) to provide that securities transactions that result in no change in beneficial ownership generally are non-bona fide transactions and that members would have an obligation to establish reasonably designed policies and procedures to review their trading activity for, and prevent, those transactions.

SIFMA supports the goal of clarifying broker-dealers’ obligations for transactions that unintentionally result in no change in beneficial ownership and do not involve manipulative or fraudulent intent. However, SIFMA believes FINRA should amend the focus of the proposal to require policies and procedures reasonably designed to monitor for and prevent the otherwise unintentional transactions that result in no change in beneficial ownership that constitutes a material percentage of consolidated trading volume in a subject security on a particular day.

At the outset, SIFMA believes that the proposed rule change should not refer to “wash sales” but instead should refer to “self-trades”. The term “wash sale” is not currently defined in the federal securities laws or FINRA rules, but the term is always used to connote trading activity effected with manipulative or fraudulent intent, not to refer to a transaction that simply results in no change in beneficial ownership.

In addition, SIFMA offers more specific suggestions to tailor the proposal to address FINRA’s specific concerns.