Table of Contents
SIE | SERIES 7 | SERIES 24 | FINANCIAL REGULATION COURSES
FINRA Rule 5220 prohibits any member from making an offer to buy from or sell to any person any security at a stated price unless that member is prepared to purchase or sell at that price and under the conditions stated at the time of the offer. Through Supplementary Material .01 — last amended December 3, 2025 to conform to the SEC's new Regulation NMS round lot definition — the rule establishes the firmness obligations applicable to quotations in the OTC market, defines what constitutes backing away from a quotation as a violation of both FINRA Rule 5220 and FINRA Rule 2010, and clarifies the normal unit of trading commitment that a market maker quoting in an NMS stock is expected to honor.
FINRA Rule 5220 sits within the 5200 Quotation and Trading Obligations and Practices subsection of the 5000 Securities Offering and Trading Standards and Practices series, immediately following FINRA Rule 5210 — Publication of Transactions and Quotations — which addresses the accuracy and bona fide nature of published transactions and quotations. Where FINRA Rule 5210 addresses whether what is published accurately reflects genuine trading interest, FINRA Rule 5220 addresses whether a firm that has published a genuine quotation will honor it when called upon to do so. Together the two rules form the foundational quotation integrity framework for the OTC market, addressing integrity from two complementary angles — authenticity at the time of publication under FINRA Rule 5210, and commitment to honor when presented under FINRA Rule 5220.
FINRA Rule 5220 traces its lineage to NASD Rule 3320 — Offers at Stated Prices — and the original May 4, 1965 Board amendment that first established the backing away prohibition in its current form. It was consolidated into the current rulebook effective February 15, 2010 through SR-FINRA-2009-055, further amended by SR-FINRA-2012-027 effective July 9, 2012 to update the inter-dealer quotation system cross-reference, and most recently amended by SR-FINRA-2025-015 effective December 3, 2025 to conform the normal unit of trading definition for NMS stocks to the SEC's new price-based round lot definition under SEC Regulation NMS Rule 600(b)(93).
The operative text of FINRA Rule 5220 is a single sentence of striking simplicity: no member shall make an offer to buy from or sell to any person any security at a stated price unless such member is prepared to purchase or sell, as the case may be, at such price and under such conditions as are stated at the time of such offer to buy or sell. The prohibition is absolute and does not require proof of intent — a member that makes a stated offer and then refuses to honor it has violated FINRA Rule 5220 regardless of its motivation for refusing.
The conduct that FINRA Rule 5220 addresses — backing away — is one of the oldest and most disruptive forms of dealer misconduct in the OTC market. A market maker that publishes a bid at $25.00 and then, when another dealer calls to sell at that price, suddenly claims the market has changed, demands a lower price, or imposes conditions not stated in the original quotation, has backed away. The harm is systemic: if dealers cannot rely on published quotations to reflect genuine firm commitments, the entire price discovery function of the OTC market is undermined. Investors and other dealers make routing, pricing, and execution decisions based on displayed quotations — if those quotations do not represent genuine firm offers, every participant in the market is damaged by a degraded ability to rely on the information those quotations purport to convey.
The rule's reach extends to offers made by any means — telephone, electronic trading system, inter-dealer quotation system display, direct messaging, or any other communication channel through which a stated price might be communicated. The OTC market's evolution from telephone-based dealer quotations to electronic platforms displaying hundreds of simultaneous quotes has not reduced FINRA Rule 5220's relevance — it has amplified it, because the volume of stated prices in circulation at any moment is now vastly larger and the speed at which participants act on them is vastly faster.
Supplementary Material .01 provides the practical framework for understanding what FINRA Rule 5220 requires and when backing away constitutes a violation. It opens with a characterization of the OTC market reality that motivated the rule: members make trading decisions and set prices for customers on the basis of telephone and electronic quotations, including quotations displayed in an inter-dealer quotation system as defined in FINRA Rule 6420. In some instances, quotations that are purportedly firm are in fact so qualified upon further inquiry as to constitute backing away by the quoting dealer. Further, dealers who publish quotations in inter-dealer quotation systems have been found to be unwilling to make firm bids or offers upon inquiry — questioning the validity of their published quotations. Such backing away disrupts the normal operation of the OTC market.
The firmness obligation described in Supplementary Material .01 is carefully calibrated to reflect both the genuine commitment that published quotations must represent and the operational realities of active market making. Under normal circumstances where a member is making a firm trading market in any security, it is expected to buy or sell at least a normal unit of trading in the quoted stock at its then prevailing quotations — unless the quotation is clearly designated as not firm or firm for less than a normal unit of trading when supplied by the member. This normal unit of trading commitment is the minimum quantum of trading commitment that a firm quotation represents, and the supplementary material makes clear that the member's failure to honor this minimum is the paradigm backing away violation.
The operational exception in Supplementary Material .01 addresses the specific scenario of a simultaneous execution. If, at the time an order for the purchase or sale of the quoted security is presented, the member is in the process of effecting a transaction in that quoted security, and immediately after completing that transaction the member communicates a revised quotation size, the member is not obligated to purchase or sell in an amount greater than the revised quotation size. This exception reflects the genuine market-making reality that a member executing one trade may simultaneously update its quotation to reflect the changed inventory position — the revised quotation rather than the pre-execution quotation governs the commitment for subsequent inquiries. The exception is narrow and specific: the member must actually be in the process of effecting a transaction, and the revised quotation must be communicated immediately after completion, not as a retroactive justification for a refusal that had already occurred.
Supplementary Material .01 further requires every member furnishing quotations to correctly identify the nature of its quotations when they are supplied to others — a nominal quotation must be clearly identified as nominal, a firm quotation must be identified as firm — and to be adequately staffed to respond to inquiries during normal business hours. The staffing requirement has practical significance: a market maker whose published quotations are accessible to other dealers and to customers has an obligation to have personnel available to respond to inquiries during the hours when those quotations are displayed. A firm that publishes quotations but fails to staff adequately to respond to them has effectively made offers it is not operationally positioned to honor.
The triple violation bridge in Supplementary Material .01 — declaring that backing away violations are inconsistent with both FINRA Rule 2010 — Standards of Commercial Honor and Principles of Trade — and FINRA Rule 5220 simultaneously — ensures that backing away is treated with the ethical and commercial seriousness the conduct warrants. A market maker that regularly backs away from its quotations is not merely committing a technical rule violation; it is engaging in conduct fundamentally inconsistent with the just and equitable principles of trade that FINRA Rule 2010 embodies, while simultaneously violating the specific commitment standard that FINRA Rule 5220 establishes.
The most recent amendment to FINRA Rule 5220 — SR-FINRA-2025-015, effective December 3, 2025 — addressed a conforming change driven by the SEC's adoption of a new price-based definition of round lot under SEC Regulation NMS Rule 600(b)(93).
Prior to November 3, 2025, the round lot — and thus the normal unit of trading — for virtually all NMS stocks was 100 shares. The term normal unit of trading as used in Supplementary Material .01 to FINRA Rule 5220 had always meant 100 shares in practice for equity securities, reflecting the longstanding industry convention that a round lot consisted of 100 shares regardless of the price per share.
The SEC's Market Data Infrastructure rulemaking, adopted December 9, 2020, introduced a new price-based round lot definition that was subsequently modified and accelerated by the SEC's September 18, 2024 amendments to Regulation NMS — the Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders rulemaking. Under the new SEC Regulation NMS Rule 600(b)(93), effective November 3, 2025, the round lot size for each NMS stock is no longer uniformly 100 shares. Instead, the round lot is determined by the stock's average closing price on its primary listing exchange during the prior evaluation period, with round lots ranging from 100 shares for stocks priced $250.00 or less to one share for stocks priced $10,000.01 or more. The tiered price-based round lot structure means that high-priced stocks like certain S&P 500 components with share prices in the thousands of dollars now have smaller round lots — reflecting the intent to ensure that odd-lot information for high-priced stocks is more accessible to retail investors and that price discovery for these securities is improved.
FINRA's conforming amendment added a new sentence to Supplementary Material .01 to FINRA Rule 5220 specifically to clarify that for purposes of the rule, a normal unit of trading for an NMS stock means the round lot assigned to that NMS stock pursuant to SEC Regulation NMS Rule 600(b)(93). This conforming change ensures that the firmness commitment embedded in FINRA Rule 5220's quotation obligation — the requirement to honor at least a normal unit of trading — is calibrated to the SEC's new price-based round lot definition rather than the prior flat 100-share convention for all NMS stocks. For a high-priced stock now assigned a round lot of one share, the minimum firmness commitment under FINRA Rule 5220 has correspondingly changed — a market maker in a stock with a one-share round lot is expected to trade at least one share at its quoted price when presented with an inquiry.
The same round lot conforming changes were applied simultaneously to FINRA Rule 5320 — Prohibition Against Trading Ahead of Customer Orders — and several FINRA rules in the 6000 series governing trading facility operations, reflecting the pervasive impact of the round lot definition change across FINRA's quotation and trading rules. FINRA Rule 5220's conforming amendment was the direct application to the backing away standard — ensuring that the commitment quantity embedded in the firmness obligation tracks the current legal definition of what constitutes a round lot rather than an outdated convention.
FINRA Rule 5220 and FINRA Rule 5210 — Publication of Transactions and Quotations — are the two pillars of FINRA's quotation integrity framework, addressing complementary dimensions of the same core problem. FINRA Rule 5210 addresses whether a published quotation genuinely represents trading interest at the time of publication — a quotation that does not represent genuine interest is prohibited as a fictitious or non-bona-fide quotation regardless of whether the member is subsequently asked to trade on it. FINRA Rule 5220 addresses whether a quotation that was genuine when published will be honored when a counterparty seeks to trade on it — backing away from a genuine quotation is prohibited even where the original quotation was entirely bona fide.
The two rules also intersect with FINRA Rule 5250 — Payments for Market Making — which prohibits members from accepting payments or other consideration from issuers for maintaining quotations, and with FINRA Rule 2010's general obligation to observe high standards of commercial honor in all aspects of the securities business. A dealer who backs away from quotations has failed the FINRA Rule 5220 commitment standard, violated FINRA Rule 2010's commercial honor standard, and in doing so undermined the market transparency that the trade reporting obligations under FINRA's 6000 series rules — including the TRACE reporting rules under FINRA Rule 6730 for fixed income securities — depend upon.
For fixed income market makers, FINRA Rule 5220's backing away prohibition applies to quoted prices in the over-the-counter bond market alongside the specific best execution obligations of FINRA Rule 5310 — Best Execution and Interpositioning — and the price transparency requirements that TRACE reporting creates. A fixed income market maker that publishes a price in a bond and then backs away when a customer seeks to trade at that price has violated FINRA Rule 5220 and potentially FINRA Rule 2010, regardless of the liquidity characteristics of the particular bond or the market conditions at the moment of the inquiry. The FINRA Rule 5310 best execution obligation and the FINRA Rule 5220 firmness obligation are complementary — best execution requires that transactions be effected at prices and terms favorable to the customer, while FINRA Rule 5220 requires that when a firm has committed to a price, it must honor that commitment rather than retreating to seek more favorable terms at the customer's expense.
FINRA Rule 3110 requires written supervisory procedures specifically addressing FINRA Rule 5220 compliance. For OTC equity market makers, those WSPs must address the process for ensuring that published quotations represent genuine firm commitments, the procedures for correctly designating quotations as nominal or firm for less than a standard unit when appropriate, the staffing requirements during business hours to respond to inquiries on published quotations, the process for handling simultaneous execution situations and communicating revised quotation sizes immediately after completion, and the surveillance procedures for identifying backing away patterns. FINRA Rule 3120's annual supervisory control testing should include review of backing away complaints and trading patterns that may indicate systematic failure to honor published quotations.
The December 2025 conforming amendment to incorporate the new round lot definition requires firms to update their understanding of what constitutes a normal unit of trading commitment for high-priced NMS stocks. WSPs for market makers in high-priced NMS stocks should be reviewed and updated to reflect the new price-based round lot sizes and the corresponding minimum firmness commitment those sizes establish.
FINRA Rule 5220 is tested on the SIE examination and the Series 7 General Securities Representative examination in the context of OTC market quotation obligations, market maker responsibilities, and the prohibition on backing away from stated prices. The Series 24 General Securities Principal examination tests the rule in greater depth including the firmness obligation mechanics, the simultaneous execution exception, the staffing requirement, and the December 2025 conforming amendment to the round lot definition. The rule's connection to FINRA Rule 2010's commercial honor standard and to the broader quotation integrity framework of FINRA Rule 5210 makes it a high-relevance examination topic for any qualification covering OTC market conduct.
The key points to retain are these: FINRA Rule 5220 prohibits any member from making an offer to buy or sell any security at a stated price unless the member is prepared to transact at that price and under the conditions stated at the time of the offer — this is the anti-backing-away rule; Supplementary Material .01 establishes that backing away from a quotation is inconsistent with both FINRA Rule 2010 and FINRA Rule 5220, disrupts normal OTC market operation, and occurs when a dealer qualifies a purportedly firm quotation upon inquiry to such a degree that the quotation effectively ceases to be firm; under normal circumstances where a member is making a firm trading market in any security it is expected to trade at least a normal unit of trading at its prevailing quotations unless the quotation is clearly designated as not firm or firm for less than a normal unit when supplied; effective December 3, 2025 through SR-FINRA-2025-015, a new sentence in Supplementary Material .01 clarifies that for NMS stocks the normal unit of trading means the round lot assigned to that stock pursuant to SEC Regulation NMS Rule 600(b)(93), which effective November 3, 2025 assigns round lot sizes based on a stock's average closing price — ranging from 100 shares for stocks priced $250 or less to one share for stocks priced above $10,000 — rather than the prior flat 100-share convention; if at the time an order is presented a member is in the process of effecting a transaction in that security and immediately after completing it communicates a revised quotation size, the member is not obligated to trade in excess of that revised size; every member furnishing quotations must correctly identify their nature as firm or nominal and must be adequately staffed to respond to inquiries during normal business hours; and violations of FINRA Rule 5220's firmness standard simultaneously constitute violations of FINRA Rule 2010's standards of commercial honor and just and equitable principles of trade.
