Definition of 5 Percent Markup Policy

FINRA’s guidelines, which require all prices paid by customers to be reasonably related to a security’s market price. The 5 percent policy is a guideline, not a rule, and does not apply to securities sold through a prospectus.

Applying "5 Percent Markup Policy" to Securities Exams:

FINRA has set a guideline to ensure that the prices investors pay and receive for securities are reasonably related to the market for the securities. As a general

rule, FINRA considers a charge of 5% to be reasonable. Th e 5% policy is a guideline, not a rule. Factors that go towards what is considered reasonable are:

  • The price of the security.
  • The value of the transaction.
  • The type of security.
  • The value of the member’s services.
  • Execution expenses.
  • A firm who has a policy stating that the minimum commission is $100 per order would be allowed to charge $100 as a commission to a customer who wanted to purchase 1,000 shares of a $1 stock. While the amount of the commission would represent 10% based on the value of the order. The low dollar value of the order and the firm’s minimum commission policy would make this acceptable.

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