FINRA Settles With Retail Broker Over Best-Execution Failures

A broker-dealer settled FINRA charges for failing to conduct reasonable reviews of execution quality and failing to reasonably supervise for best execution.

According to the AWC the conduct ran from January 2020 to January 2023. During this period, the firm routed all customer equity orders to five market makers, all of which paid the firm for the order flow.  During this period, the firm routed more than 8.8 million equity orders, totaling over 1.7 billion shares.

FINRA stated that the firm did not do the "regular and rigorous" execution reviews the rules require. The firm's best-execution committee met quarterly but looked only at the five venues it already used, not at competing markets. The reviews used only aggregate data, did not consider price disimprovement, and did not break orders down by type, such as marketable versus non-marketable.

The firm's procedures violated FINRA Rules 5310(a) (Best Execution and Interpositioning), 5310.09, and 2010 (Standards of Commercial Honor and Principles of Trade). The firm also failed to maintain a supervisory system to comply with its best execution obligations violating FINRA Rules 3110 (Supervision) and 2010.

The firm agreed to a censure and an $850,000 fine.