MFA to FINRA: Judge Best Execution by Whole Trade, Not Just Best Displayed Price

The Managed Funds Association ("MFA") urged FINRA to maintain the principles-based best execution standard in FINRA Rule 5310 and avoid prescriptive mandates as it updates its guidance.

In Regulatory Notice 26-15, FINRA said Rule 5310's text remains appropriately calibrated but its guidance may need updating, partly because the SEC has proposed rescinding the trade-through rule (Rule 611) and the locked-and-crossed provision (Rule 610(e)) of Regulation NMS.

In a comment letter on the notice, MFA asked FINRA to confirm that firms may weigh the total execution outcome. That outcome includes liquidity, market impact, information leakage, execution certainty, speed, and transaction costs. MFA also asked FINRA to avoid prescriptive mandates on routing, venue connectivity, or price improvement.

For institutional orders, MFA asked FINRA to clarify that firms may judge execution quality across the whole parent order and the period it is worked, rather than child order by child order. A child order that misses the best displayed price should not by itself show a deficiency, MFA said. If Rule 611 is rescinded, MFA wants the national best bid and offer to remain an important but not decisive benchmark. Firms could then use a documented alternative benchmark when a quote is stale or not practically accessible. MFA also asked FINRA to reconsider its order-by-order review requirement for internalized orders and to allow automated or aggregate review methods.