Broker-Dealer Fined for Inadequate Order Routing Reports

A broker-dealer settled FINRA charges for inaccurately reporting information pertaining to its handling of customers' orders in National Market System ("NMS") securities.

In a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer published inadequate reports for the fourth quarter of 2019 NMS Rule 606(a) ("Disclosure of order routing information") regarding the routing of "retail-sized, non-directed orders in NMS stocks and NMS securities that are options contracts, submitted on both a 'held' and 'not-held' basis." According to FINRA, the broker-dealer's Rule 606(a) report for the fourth quarter of 2019 did not include certain material aspects of the broker-dealer's relationship with one of its specified execution venues, including, among other things, a description of payment for order flow and profit-sharing relationship with the venue.

FINRA also found that the broker-dealer's Rule 606(a) report for the first quarter of 2020 did not provide certain required information pertaining to NMS securities that are options contracts. Specifically, FINRA determined that "tables were empty instead of providing required dated, and sections labeled 'material aspects,' which should have described [the broker-dealer's] relationships with specified execution venues, were blank." While the broker-dealer published an amended first quarter report, the amended report continued to have deficiencies as it (i) misidentified two execution venues, and (ii) did not include "required information on the net aggregate amount of payment for order flow received, payment from any profit-sharing relationship received, transaction fees paid, and transaction rebates received, both as a total dollar amount and on a per share basis."

FINRA also found that the broker-dealer did not have adequate supervisory policies and procedures in place from January 2020 through May 2020 as the broker-dealer's written supervisory procedures only addressed report orders in listed options and not NMS stock orders. In addition, FINRA found that contrary to the broker-dealer's written supervisory procedures, the broker-dealer did not review its report for the first quarter of 2020.

FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), FINRA Rule 3110 ("Supervision") and SEC Regulation NMS Rule 606. To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a $100,000 fine.