Firm Settles FINRA Charges for Failure to Reasonably Review Execution Quality

A broker-dealer settled FINRA charges for best execution and supervisory violations.

In a Letter of Acceptance, Waiver, and Consent, FINRA said that the firm failed to conduct reasonable, regular and rigorous reviews of its electronic equities order flow. As to certain periods within the scope of FINRA's review, FINRA found that the firm directed all customer equity orders to a proprietary Alternative Trading System ("ATS") without first reviewing whether other routing arrangements could have provided the same service at better execution speeds and/or lower costs.

Additionally, the firm failed to consider using competing providers, despite having firm-generated data that showed its proprietary ATS filled customer orders at slower rates than those competitors. FINRA also found that the firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with best execution obligations.

As a result, FINRA determined that the firm violated Rules 3110(a) and (b) ("Supervision"), Rule 5310(a) ("Best Execution and Interpositioning"), Rule 5310.09 ("Regular and Rigorous Review of Execution Quality") and Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure and (ii) a $2 million fine.