Broker-Dealer Settles Charges for Best Execution Violations

A broker-dealer settled FINRA charges for failing to comply with best execution obligations by routing customer orders through a preferred ATS without considering alternate routing arrangements.

In a Letter of Acceptance, Waiver, and Consent, FINRA found that the broker-dealer used a smart order router to route customer equity orders for execution through an ATS owned and operated by the broker-dealer's parent firm. The smart order router gave preference to the firm's ATS without considering if other routing arrangements could have provided better price options and speed of execution, even after data revealed that alternative routing options did in fact provide better rates. Additionally, the broker-dealer failed to implement a supervisory system designed to monitor compliance with its best execution obligations.

As a result, FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 3110(a)-(b) ("Supervision") and Rule 5310(a) and 5310.09(a)-(b) ("Best Execution and Interpositioning").

To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a civil monetary penalty of $2 million.