Firm Settles FINRA Charges for Best Execution Failures

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

According to the AWC, during the relevant period, the firm "routed nearly all" of its customer orders to "three market makers" without comparing the execution quality to what could have been obtained from competing markets. FINRA found that the firm’s best execution committee limited its review primarily to price improvement without reasonably analyzing other relevant execution quality factors or reviewing statistics broken down by order type or size. FINRA concluded that "the firm could not reasonably evaluate differences in execution quality among ... venues."

FINRA also found the firm failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with its best execution obligations. FINRA found that the firm’s procedures lacked guidance on how its committee should consider execution quality factors or under what circumstances it should modify routing arrangements, and the firm relied on reviews that failed to consider competing markets. 

FINRA concluded that the firm violated FINRA Rules 5310 ("Best Execution and Interpositioning"), 3110 ("Supervision"), and 2010 ("Standards of Commercial Honor and Principles of Trade").

The firm agreed to (i) a censure, (ii) a $1.3 million fine, and (iii) an undertaking to certify that it remediated the issues and implemented a reasonably designed supervisory system.