FINRA Releases Order Routing and Execution Quality Exam Letter 

FINRA has released its information request letter for reviews of “order routing and execution quality of customer orders.”   FINRA indicates that its Trading Examinations Unit within the Trading and Financial Compliance Examination group of Market Regulation will conduct sweeps.  The letter asks firms to “Explain how the Firm uses reasonable diligence to ascertain the best market for orders that the Firm routes for execution to an exchange, or broker-dealer, so that the resultant price is as favorable as possible for its customer under prevailing market conditions.”  The letter asks firms to explain their order-routing decisions, how they review execution quality, and payments for order flow.  FINRA also wants firms to describe the use of any smart order routers.

OUR TAKE: Compliance officers should use the sweep letter as guidance for the type of regulatory infrastructure and testing necessary to prove best execution.

http://www.finra.org/Industry/Regulation/Guidance/TargetedExaminationLetters/P546470