Online Broker Fined $900,000 for Poor Best Execution Testing
A large online broker was fined $900,000 for failing to conduct adequate best execution reviews of its order routing. FINRA faults the firm for failing to consider order flow sent to an affiliated execution broker as well as the affiliate’s ability to redirect order flow. Although the firm’s best execution committee compared its execution quality “with certain industry and custom averages,” it did not focus on “comparisons to the actual execution quality provided by the market centers” to which it routed trades. Thomas Gira, FINRA’s Head of Market Regulation, said that a best execution review needs to be “a substance over form review, not a form over substance review.”
OUR TAKE: When firms route orders to affiliates, they must increase best execution testing and review to ensure that the regulator cannot second-guess a process that appears to have an embedded conflict of interest.