Menu

FINRA Examines Execution

Securities and Derivative Litigation   |   Financial Services Regulatory   |   Securities Transactions and Compliance   |   December 22, 2014
Download   
Share Page

For the past year, FINRA has emphasized that it is stepping up consideration of whether broker-dealers are obtaining best execution of transactions in equities, options, and fixed income securities. It also has pointedly reminded firms of their duty to conduct “a regular and rigorous review of execution quality to assure that order flow is directed to markets providing the most beneficial terms to customers.”

FINRA’s enhanced efforts include new surveillance patterns to monitor best execution in both equity and fixed income securities. As to equity securities, FINRA’s market regulation department is reviewing the processes and procedures of a targeted group of broker-dealers regarding order routing and execution quality of customer orders in exchange-listed stocks. As part of that review, in July these firms received a targeted examination letter requesting a substantial amount of information on their procedures for exchange order routing and limit orders. At a conference in September, FINRA chair and CEO Rick Ketchum warned that “priced order routing deserves more attention [and] is going to be ‘a huge priority’ for us in the next six months.”

As to its fixed income securities surveillance efforts, FINRA is assessing the execution price a customer receives from a broker-dealer relative to that broker-dealer’s other recently executed customer transactions on the same side of the market. As to options, FINRA is reviewing situations where a broker-dealer potentially ignores a favorable price on one options market and executes a trade on another market to its customers’ detriment.

FINRA’s increased focus on best execution is a reminder for all broker-dealers to review their policies and procedures for exercising reasonable diligence to determine the best market on behalf of customers. The July targeted examination letter provides a strong indication regarding at least some of FINRA’s concerns.


©2019 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.

Subscribe to Publications

Disclaimer

The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.