FINRA fines discount broker US$850,000 over best execution

Steven Lofchie

Cadwalader Wickersham & Taft

7 March 2021

In a Letter of Acceptance, Waiver and Consent, FINRA stated that the firm prioritised the routing of marketable, non-marketable and odd-lot equity orders to exchanges that paid for the order flow or paid the highest rebates. FINRA found that, for such orders, the firm's written supervisory procedures did not reasonably mandate an underlying execution analysis of quality regarding competing markets, as required by FINRA Rule 5310 (on the subject of Best Execution and Interpositioning). Additionally, FINRA stated that the firm failed to disclose in its Regulation NMS Rule 606 (which calls for the disclosure of order-routing information) quarterly reports certain material information, such as the per-share or order payments that it received from venues.

As a result of its findings, FINRA says that the firm broke NASD Rule 3010, FINRA Rules 2010 (on the Standards of Commercial Honour and Principles of Trade), 3110 (on supervision) and 5310, and Regulation NMS Rule 606.

To settle the charges, the firm agreed to (i) a censure and (ii) an $850,000 fine.

As a discount broker, TradeStation generally offered low-commission trading between 2014 and October 2019, when it began offering commission-free trading.