FINRA charges E-Trade $900K: Mishandled Clients’ Orders


3 JuneAtoZForex, Vilnius —  The biggest independent regulatory authority in the US, the Financial Regulatory Authority (FINRA), is an active public body in the US securities industry. In order to protect investors and maintain efficient and effective, the regulator continuously monitors the brokers in the market on any violations. Over recently, FINRA fined and censured the E*Trade Securities LLC for ill-implementing its Best Execution Committee activities. FINRA charges E-Trade $900,000, as the brokerage firm failed to successfully apply appropriate measures in order to review execution quality it received on its customers’ orders.

E*Trade scope of activities

E*Trade Financial Corp (NASDAQ:ETFC) offers online securities investing and trading services for retail clients, and transmits its clients’ orders to various exchanges and non-exchange market centers. As a note from FINRA, firms transmitting client orders are demanded to review the quality of competing markets to which it guides the orders. E*Trade has established the Best Execution Committee for the purpose of reviewing and overseeing the execution quality of its customer’s orders.

$900K fine for Best Execution Committee Failure

Despite its efforts to establish an appropriate evaluation of the quality of its clients’ orders, the Best Execution Committee lacked relevant information on this matter. Due to this reason, E*Trade operations failed to assess the quality of execution of the orders of its clients in a proper fashion. In addition, the firm experienced supervisory deficiencies concerning the protection of customer order information.

Furthermore, E*Trade’s Best Execution Committee failed to take into consideration internalized order flow sent to its allied broker –dealer market maker G1 Execution Services (G1X). E*Trade also failed to reflect on the actual execution quality provided by the market centers that it was routing to. Lastly, the firm lacked adequate measures in order to ensure the absence of misuse of confidential customer information by individuals, who were registered both with E*Trade and G1X.

FINRA Executive Vice President and the Head of Market Regulation, Thomas Gira, said:

“This action serves to remind firms that they must remain diligent in ascertaining the best market for their customers, and must conduct regular and rigorous reviews of their routing decisions to ensure their best execution obligations are met. This needs to be a substance over form review, not a form over substance review. This matter further underscores that firms must have real systems and processes in place to ensure that confidential customer information is protected.”

FINRA charges E-Trade $900,000 over the discrepancy in execution matter, whereas E*Trade neither denied nor admitted the charges, but agreed to the FINRA’s findings.

FINRA requirements and protection activities

As it is demanded by the Financial Regulatory Authority, the firms are obliged to periodically perform “regular and rigorous reviews” on the quality of the executions of its clients’ orders. This act is implemented to find out whether any considerable differences in execution quality exist among the markets, which are trading the security. Earlier this month, FINRA fined another brokerage firm for unsuccessful establishing and implementing of correct AML procedures.

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