FINRA Fines E*Trade Securities LLC $900,000 for Supervisory Violations Related to Best Execution and Protection of Customer Order Information
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has censured and fined E*Trade Securities LLC $900,000 for failing to conduct an adequate review of the quality of execution of its customers’ orders and for supervisory deficiencies concerning the protection of customer order information.
E*Trade provides online securities investing and trading services for retail customers, and routes its customers’ orders to various exchanges and non-exchange market centers. Firms routing customer orders are required to assess the quality of competing markets to which it directs order flow. Accordingly, the firms are required to periodically conduct “regular and rigorous reviews” of the quality of the executions of its customers’ orders to determine whether any material differences in execution quality exist among the markets trading the security. In an effort to satisfy this obligation, E*Trade established a Best Execution Committee to review execution quality it received on its customers’ orders.
FINRA found that, E*Trade’s Best Execution Committee lacked sufficiently accurate information to reasonably assess the execution quality it provided its customers. E*Trade’s Best Execution Committee also failed to take into account internalized order flow sent to its affiliated broker-dealer market maker G1 Execution Services (G1X) and failed to adequately consider the actual execution quality provided by the market centers to which it routed orders. In addition, E*Trade regularly accepted requests from G1X to change prioritization in E*Trade’s order routing system and to redirect certain order flow, without determining whether these changes would improve the quality of execution received by its customers.
FINRA also found that E*Trade did not have adequate systems and controls in place to ensure that there was no misuse of confidential customer order information by individuals dually registered with E*Trade and G1X.
Thomas Gira, FINRA Executive Vice President, and Head of Market Regulation, 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.”
In concluding this settlement, E*Trade neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
FINRA's investigation was conducted by the Department of Market Regulation.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 71 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database. Investors can also call FINRA's Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.