I am writing as an individual retail investor to submit my comments on Regulatory Notice 26-15 regarding FINRA Rule 5310 and best execution guidance. I entered the U.S. stock market in January 2021 during the GameStop (GME) trading restrictions and short squeeze. That period revealed how heavily market structure, order routing, and hidden conflicts of interest directly impact individual investors. Since then, I have closely followed how retail orders are routed, executed, and handled.
I strongly oppose any proposal to relax, weaken, or modernize Rule 5310 in a manner that creates paperwork safe harbors or removes order-by-order scrutiny. Over the past decade, FINRA’s enforcement record under Rule 5310 produced ten paperwork cases resulting in $13.15 million in fines and zero dollars returned in restitution to harmed retail investors. Relaxing these rules would eliminate the last line of defense protecting the execution price of my trades.
Specifically, I urge FINRA to address the following key points:
1. Preserve and Extend Order-by-Order Review (Topic 3, Question 1) Order-by-order review is the only standard where the actual price received by the retail investor is evaluated. Replacing order-by-order review with quarterly aggregate averages allows brokers and wholesalers to mask systemic sub-optimal fills. FINRA must retain order-by-order review and extend it to all non-institutional orders.
2. Order Routers Cannot Grade Themselves (Topic 3, Question 3) A broker’s order-routing algorithm is the very mechanism being evaluated; it cannot serve as its own independent review. Allowing a "smart order router" to certify its own execution quality creates a clear conflict of interest.
3. Reject Paperwork Safe Harbors (Topic 1, Question 9) Creating safe harbors for firms that maintain documented "regular and rigorous" review processes converts a regulatory requirement into a legal defense. Holding committee meetings and filing minutes should never shield a firm from failing to deliver the best available market price.
4. Establish an Objective Price Improvement Floor (Topic 1, Question 6) Claiming that a high percentage of orders received price improvement is meaningless when fills are improved by only a hundredth of a cent (one mil) on wide spreads. FINRA should establish a mandatory, objective floor for internalized or Payment for Order Flow (PFOF)-conflicted orders: execution at the midpoint or better on a one-tick spread, and at least a full tick of price improvement on wider spreads.
5. Interplay with SEC Rule 611 (Topic 1, Question 10) The SEC has proposed to rescind Rule 611 (the Order Protection Rule) under the premise that a broker’s best execution duty under FINRA Rule 5310 will protect retail orders. If Rule 5310 is to be the primary standard protecting retail trade prices, FINRA must strengthen—not relax—its standards and enforcement mechanisms.
Key Recommendations:
Require order-by-order review for all retail orders.
Require wholesalers to report execution quality broken down by individual routing broker.
Prohibit routing brokers from relying under Supplementary Material .09(c) on execution reviews conducted by the market makers paying for order flow or executing as principal.
Mandate that every firm designate a named registered principal personally accountable for order routing oversight.
Enforce Regulatory Notice 21-23 regarding terms of PFOF arrangements cutting into price improvement.
As someone who started investing during the volatile events of January 2021, I want transparency, fair competition, and meaningful protection when my orders hit the market. Please strengthen Rule 5310 rather than watering it down.
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Nikita Malgin Comment On Regulatory Notice 26-15
Dear Ms. Mitchell,
I am writing as an individual retail investor to submit my comments on Regulatory Notice 26-15 regarding FINRA Rule 5310 and best execution guidance. I entered the U.S. stock market in January 2021 during the GameStop (GME) trading restrictions and short squeeze. That period revealed how heavily market structure, order routing, and hidden conflicts of interest directly impact individual investors. Since then, I have closely followed how retail orders are routed, executed, and handled.
I strongly oppose any proposal to relax, weaken, or modernize Rule 5310 in a manner that creates paperwork safe harbors or removes order-by-order scrutiny. Over the past decade, FINRA’s enforcement record under Rule 5310 produced ten paperwork cases resulting in $13.15 million in fines and zero dollars returned in restitution to harmed retail investors. Relaxing these rules would eliminate the last line of defense protecting the execution price of my trades.
Specifically, I urge FINRA to address the following key points:
1. Preserve and Extend Order-by-Order Review (Topic 3, Question 1) Order-by-order review is the only standard where the actual price received by the retail investor is evaluated. Replacing order-by-order review with quarterly aggregate averages allows brokers and wholesalers to mask systemic sub-optimal fills. FINRA must retain order-by-order review and extend it to all non-institutional orders.
2. Order Routers Cannot Grade Themselves (Topic 3, Question 3) A broker’s order-routing algorithm is the very mechanism being evaluated; it cannot serve as its own independent review. Allowing a "smart order router" to certify its own execution quality creates a clear conflict of interest.
3. Reject Paperwork Safe Harbors (Topic 1, Question 9) Creating safe harbors for firms that maintain documented "regular and rigorous" review processes converts a regulatory requirement into a legal defense. Holding committee meetings and filing minutes should never shield a firm from failing to deliver the best available market price.
4. Establish an Objective Price Improvement Floor (Topic 1, Question 6) Claiming that a high percentage of orders received price improvement is meaningless when fills are improved by only a hundredth of a cent (one mil) on wide spreads. FINRA should establish a mandatory, objective floor for internalized or Payment for Order Flow (PFOF)-conflicted orders: execution at the midpoint or better on a one-tick spread, and at least a full tick of price improvement on wider spreads.
5. Interplay with SEC Rule 611 (Topic 1, Question 10) The SEC has proposed to rescind Rule 611 (the Order Protection Rule) under the premise that a broker’s best execution duty under FINRA Rule 5310 will protect retail orders. If Rule 5310 is to be the primary standard protecting retail trade prices, FINRA must strengthen—not relax—its standards and enforcement mechanisms.
Key Recommendations:
As someone who started investing during the volatile events of January 2021, I want transparency, fair competition, and meaningful protection when my orders hit the market. Please strengthen Rule 5310 rather than watering it down.
Thank you for considering my comment.