Here it is with the dashes removed and the formatting made more like a normal letter.
Dear Ms. Mitchell,
I am an individual investor submitting a comment regarding Regulatory Notice 26 15 and FINRA’s request for comments on modernizing its best execution guidance under Rule 5310.
My concern is pretty simple. If FINRA relaxes order by order review, especially for internalized retail orders, it could become harder to see whether the price an individual investor actually received was the best reasonably available price. At the end of the day, we’re talking about people’s money. I believe FINRA should tighten up its best execution standards and enforcement rather than loosen them.
Specifically, I encourage FINRA to consider requiring order by order review for non institutional retail orders instead of mainly relying on aggregate reviews. FINRA should also set an objective price improvement standard for conflicted retail executions, such as midpoint or better when the spread is one tick and a full tick when the spread is wider.
Execution quality should also be reported by routing broker instead of only being looked at in the aggregate. Investors should be able to see how individual routing firms are actually performing. FINRA should review the inputs and decisions behind order routing, not just the final results. A firm can influence the outcome it later reviews, so just looking at the end result does not tell the whole story.
A firm should not be able to rely on a best execution review conducted by an entity that has a financial conflict because it pays for order flow or executes the orders as principal. FINRA should also make it clear that blanket “not held” designations should not be used to get around best execution obligations for retail orders.
Examiners should have periodic access to routing audit trails, and FINRA should publish annual numbers showing Rule 5310 examinations and customer restitution. FINRA should also create a standardized examination process for Rule 5310 so firms are being looked at under the same basic standards.
FINRA should revisit the theory discussed in Regulatory Notice 21 23 and take enforcement action when the facts actually support it. FINRA should also require quarterly peer benchmarking and refer firms with persistent execution quality outliers to Enforcement for further review.
FINRA should consider stronger governance safeguards for board members whose firms have significant conflicts of interest or are involved in relevant enforcement proceedings. Each firm should also have a clearly identified person who is accountable for overseeing best execution and customer order routing.
This matters even more right now because of the SEC’s proposal concerning the rescission of Rule 611, the Order Protection Rule. If Rule 5310 is going to carry more of the weight when it comes to protecting investors from worse executions, then FINRA needs to be straight up about what it is going to do differently to make sure retail investors are actually protected.
As an individual investor, I want the focus to be on the price the customer actually received and what happened behind that execution. We should not have to just take a firm’s word for it when the firm has an obvious financial interest in how that order is routed or executed.
I respectfully encourage FINRA to strengthen its oversight of retail order routing and best execution instead of watering it down.
Thank you for taking the time to consider my comment.
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Terry Comment On Regulatory Notice 26-15
Here it is with the dashes removed and the formatting made more like a normal letter.
Dear Ms. Mitchell,
I am an individual investor submitting a comment regarding Regulatory Notice 26 15 and FINRA’s request for comments on modernizing its best execution guidance under Rule 5310.
My concern is pretty simple. If FINRA relaxes order by order review, especially for internalized retail orders, it could become harder to see whether the price an individual investor actually received was the best reasonably available price. At the end of the day, we’re talking about people’s money. I believe FINRA should tighten up its best execution standards and enforcement rather than loosen them.
Specifically, I encourage FINRA to consider requiring order by order review for non institutional retail orders instead of mainly relying on aggregate reviews. FINRA should also set an objective price improvement standard for conflicted retail executions, such as midpoint or better when the spread is one tick and a full tick when the spread is wider.
Execution quality should also be reported by routing broker instead of only being looked at in the aggregate. Investors should be able to see how individual routing firms are actually performing. FINRA should review the inputs and decisions behind order routing, not just the final results. A firm can influence the outcome it later reviews, so just looking at the end result does not tell the whole story.
A firm should not be able to rely on a best execution review conducted by an entity that has a financial conflict because it pays for order flow or executes the orders as principal. FINRA should also make it clear that blanket “not held” designations should not be used to get around best execution obligations for retail orders.
Examiners should have periodic access to routing audit trails, and FINRA should publish annual numbers showing Rule 5310 examinations and customer restitution. FINRA should also create a standardized examination process for Rule 5310 so firms are being looked at under the same basic standards.
FINRA should revisit the theory discussed in Regulatory Notice 21 23 and take enforcement action when the facts actually support it. FINRA should also require quarterly peer benchmarking and refer firms with persistent execution quality outliers to Enforcement for further review.
FINRA should consider stronger governance safeguards for board members whose firms have significant conflicts of interest or are involved in relevant enforcement proceedings. Each firm should also have a clearly identified person who is accountable for overseeing best execution and customer order routing.
This matters even more right now because of the SEC’s proposal concerning the rescission of Rule 611, the Order Protection Rule. If Rule 5310 is going to carry more of the weight when it comes to protecting investors from worse executions, then FINRA needs to be straight up about what it is going to do differently to make sure retail investors are actually protected.
As an individual investor, I want the focus to be on the price the customer actually received and what happened behind that execution. We should not have to just take a firm’s word for it when the firm has an obvious financial interest in how that order is routed or executed.
I respectfully encourage FINRA to strengthen its oversight of retail order routing and best execution instead of watering it down.
Thank you for taking the time to consider my comment.
Sincerely,
An Individual Investor