San-Francisco-based broker Robinhood has been fined $1.25 million by the Financial Industry Regulatory Authority (FINRA) for failing to ensure the best execution of customer orders when routing them to four broker-dealers.
In a press release published on Thursday, the self-regulatory organization FINRA announced that it reached a settlement with Robinhood over the issue, which took place from October 2016 to November 2017. At the time, the Robinhood was routing customers’ equity orders to four broker-dealers for execution, while receiving payments for that order flow. However, FINRA found that Robinhood failed to make proper efforts to ensure the best execution of these orders.
According to FINRA rules, best execution requires companies to “use reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions.” Failing to ensure best execution may allow trading shops to front-run orders that they receive from brokers like Robinhood.
Besides paying the fine, Robinhood has also adopted an execution analytics software provided by an independent vendor, hired a best-execution manager, and agreed to retain an independent consultant to review the firm’s execution procedures, according to the press release and a document Robinhood shared with The Block.
“The facts on which the settlement is based do not reflect our practices or procedures today. The agreement relates to a historic issue during the 2016-2017 timeframe involving consideration of alternative markets for order routing, internal written procedures, and the need for additional review of certain order types,” a spokesperson for The Block said in a statement. “Over the last two years, we have significantly improved our execution monitoring tools and processes relating to best execution, and we have established relationships with additional market makers.”
As The Block reported recently, Robinhood currently routes its orders for New York Stock Exchange-listed securities to five venues, including high-frequency trading firms like Citadel Securities and Two Sigma.
Breakdown of Robinhood’s order flow for NYSE listed securities
Credit: Source link
