FINRA Slaps $900K Fine on E*Trade for Execution Failings

The Financial Industry Regulatory Authority (FINRA), the largest independent regulatory authority in the US, has issued a fine against E*Trade Securities LLC for the sum of $900,000 after a discrepancy in its execution, according to a FINRA statement.

The new world of Online Trading Online Trading Online trading represents the trading of fiat currencies, digital currencies, commodities, stocks and indices, where traders and investors intend to make a profit, via the purchase or sale of the aforementioned products. This is done through an electronic network, made accessible by brokers in the form of an online trading platform or hub.Online trading continues to see a rapid growth year on year, due to a number of reasons. Firstly, the number of brokers offering their services, with more mone Online trading represents the trading of fiat currencies, digital currencies, commodities, stocks and indices, where traders and investors intend to make a profit, via the purchase or sale of the aforementioned products. This is done through an electronic network, made accessible by brokers in the form of an online trading platform or hub.Online trading continues to see a rapid growth year on year, due to a number of reasons. Firstly, the number of brokers offering their services, with more mone Read this Term, fintech and marketing – register now for the Finance Magnates Tel Aviv Conference, June 29th 2016.

E*Trade is a US-based financial services company and online stock brokerage – the group drew a fine from FINRA for its failure to properly conduct an adequate review of the quality of execution of its clients’ orders. Additionally, FINRA had ruled that E*Trade suffered from supervisory deficiencies with regard to the protection of customer order information, according to a recent manifest. In response to the fine, E*Trade neither admitted nor denied the charges.

The nature of the issue stemmed from E*Trade’s customer orders to multiple exchanges and non-exchange market centers, which were not executed in a proper fashion. Traditionally, financial firms that route customer orders are dictated by quality control measures, such as ascertaining the overall quality of competing markets, which ultimately directs order flow.

Such firms are required to conduct periodic and rigorous reviews of the quality of the executions of these orders to prevent any differences in execution quality in an effort to satisfy these needs. E*Trade had previously established a best execution committee with the sole purpose of overseeing and reviewing its execution quality.

However, despite the efforts by E*Trade’s committee, FINRA ultimately ruled that the group did not possess accurate information to plausibly assess the execution quality that it provided its customers. In particular, the committee did not properly take into account the internalized order flow that was sent to its affiliated broker-dealer market maker G1 Execution Services (G1X), and failed to consider the actual execution quality provided by the market centers that it was routing to.

According to Thomas Gira, FINRA Executive Vice President (EVP) and Head of Market Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term, 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,” he added.