On Tuesday, the Financial Industry Regulatory Authority (FINRA) said that it had imposed a $2 million fine on Deutsche Bank Securities for best execution violations. According to the press release, the banking institution failed to comply with its obligation to seek the best execution for its customers’ orders.
FINRA Rule 5310 requires firms to seek the most favourable terms reasonably available for customers’ orders. For this purpose, firms must conduct reviews in order to evaluate the quality of order execution their customers receive under the firm’s current routing arrangements, as well as the execution quality their customer orders could receive under alternative routing arrangements.
In Rule 5310, firms are required to consider several factors (including price improvement and speed of execution) when conducting these reviews. However, FINRA claims that Deutsche Bank Securities failed to follow this standard.
Case Background: SuperX Trading System
The authority stated that Deutsche Bank Securities owned and operated a trading system known as SuperX from January 2014 to May 2019 during the relevant period. As part of its smart order routing, the firm routes customers’ marketable orders to SuperX before routing any part of the order to an exchange , unless customers opt out of this routing preference. 'SuperX ping' was the name that was given to this preference.
However, the SuperX ping allegedly created an inherent delay for orders not fully executed in the firm’s ATS.
“The duty to seek best execution for customer orders is a fundamental obligation of any broker-dealer that buys or sells securities on behalf of customers. We will continue to pursue disciplinary action against firms that fail to use reasonable diligence to execute customer transactions so that the price is as favorable as possible under prevailing market conditions,” Jessica Hopper, the Executive Vice President and Head of FINRA’s Department of Enforcement, commented.
