Disciplinary actions are often the best way to answer questions such as “how did this happen” or “what can we do differently”. Recently, a member firm named Robinhood Financial LLC was fined $1.25 million for best execution violations. Their shortcomings can provide valuable takeaways to assist other firms in building and solidifying their compliance program.
Earlier this month, FINRA hosted a Small Firm Conference Call to discuss updates and implications of COVID-19 (Coronavirus). If you were not able to listen to the call live, a replay recording is available on demand. This recording provides and discusses many highlights noted in the FAQs Related to Coronavirus Pandemic.
Under the Investment Advisors Act of 1940 (the “Advisers Act”), Investment Advisers assume a fiduciary responsibility requiring them to seek and obtain the “best execution” for client transactions when trading in client accounts. The United States Securities and Exchange Commission (“SEC”) has outlined this responsibility as “an adviser must execute securities transactions for clients in such a manner that the client’s total costs or proceeds in each transaction are the most favorable under the circumstances.” Also, the SEC has indicated Investment Advisers need to periodically “evaluate the execution quality of the broker-dealer executing their clients’ transactions.”
MSRB Rule G-18, the new best-execution rule for municipal securities, became effective March 21, 2016. At this point, most broker-dealers registered with the Municipal Securities Rulemaking Board (“MSRB”) have implemented written policies and procedures for seeking best execution on customer orders in municipal securities. Now, if you are a compliance officer or municipal securities principal at one of these broker-dealers, you may still be pondering precisely how your firm is going to perform and document the required periodic reviews of its best-execution policies and procedures. Many introducing broker-dealers hope to avail themselves of a provision in Rule G-18 that seemingly permits them to rely on the best-execution reviews of their clearing firms. In this blog post, we identify the conditions for obtaining this relief and discuss some of the challenges of relying on another broker-dealer’s best-execution reviews.