Aggregated News From Investment Management Regulators

FINRA Fines Barclays Capital Inc. $2 Million for Best Execution Violations

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FINRA announced today that it has fined Barclays Capital Inc. (Barclays Capital) $2 million for failing to comply with its best execution obligations in connection with its customers’ electronic equity orders.

From January 2014 through February 2019, Barclays Capital owned and operated an alternative trading system known as LX. Barclays Capital routed all its customers’ marketable orders to LX, prior to routing to any competing venue, if the order could be filled in LX completely or partially at the National Best Bid and Offer or better, unless customers opted out of this routing preference.

Barclays Capital failed to conduct reasonable reviews of execution quality for its customers’ orders. The firm did not review price improvement data for orders routed to LX. The firm also did not review speed of execution for any of the venues to which it routed customers’ orders or consider whether the firm could have obtained better execution speed from competing markets.

Barclays Capital also failed to consider alternate routing arrangements even when the firm’s own data showed that fill rates in LX were inferior to fill rates at some competing venues. Specifically, the reports reviewed by the firm’s Best Execution Working Group indicated that marketable orders routed to LX received lower fill rates as compared to certain competing venues. These reports showed that LX delivered a lower fill rate than the average fill rate of competing venues for every quarter from 2015 to the first quarter of 2019.

In addition, Barclays Capital’s supervisory system was not reasonably designed to achieve compliance with its best execution obligations because the firm failed to reasonably review for price improvement for orders routed to LX and speed of execution for any venue. The firm’s written supervisory procedures also failed to provide reasonable guidance on the factors the firm should consider in determining whether to modify its routing practices.

“FINRA continues to prioritize broker-dealers’ compliance with best execution requirements when handling their customers’ orders,” said Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement. “Firms must continuously monitor their reviews of execution quality and make changes accordingly.”

FINRA Rule 5310—Best Execution—requires firms to seek the most favorable terms reasonably available for their customers’ orders. To meet this obligation, firms must conduct reviews to evaluate the order execution quality their customers receive under the firm’s current routing arrangements, as well as the execution quality their customer orders could receive through different routing arrangements. Rule 5310 lists several factors that firms should consider when conducting these reviews, including price improvement opportunities and speed of execution.

FINRA included best execution as a topic in its 2022 and 2021 FINRA Examination and Risk Monitoring Program reports, as well as its 2020 and 2019 Annual Risk Monitoring and Examination Priorities letters.

In settling this matter, Barclays Capital consented to the entry of FINRA’s findings without admitting or denying them.

About FINRA

FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.

This news item was originally published by the Financial Industry Regulatory Authority (FINRA US). For more information, see the Source Link.

Regulator Information

Abbreviation: FINRA
Jurisdiction: United States

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