FINRA has fined Barclays Capital $2 million for failing to comply with its best execution obligations in connection with its customers’ electronic equity orders between January 2014 and February 2019.
Barclays Capital routed all its customers’ marketable orders to its alternative trading system 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.
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.
Barclays Capital did not comply with best execution obligations
According to FINRA, 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.
- the firm 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 – 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.
- the firm’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.
Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement, said: “FINRA continues to prioritize broker-dealers’ compliance with best execution requirements when handling their customers’ orders. Firms must continuously monitor their reviews of execution quality and make changes accordingly.”
Earlier this month, Barclays agreed to pay $361 million to the SEC in connection with the unregistered offer and sale of an unprecedented amount of securities due to a failure to implement any internal control to track such transactions in real time.
