October 21, 2018

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FINRA Releases New Targeted Exam Letter Regarding Order Routing Conflicts

On November 10, the Financial Industry Regulatory Authority released the contents of a new Order Routing Conflicts targeted exam letter that certain member firms may receive. FINRA uses targeted exams (e.g., sweeps) to gather information on emerging issues and uses such information to pinpoint regulatory response to such issues. FINRA chooses the identity of member firms that will participate in a sweep based upon a number of factors.

The new Order Routing Conflicts letter requests information relating to receipt of order routing inducements and how they affect a firm’s order routing practices and decisions. Information requested includes: 1) how the firm quantifies benefits to its customers from the firm’s receipt order routing inducements; 2) how the firm fulfills its duty of best execution when routing orders to market centers with materially higher transaction costs than other market centers; and 3) how the firm handles conflicts between the firm’s best execution obligation and the firm’s financial interest in such inducements.

The full text of the letter is available here.

©2018 Katten Muchin Rosenman LLP


About this Author

Janet M. Angstadt, Securities, Financial Services, Chicago, Lawyer, Katten Law FIrm

Janet M. Angstadt is the head of Katten's Chicago Financial Services practice. She focuses her practice on broker-dealer and exchange compliance issues and advises companies on matters regarding compliance with the regulations of the US Securities and Exchange Commission (SEC) and self-regulatory organizations (SROs).

Janet represents clients in a wide range of legal and regulatory matters, including mergers and acquisitions, SRO investigations, compliance issues related to registrations, sales practice, short sales, Regulation NMS, market-making and...