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.