FINRA Sweep: Order Routing and Conflicts of Interest

By Buddy Doyle

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FINRA (Financial Industry Regulatory Authority) sent targeted examination letters to a select group of broker-dealers requesting information as part of a review of how firms handle situations in which conflict of interest arises related to payments or other inducements for order routing. These letters came from the Trading & Financial Compliance Examinations (TFCE) section in Market Reg, and their focus examines three main aspects of the issue:

  • How the firm quantifies the benefits to its customers;
  • How the firm meets its Best Execution obligations: and
  • How the firm manages the conflicts as it routes order flow some of which it garners larger economic gain from.

The SEC and FINRA each noted trading practices as a primary issue in their respective 2017 examination priorities, and both regulators reminded firms to provide accurate payment for order flow disclosures and accurate disclosures on how they comply with their duty of best execution when routing customer orders for execution. FINRA also reminded broker-dealers to consider how the automation of the markets and recent advances in trading technology and communications affect their order-handling decisions and their review of the execution quality they provide customers.

Further, Oyster has seen that regulators are expecting RIAs to be able to produce more detailed trade data to support Best Execution analysis than in the recent past.


Oyster Consulting Can Help

Oyster’s trading and markets team has worked for both large and small broker-dealers and registered investment advisors to examine their trading, order handling, and Best Execution processes.  Our team has specifically worked on the conflicts that arise when accepting order flow inducements. Our consultants perform reviews of procedures, routing practices, technology, vendor solutions, disclosures, and ensure that a “regular and rigorous” program is in place. Leverage our experience to make your compliance program efficient and effective.

Conflicts of interest around order routing and inducements are just one set of risks your firm should be reviewing and prioritizing. When you use Oyster Solutions compliance management software, risk is easily managed, categorized, scored and charted.  Easy-to-read dashboards give transparency and definition to your firm’s risk management strategy. Oyster Solutions software documents risk, customizes risk tolerance and scores risk based on your firm’s needs. You then have the information to define and measure your controls through policies, procedures and strategic testing workflows.  


About The Author
Photo of Buddy Doyle

Buddy Doyle

As the CEO of Oyster Consulting, Buddy Doyle has led the charge to create a successful organization built on the belief that transforming experienced industry practitioners into consultants adds more value to our clients.