The Financial Industry Regulatory Authority says it has fined Deutsche Bank Securities $2 million over allegations that it failed to seek best execution for its clients.
“The duty to seek best execution for customer orders is a fundamental obligation of any broker-dealer that buys or sells securities on behalf of customers,” Jessica Hopper, head of Finra's department of enforcement, said in a statement. “We will continue to pursue disciplinary action against firms that fail to use reasonable diligence to execute customer transactions so that the price is as favorable as possible under prevailing market conditions.”
From January 2014 to May 2019, Deutsche Bank Securities allegedly routed some customer orders through its trading system, known as SuperX, with “an inherent delay” when the orders were routed to exchanges through its smart order router, unless the customers opted out of that routing preference, according to a letter of acceptance, waiver and consent signed by Finra on Monday.
The alleged delay resulted in potentially lower fill rates — the percentage of orders executed at the intended time, price and size, Finra claims. The firm’s best execution committee found that fill rates in SuperX for orders routed by the smart order router were between around 12% and 32%, while fill rates on orders routed to exchanges were above 90%, according to the industry’s self-regulator.
Moreover, even when the committee found reports of lower fill rates in SuperX than in orders routed to the exchanges, the company allegedly didn’t change the routing arrangements, according to the letter of acceptance.
Finra adds that Deutsche Bank Securities allegedly lacked a supervisory system reasonably designed to comply with its best execution obligation and didn’t adequately disclose details on trading rebates.
Finra Rule 5310 requires firms to seek the most favorable terms reasonably available for a customer’s 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, according to Finra.
The rule lists several factors — such as price improvement and speed of execution — that firms should consider when conducting these reviews. Deutsche Bank Securities’ reviews did not meet the standards of Rule 5310, according to Finra.
Deutsche Bank Securities consented to a censure and to pay the fine without admitting or denying the findings, according to the letter of acceptance.
Finra reminded member firms in March last year that “the duty of best execution requires the fair, consistent and reasonable treatment of customer orders at all times.” The regulatory notice came in the wake of lawmaker attention and customer lawsuits related to the January trading halts on GameStop and other stocks that saw their prices soar after being touted on social media.
Editor's Note: This article was originally published as a breaking news article on March 8, 2022.
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