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Recovering Losses Caused By Investment Misconduct

E*Trade Securities LLC Fined $900,000 by FINRA

Meyer WilsonE*Trade Securities LLC has been fined $900,000 for alleged supervisory violations. The Financial Industry Regulatory Authority (FINRA) announced last week that E*Trade failed to adequately review the quality of customer order execution. FINRA also claimed the company had supervisory deficiencies in protecting the information of customer orders.

E*Trade is an online security investing and trading forum for customers in the retail industry. It provides information of customer’s orders to exchanges and non-exchange market centers. In order to do this, the company is required to perform reviews regarding the quality of competing markets when directing orders. These types of firms must rigorously review the quality of execution regarding customer orders. This allows the company to determine any differences in quality amongst the markets. To accomplish this goal, E*Trade had formed the Best Execution Committee.

FINRA’s investigation found that the Best Execution Committee had insufficient accurate information to perform the review of quality in the markets. FINRA alleged that the committee failed to consider the internalized order flow that was sent to affiliated broker-dealer G1 Execution Services (G1X). They are also accused of considering actual execution quality from the market centers to which they routed the customers’ orders.

FINRA claimed that E*Trade accepted G1X requests for prioritization changes in the routing system without determining quality of execution. Finally, the agency alleges that E*Trade failed to adequately protect the confidential information on customer orders.

FINRA Executive Vice President and Head of Market Regulation, Thomas Gira, made the following statement,

This action serves to remind firms that they must remain diligent in ascertaining the best market for their customers, and must conduct regular and rigorous reviews of their routing decisions to ensure their best execution obligations are met. This needs to be a substance over form review, not a form over substance review. This matter further underscores that firms must have real systems and processes in place to ensure that confidential customer information is protected.

E*Trade consented to the findings in FINRA’s investigation, but did not admit or deny the charges against them.

Categories: FINRA

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