Market Extra: FINRA probing possible conflicts over fee rebates
WASHINGTON (MarketWatch) — The financial industry’s self-regulatory body said Tuesday it is investigating whether trading-fee rebates create conflicts of interests for the execution quality of customers’ orders.
The Financial Industry Regulatory Authority (FINRA) said in a letter outlining its regulatory priorities that it was looking into broker firms that route customer orders to exchanges or market makers that pay them the most in rebates, rather than routing them where customers can get the best price for the shortest amount of time.
The issue was one of many raised in the Michael Lewis book “Flash Boys,” which garnered public attention more for its criticism of high-frequency trading.
FINRA said that as part of the process, it found that many firms don’t have “best execution committees” or other structures in place to evaluate the quality of outcomes for the customer.
“FINRA will continue to review whether options-floor brokers meet their best-execution obligations and conduct appropriate reviews of the execution quality they receive on their customers’ behalf,” the letter said.
But Dave Lauer, president and managing partner of KOR Trading, said FINRA had largely dropped the ball on following the issue.
“The most important thing they can be doing is protecting investors,” he said, adding that the agency needs to do a better job of enforcement.