FINRA fines Robinhood 1.25MM for violations in order execution and payment for order flow

by MasterCookSwag

Note it looks like this behavior is no longer happening but it would seem that in the whole realm of payment for order flow Robinhood erred too hard on the side of accepting payment and not hard enough on the side of looking for price improvement.

They’ve retained a consultant to ensure this isn’t an issue going forward but it would seem to be vindication for those that complained about RH’s execution.

www.finra.org/media-center/newsreleases/2019/finra-fines-robinhood-financial-llc-125-million-best-execution

FINRA found that for more than a year, Robinhood—which offers its customers the ability to trade in equity securities without being charged commissions—routed its customers’ non-directed equity orders to four broker-dealers, all of which paid Robinhood for that order flow. This arrangement is known in the brokerage industry as payment for order flow.

FINRA Rule 5310—Best Execution—requires firms to use reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions. FINRA member firms that route customer orders away for execution can satisfy their best execution obligations by conducting either an order-by-order review of execution quality or a “regular and rigorous review.” FINRA Rule 5310 enumerates a number of criteria for firms to evaluate in these reviews.

During its reviews, Robinhood did not reasonably consider the Rule 5310 execution quality factors (such as price improvement) that the firm could obtain from alternative markets. Instead, Robinhood’s Best Execution Committee materials focused only on the execution quality of its pre-existing routing destinations, all of which paid Robinhood for that order flow.

It should be noted that 1.25MM is pretty tiny.