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ARTICLE · 19 AUGUST 2021

FINRA Clarifies Guidance On Best Execution And Payment For Order Flow

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The Financial Industry Regulatory Authority (FINRA) recently issued a Regulatory Notice (Notice) reminding firms of their obligations with respect to best execution and payment for order flow.

United StatesFinance and Banking
Katten Muchin Rosenman LLP
Katten Muchin Rosenman LLP
Susan Light
Susan Light
Michael Lohnes
Michael Lohnes
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The Financial Industry Regulatory Authority (FINRA) recently issued a Regulatory Notice (Notice) reminding firms of their obligations with respect to best execution and payment for order flow.1

These topics received a great deal of attention in recent months from both regulators and the industry, as heightened levels of trading activity by retail investors impacted broader markets (for example, the GameStop "short squeeze" and other trading patterns in so-called "meme" stocks). Many of these retail investors placed their trades through low- or no-fee broker-dealers, which often generate significant revenue through payment-for-order-flow arrangements with executing brokers. In the Notice, FINRA reiterates existing Securities and Exchange Commission (SEC) and FINRA rules and guidance relating to payment for order flow and emphasizes that firms must not allow such arrangements to interfere with their duty to seek best execution for customer orders.

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