Written by The White Law Group• October 6, 2022• 4:56 pm• Blog, Current Investigations

FINRA Fines Barclays Capital Inc. $2 Million

Barclays Sanctioned for Best Execution Violations and Supervisory Failures

According to the Financial Industry Regulatory Authority (FINRA) this week, the regulator has fined Barclays Capital Inc. (Barclays Capital) $2 million for failing to comply with its best execution obligations in connection with its customers’ electronic equity orders.

Table of Contents

What is the Best Execution Rule (FINRA Rule 5310)?

Best execution requires brokers to seek the most favorable options to execute their clients’ orders within the prevailing market environment. A significant investor protection requirement, best execution requires a broker to exercise reasonable care when executing an order to obtain the most beneficial terms for the customer.

When routing an equity investment, an option, or a bond order for execution, brokers must examine, track, and document.

From January 2014 through February 2019, Barclays Capital reportedly owned and operated an alternative trading system known as LX. Barclays Capital routed all its customers’ marketable orders to LX, prior to routing to any competing venue, if the order could be filled in LX completely or partially at the National Best Bid and Offer or better, unless customers opted out of this routing preference, according to FINRA.

Barclays Capital allegedly failed to conduct reasonable reviews of execution quality for its customers’ orders. The firm reportedly did not review price improvement data for orders routed to LX, nor did it review speed of execution for any of the venues to which it routed customers’ orders or consider whether the firm could have obtained better execution speed from competing markets.

FINRA found that Barclays Capital also failed to consider alternate routing arrangements even when the firm’s own data showed that fill rates in LX were inferior to fill rates at some competing venues. Specifically, the reports indicated that marketable orders routed to LX received lower fill rates as compared to certain competing venues. These reports allegedly showed that LX delivered a lower fill rate than the average fill rate of competing venues for every quarter from 2015 to the first quarter of 2019, according to FINRA.

Further, Barclays Capital’s supervisory system was not reasonably designed to achieve compliance with its best execution obligations because the firm failed to reasonably review for price improvement for orders routed to LX and speed of execution for any venue. The firm’s written supervisory procedures also reportedly failed to provide reasonable guidance on the factors the firm should consider in determining whether to modify its routing practices. See: What is Failure to Supervise? FINRA RULE 3110 (SUPERVISION)

Free Consultation with a Securities Attorney

This information is all publicly available and provided to you by The White Law Group.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle Washington.