E*Trade Fined $900,000 for Mishandling Its Clients’ Ordersby
Finra probe into trading practices was first announced in 2013
Penalty comes amid greater attention to retail order handling
An E*Trade Financial Corp. division was fined $900,000 for not doing enough to ensure customers’ trades were handled well.
Retail brokerages like E*Trade don’t typically execute clients’ trades themselves, but instead route them to other firms that execute the orders. E*Trade set up a committee to review whether customers were getting a good deal on transactions, but that group “lacked sufficiently accurate information” to assess the situation, according to the Financial Industry Regulatory Authority.
Finra, which announced the penalty against E*Trade Securities on Thursday, also said the brokerage didn’t do enough to ensure information about clients’ orders was kept private. E*Trade neither admitted to nor denied Finra’s allegations.
E*Trade revealed in 2013 that Finra was examining how two of its units -- E*Trade Securities and the now-sold G1 Execution Services division -- routed orders and said it had uncovered “shortcomings” in how G1 Execution measured whether trades were struck at the best prices. E*Trade’s penalty comes amid heightened regulatory scrutiny over whether the retail investors are getting the best prices for their trades.
“The settlement does not allege that E*Trade at any time failed to obtain best execution of its customer orders,” Brett Goodman, a spokesman for E*Trade, said in an e-mailed statement. “We’re confident our customers receive high-quality executions.” The Finra inquiry was touched off by E*Trade’s own internal review, which it reported to the regulator, Goodman said.
In a period from July 2011 to June 2012, E*Trade had an inadequate system for ensuring customer orders got the best possible treatment, Finra said. E*Trade Securities’s decisions on where to send out orders were improperly influenced by its market-making unit G1 Execution, which is also known as G1X according to Finra’s order. Susquehanna International Group LLP acquired G1X in 2014.
Separately, E*Trade didn’t safeguard its customer information as carefully as it should, Finra said. Two people had special access to the firm’s order routing systems and customer orders, but E*Trade didn’t have sufficient controls in place to make sure that confidential information wouldn’t be misused, Finra said.
Several regulatory agencies have been sniffing out whether retail orders are being handled as well as they should be. Electronic trading firms Citadel Securities and KCG Holdings Inc. are facing inquiries from federal and New York regulators over whether they get the best quality trades for retail brokers that route orders their way.