TradeStation Securities

TradeStation Securities was fined $850,000 for failing to exercise reasonable diligence to ascertain whether the venues where it routed certain equity and option customer orders provided the best market for the subject securities as compared to the execution quality that was being provided at competing markets.

The findings stated that at various times, the firm did not reasonably consider or perform underlying execution quality analysis of competing markets relative to the firm’s current routing arrangements. In addition, at other times, the firm did not conduct reviews of the execution quality provided by existing routing venues for specific order types. As a result, the firm did not reasonably consider the quality of executions that the firm could have obtained from competing markets as compared to its current routing arrangements for marketable equity orders.

The findings also stated that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with its best execution obligations. The firm’s supervisory reviews for best execution disregarded several order types and factors and failed to reasonably account for comparisons of the quality of executions the firm obtained via current order routing and execution arrangements to the quality of the executions that the firm could have obtained from competing markets.

In addition, the firm’s WSPs provided no guidance as to how it should supervise to achieve compliance with the firm’s best execution obligations beyond requiring a regular and rigorous review of data regarding price and executions.

The firm amended its WSPs to include an obligation to conduct a comparative review of execution quality that included a review of competing markets and that the regular and rigorous review should include considerations of specific execution quality factors. However, the firm failed to provide any guidance as to how the supervisor should conduct a comparative review to determine whether any material differences in execution quality existed among competing markets.

The WSPs also failed to detail who was responsible for modifying order routes and what execution quality factors should be considered when doing so.

The findings also included that the firm failed to disclose material aspects of its relationship with the markets to which it routed most of its order flow. Although the firm disclosed that it maintained payment for order flow arrangements with venues to which it routed nondirected equity and option orders for execution, it failed to report all the material aspects of those relationships.