Finra announced Tuesday that it fined Deutsche Bank Securities Inc. $2 million for failing to obtain the best prices for customers on their stock trades.
In the settlement, the Financial Industry Regulatory Authority Inc. said that from January 2014 through May 2019, the firm owned an alternative trading system known as SuperX. During that time the firm routed customer orders through SuperX before sending them to any other exchange. Customers could opt out of the strategy.
“DBSI did not consider whether alternate routing arrangements might have provided better price improvement, fill rates and speed of execution,” the settlement states.
DBSI also routed more orders to SuperX than any other dark pool, Finra said.
“The firm failed to consider alternate routing arrangements even though, according to the firm’s own ranking model, other dark pools consistently ranked higher than SuperX for execution quality,” the settlement states.
By not searching for the best deals for its customers’ stock trades, DBSI violated Finra’s best execution rule, which requires member firms to seek the most favorable terms for orders. Finra, the broker-dealer self-regulator, said DBSI lacked a supervisory system to comply with the rule. DBSI also failed to disclose details about the payments it received by routing orders through SuperX.
“The duty to seek best execution for customer orders is a fundamental obligation of any broker-dealer that buys or sells securities on behalf of customers,” Jessica Hopper, Finra executive vice president and head of enforcement, said in a statement. “We will continue to pursue disciplinary action against firms that fail to use reasonable diligence to execute customer transactions so that the price is as favorable as possible under prevailing market conditions.”
A spokesperson for DBSI declined to comment. The firm did not admit or deny Finra’s findings.
The penalty against DBSI, an arm of Deutsche Bank with seven U.S. branch offices and 1,900 registered representatives, targets a business that it’s no longer in. As part of the shutdown of its U.S. equity sales and trading operation, DBSI closed SuperX last Sept. 24, according to the settlement.
Best execution has become a high-profile regulatory issue following the GameStop trading frenzy in January 2021. Finra has made the topic one of its examination priorities this year. Securities and Exchange Commission Chairman Gary Gensler has ordered the agency to review whether investors are being harmed by best-execution lapses.
“Best execution of customer orders is one of Finra’s core focus areas, and we closely monitor and review member firms’ compliance with this important component of investor protection and market integrity,” Stephanie Dumont, Finra executive vice president of market regulation and transparency services, said in the statement.
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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.