Finra fines Barclays Capital $2 million for best-execution failures

The regulator says the firm didn't search the market to see if it could find better prices for customers, in a case that's another example of the regulatory crackdown in this area.

Finra fined Barclays Capital Inc. $2 million Wednesday for failing to take steps to ensure that it fulfilled its customers’ trading orders at the best prices.

Barclays routes customer orders through an alternative trading system that it owns, known as LX. It fills customer orders on the platform if they can be fully or partially satisfied at the best national offer.

But the Financial Industry Regulatory Authority Inc. charged that from January 2014 through February 2019, Barclays didn’t check to see if it could have obtained better deals more quickly for its customers on other trading venues.

“Despite considering certain execution quality factors for orders routed to LX, Barclays failed to consider whether alternate routing arrangements could have provided price improvement opportunities and better speed of execution,” the settlement states. “In addition, although Barclays reviewed fill rates in LX during the relevant period, the firm failed to consider alternate routing arrangements when the firm showed that fill rates in LX were inferior to fill rates at some competing execution venues.”

Finra also found that Barclays didn’t maintain written policies and procedures that would have prevented violations of the broker-dealer self-regulator’s best execution rule, which requires brokerages to seek the best terms for customer orders that are reasonably available.

“Finra continues to prioritize broker-dealers’ compliance with best execution requirements when handling their customers’ orders,” Jessica Hopper, executive vice president and head of enforcement at Finra, said in a statement. “Firms must continuously monitor their reviews of execution quality and make changes accordingly.”

Barclays neither admitted nor denied Finra’s findings while agreeing to a censure and the $2 million fine. A Barclays spokesperson declined to comment.

The enforcement action focuses on a historic problem Barclays had with order execution. The firm has since changed the way it routes orders to its LX platform.

Regulatory scrutiny of best execution has been increasing in the wake of the January 2021 GameStop trading frenzy. Earlier this year, Finra imposed a $2 million fine on Deutsche Bank for failing to obtain the best prices on customer stock trades. Both Finra and the SEC have emphasized the topic.

In its examination and risk monitoring report earlier this year, Finra said that it has found that brokerages aren’t comparing trade execution offers to find better ones in the market and aren’t addressing potential conflicts of interest related to routing orders through affiliated broker-dealers or trading systems.