Finra launches targeted exam of zerofees brokerages


Finra has launched targeted examinations of brokerages that no longer collect commissions on trades, exploring whether they’re giving customers the best prices for those transactions.

In a letter posted on the Financial Industry Regulatory Authority Inc. website Thursday, the broker-dealer self-regulator said it is “conducting a review of [firm name] concerning the firm’s decision not to charge commissions for customer transactions, the impact that not charging commissions has or will have on the firm’s order routing practices and decisions, and other aspects of the firm’s business.”

The exams follow an indication in Finra’s annual examination priorities letter that it would focus on best execution and “review for potential conflicts of interest in order-routing decisions.”

Finra would not reveal the names or number of firms it will examine. The sweep will involve “a variety of firms in terms of size and business model,” Finra spokeswoman Michelle Ong wrote in an email.

Firm responses are expected in the next several weeks.

“Finra will evaluate the information received and determine what additional steps, if any, are appropriate,” Ms. Ong said.

The exam letter outlined 26 queries Finra will pose about best execution in a no-commission environment.

For instance, Finra will examine whether “changing to the zero-commission model resulted in changes to a firm’s routing practices, execution quality, regular and rigorous review policies or the level of trading rebates or payment for order flow,” the letter states. “Finra may also assess disclosures and advertisements related to zero commissions.”

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