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Executing Broker to Pay $22.6 Million for Misrepresenting Order Filling Process

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A large executing broker agreed to pay $22.6 Million to settle charges that it misled broker-dealers clients about the mechanism for filling orders.  The SEC charges that the executing broker claimed that it would deliver best price but, instead, used two algorithms that capitalized on price discrepancies that often benefitted the respondent.  An SEC official warned, “We are focused on the execution of retail orders and encourage investors to ask brokers, and brokers to ask internalizers, how they are determining best prices for retail orders.”

OUR TAKE: This case looks like a disconnect between the front office and the back office.  It appears that the folks talking to clients did not understand how the firm actually filled orders.  “Don’t let the facts ruin a good story” is a recipe for an enforcement action.

 http://www.sec.gov/litigation/admin/2017/33-10280.pdf

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