trending Market Intelligence /marketintelligence/en/news-insights/trending/0ovwr6URq5ElxGW5SjniQQ2 content esgSubNav
In This List

FINRA fines Robinhood Financial $1.25M for violating best execution rule


Insight Weekly: Bank oversight steps up; auto insurers’ dismal year; VC investment slumps


Banking Essentials Newsletter: 3rd May Edition


Banking Essentials Newsletter: 19th April Edition


According to Market Intelligence, April 2023

FINRA fines Robinhood Financial $1.25M for violating best execution rule

The Financial Industry Regulatory Authority imposed a $1.25 million fine on Robinhood Financial LLC for violating best execution practices for customers' equity orders and related supervisory failures from October 2016 to November 2017.

The regulator found Robinhood to be routing its customers' nondirected equity orders to four broker/dealers who paid the company for that order flow, a practice known as payment-for-order-flow.

In doing so, FINRA said Robinhood did not "reasonably consider" the execution quality factors under FINRA Rule 5310, which states that FINRA member firms "can satisfy their best execution obligations by conducting either an order-by-order review of execution quality or a 'regular and rigorous review.'"

Payment-for-order-flow has previously been criticized for creating conflicts of interest between the brokerage's duty to customers and its pursuit of revenue. In early 2018, Robinhood's parent, Robinhood Markets Inc., reportedly earned over 40% of its revenue through this practice.

Additionally, FINRA said Robinhood did not perform systematic best execution reviews of several order types, which led to hundreds of thousands of orders each month failing to meet the "regular and rigorous" review process.

The regulator added that Robinhood's written supervisory procedures on best execution and its "regular and rigorous" reviews merely copied the regulatory requirements without describing the firm's supervisory system or providing guidance on how to achieve compliance with those requirements.

Without admitting or denying the charges, Robinhood consented to the entry of FINRA's findings. The company also agreed to retain an independent consultant to review its systems and procedures related to best execution.

Sought for comment, a Robinhood spokesperson said the facts related to the settlement do not reflect the company's current practices or procedures.

"The agreement relates to a historic issue during the 2016-2017 time frame involving consideration of alternative markets for order routing, internal written procedures and the need for additional review of certain order types," the spokesperson said. "Over the last two years, we have significantly improved our execution monitoring tools and processes relating to best execution, and we have established relationships with additional market makers."