According to the press release, E*Trade Securities provides online securities investing and trading services for retail customers, and routes its customers' orders to various exchanges and non-exchange market centers. Firms routing customer orders are required to assess the quality of competing markets to which it directs order flow and periodically conduct "regular and rigorous reviews" of the quality of the executions of its customers' orders to determine whether any material differences in execution quality exist among the markets trading the security. In an effort to comply with the foregoing, E*Trade established a Best Execution Committee (the "BEC") to review execution quality it received on its customers' orders.
FINRA found that, the BEC (i) lacked sufficiently accurate information to reasonably assess the execution quality it provided its customers; (ii) failed to take into account internalized order flow sent to its affiliated broker-dealer market maker G1 Execution Services ("G1X"); and (iii) failed to adequately consider the actual execution quality provided by the market centers to which it routed orders.
In addition, E*Trade Securities regularly accepted requests from G1X to change prioritization in E*Trade Securities' order routing system and to redirect certain order flow, without determining whether these changes would improve the quality of execution received by its customers. Finally, FINRA also found that E*Trade Securities did not have adequate systems and controls in place to ensure that there was no misuse of confidential customer order information by individuals dually registered with E*Trade Securities and G1X.
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