The Financial Industry Regulatory Authority has sanctioned tastytrade with an $850,000 fine for inadequate best execution oversight between January 2020 and January 2023. The Chicago-based broker, purchased by UK-listed IG Group in 2021, failed to properly assess whether clients received optimal pricing when routing equity orders to market makers under payment-for-order-flow arrangements.
FINRA determined that tastytrade’s quarterly best execution committee reviews only examined performance data from the five market makers receiving its order flow, without benchmarking execution quality against alternative venues or competing market centers. The reviews relied on aggregate routing volumes rather than analyzing individual order types or tracking price disimprovement instances where customers received inferior pricing compared to prevailing best quotes.
While payment-for-order-flow itself remains legal and widespread among US retail brokers, FINRA requires firms using such arrangements to conduct rigorous comparative analysis. Brokers must either review orders individually or perform systematic comparisons against competitor execution standards. FINRA concluded that tastytrade’s supervisory procedures and written protocols were structurally insufficient to meet these obligations. The firm updated its procedures in early 2023 alongside its rebranding from tastyworks.
This enforcement action follows similar FINRA sanctions against other retail brokers including Robinhood’s $1.25 million penalty in 2019 for comparable deficiencies in reconciling payment-for-order-flow relationships with best execution duties.
FXnCO Insight
Brokers accepting payment for order flow must implement robust comparative execution analysis across competing venues, as regulatory tolerance for aggregate-only reviews has effectively ended.
Source: Finance Magnates