FINRA Fines tastytrade $850,000 Over Best Execution Review Failures

The Financial Industry Regulatory Authority (FINRA) has fined IG Group-owned broker tastytrade $850,000 for failing to maintain adequate best execution review procedures for customer equity orders between January 2020 and January 2023.

According to FINRA, the broker routed all customer equity orders to five market makers that paid for order flow but failed to regularly assess whether those venues delivered the most favorable execution available. While payment for order flow (PFOF) is permitted in the US, brokers remain obligated to evaluate execution quality across competing markets to ensure clients receive the best reasonably available prices.

FINRA found that tastytrade's quarterly best execution reviews relied solely on data from its existing routing venues and did not compare execution quality against alternative market centers. The firm's reviews also lacked sufficient analysis of order types and price disimprovement, limiting its ability to identify whether customers could have obtained better execution elsewhere.

The regulator further concluded that the firm's supervisory system and written supervisory procedures were not reasonably designed to support the "regular and rigorous" reviews required under FINRA rules. tastytrade updated its supervisory procedures after rebranding from tastyworks in early 2023.

The settlement includes an $850,000 fine and a censure. tastytrade neither admitted nor denied FINRA's findings but agreed to resolve the matter.

The case follows previous FINRA enforcement actions against several retail brokers over best execution obligations, highlighting the regulator's continued focus on firms that receive payment for order flow while ensuring customer orders are executed on the best available terms. Customers' interests should remain the primary consideration regardless of a broker's commercial routing arrangements.