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Failures to Execute

A failure to execute means that your broker is not following your direct purchase and/or sale instructions in a proper manner. This is a form of broker misconduct. If your broker did not follow your purchase or sale instructions, she/he may have engaged in a failure to execute. A New York failure to execute investment law firm like Malecki Law can review your investment executions at no cost. A failure to execute may occur for various reasons. For example, your broker may disregard your best interests and fail to place your requested trade altogether or your broker may act too slowly in placing your requested trade, failing to achieve “best execution.”

Best Execution

Under FINRA Rule 5310, your broker has a duty to seek “best execution.” This requires your broker to conduct reasonable diligence in obtaining the best market for the security at issue, whether you are buying or selling the security.

Rule 5310 – Best Execution and Interpositioning

FINRA Rule 5310 took place of NASD Rule 2320 for Best Execution and Interpositioning. Under this rule, your broker is required to seek the “best execution” for you as their customer. Rule 5310(a)(1) states “use reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions.” Reasonable diligence factors include the following:

  • “The character of the market for the security”
  • “The size and type of transaction”
  • “Accessibility of the quotation; and”
  • “The terms and conditions of the order which result in the transaction, as communicated to the member and persons associated with the member.”

As mentioned above, pursuant to FINRA Rule 5310(a)(1)(A)-(E), there are multiple factors that are considered when determining whether reasonable diligence has been properly used, including the character of the security, the size and type of transaction, and the number of markets checked. If you notice all your investments do not reflect the price you thought you purchased them for, your broker may have engaged in failures to execute and thus may not receive the best execution for you. A New York failure to execute investment attorney at Malecki Law can review your executions in a free consultation. The reasonable due diligence factors are a non-exhaustive list, and the SEC has suggested that the analysis may change as markets change. Further, brokerage firms have a duty to “regularly and rigorously examine execution quality likely to be obtained from the different markets trading a security.”

FINRA holds brokers and brokerage firms accountable for failing to seek best execution for its customers. For example, FINRA fined Deutsche Bank Securities, Inc. $2 million due to best execution violations. If your broker failed to seek best execution, a failure to execute investment lawyer in New York like the lawyers at Malecki Law can review the market around your trades. Specifically, Deutsche Bank owned and used an alternative trading system for customer orders. For four to five years, Deutsche Bank would route customers’ orders to this alternative trading system before the order at issue would be routed to an exchange. This created delays in trade execution, which caused customers to receive lower fill rates than they would have received had their orders been routed to exchanges.

Jessica Hopper, Executive Vice President, and Head of FINRA’s Department of Enforcement, indicated that “the duty to seek best execution for customer orders is a fundamental obligation of any broker-dealer that buys or sells securities on behalf of customers.” If your broker failed to uphold this fundamental obligation, an experienced New York failure to execute investment law firm like Malecki Law can assess your potential case. Further, Ms. Hopper pointed out that FINRA “will continue to pursue disciplinary action against firms that fail to use reasonable diligence to execute customer transaction so that the price is as favorable as possible under prevailing market conditions.”

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