FINRA issued a targeted-exam letter on February 20, 2020 seeking information on the effect of zero-commission trading upon compliance with related obligations of Best Execution, payment for order flow, and non-commission account fees. The Exam Letter is here.
The zero-commission tide rose quickly throughout 2019, together with some industry consolidation as well. Among those announcing no commissions:
- Ally Invest, the investment affiliate of online Ally Bank;
- E-Trade, to be acquired by Morgan Stanley, announced February 20, here.
- Fidelity
- Interactive Brokers
- Robinhood
- Schwab
- TD Ameritrade, to be acquired by Charles Schwab, as announced in late November, here.
The operative (though unstated) assumption of the letter is that declining trading commission revenues will pressure broker-dealers to increase revenue from other sources, including account fees and payment for order flow. That would require additional disclosures, of course, and implicate best-execution issues, as well. As the zero-commission wave swept the industry last year, some voiced those very concerns.
FINRA settled an enforcement action against Robinhood in late 2019, based upon Robinhood’s order-routing decisions based upon payment-for-order-flow, without adequate supervision and compliance around the firm’s best-execution obligations. Both issues are discussed in the AWC. Robinhood agreed to revamp its Best-Ex supervision and compliance under an independent consultant and to pay a $1.25 million fine. The AWC is here.
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