Targeted FINRA Exam: Zero Commissions Pressuring Best-Ex?

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.

Thomas K. Potter, III ( is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas, and Louisiana. He has over 34 years of experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.

© 2020 by Thomas K. Potter, III (all rights reserved).

Posted in: FINRA
Jump to Page
Arrow icon Top

Contact Us

We use cookies to improve your website experience, provide additional security, and remember you when you return to the website. This website does not respond to "Do Not Track" signals. By clicking "Accept," you agree to our use of cookies. To learn more about how we use cookies, please see our Privacy Policy.

Necessary Cookies

Necessary cookies enable core functionality such as security, network management, and accessibility. These cookies may only be disabled by changing your browser settings, but this may affect how the website functions.

Analytical Cookies

Analytical cookies help us improve our website by collecting and reporting information on its usage. We access and process information from these cookies at an aggregate level.