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Regulatory Sanctions

Good Execution Falls Short When 'Best Execution' is Required

December 14, 2017

by Howard Haykin


How do you reconcile a $27,500 fine for best execution violations when FINRA only orders $620 in restitution?


Aegis Capital Corp. agreed to pay a $27.5K fine and $620 plus interest in restitution to settle FINRA charges that it failed to provide best execution on customer orders. The firm was also ordered to revise its WSPs.


FIRM PROFILE.    Aegis is a broker-dealer based in New York, NY; it's been a FINRA member since 1984. It has these prior relevant regulatory disclosures: 


►   In June 2015, Aegis settled FINRA charges – paying $85K (of which $45K is related) – over market order timeliness/best execution violations; the firm also agreed to update its WSPs for compliance with market order timeliness requirements.


►   In June 2014, Aegis settled FINRA charges – paying $50K (of which $12.5K is related) - over order handling and best execution violations.


FINRA FINDINGS.    When FINRA tested Aegis trading activity for Q4 of 2015 (10/1/15 to 12/31/15), it found that Aegis had failed to execute orders fully and promptly in 22 instances. For 11 of these orders, the firm failed to use reasonable diligence to ascertain the best inter-dealer market and failed to buy or sell in such market so that the resultant price to its customer was as favorable as possible under prevailing market conditions.


FINRA concluded that: (i) customer orders had been disadvantaged by a 'whopping '$620 – of which $477 (or 79%) of that total applied to just 3 orders; and, (ii) the firm's supervisory system was not reasonably designed to achieve compliance with, among other things, FINRA Rule 5310 - Best Execution and Interpositioning.


At a minimum, Aegis’ WSPs pertaining to quality of markets topics appeared to lack these WHO, WHAT, WHEN and HOW details: (i) specific identification of the individual(s) responsible for supervision; (ii) the supervisory steps and reviews to be taken by the appropriate supervisor; (iii) the frequency of such reviews; and (iv) how such reviews shall be documented.


FINANCIALISH TAKE AWAYS.   In my opinion, Aegis’ trading results for the review period looked pretty clean. But the firm had little, if any, wiggle room because FINRA had recently fined Aegis twice for similar violations, and it had ordered Aegis (earlier in 2015) to update its WSPs for compliance with market order timeliness requirements. And so, FINRA levied a fine that seemed out-of-line with the apparent cost to customers. That said, Aegis and its Chief Compliance Officer, David Hentschel, accepted the sanctions - probably as just another cost of doing business.


This case was reported in FINRA Disciplinary Actions for November 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016048939201.