McGuireWoods partners Elizabeth Hogan and Alexander Madrid wrote a July 19, 2021, article for Law360 discussing the Financial Industry Regulatory Authority’s Regulatory Notice 21-23 addressing the industry hot topics of best execution and payment for order flow.
In the article, titled “FINRA Shows Subtle Shift on Evaluating Best Execution,” Hogan and Madrid examined what is new in the regulation and noted that in each new assertion, FINRA emphasizes price as the primary consideration for evaluating the quality of execution.
They observed that this position differs from prior guidance that emphasized a more holistic best execution analysis, where price was only one of many factors determining if a firm satisfied its obligations. Indeed, the authors noted that “FINRA's isolated emphasis on best prices and price improvement opportunities, at times to the exclusion of other considerations in this new guidance, fails to assess the overall economics of the transactions and relationship that might otherwise provide the ‘most favorable terms reasonably available in the market under the circumstances,’ as required by the duty of best execution.”
Hogan and Madrid concluded that the notice may offer useful insight into FINRA’s direction in this priority area as regulators call for reforms in the wake of the GameStop and other meme stocks trading phenomenon.