Retail broker failed best-execution reviews while taking high payment for order flow (Robinhood, SEC 2020)
From July 2016 to June 2019 the broker received high payment for order flow but did not conduct adequate, regular and rigorous reviews of execution quality on customer orders.
What happened
- The SEC found the inferior prices cost customers $34.1 million even after accounting for zero commissions, and ordered a $65 million penalty.SEC Order: Robinhood Financial LLC (Release 33-10906)
The failure pattern
Watch the pattern: Privileged action without an enforceable approval gate
Safeguards that address it
CollectSEA's engineering analysis of what would have prevented or contained this failure.
- Review execution quality regularly and rigorouslyCompare execution against alternatives with documented, periodic reviews and act on findings.
- Disclose revenue sources accuratelyDescribe payment-for-order-flow and other conflicts in customer-facing materials.
Related standards
CollectSEA's mapping through this incident's failure pattern; not an official determination by the standards bodies.
Building something similar?
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