Folio Investments, Inc.

Folio Investments, Inc. dba Goldman Sachs Custody Solutions was fined $1.3 million for failing to conduct reasonable regular and rigorous reviews of execution quality. The findings stated that the firm routed its customer orders to two market centers that paid the firm for that order flow. In 2022, the firm began routing a substantial portion of its orders to another market center, which was a firm affiliate. The firm failed to compare the quality of executions it obtained from its order routing and execution arrangements to the quality of executions it could have obtained from competing markets.

In addition, in reviewing the execution quality provided by its existing routing venues, the firm reviewed price improvement, but did not consider other relevant execution quality factors. The firm’s price improvement review was also unreasonable because it did not reasonably consider differences in order types or sizes.

The findings also stated that the firm’s supervisory system was not reasonably designed to achieve compliance with its best execution obligations. Until April 2021, the firm WSPs did not discuss the best execution committee or provide any process or procedures as to how the committee was to conduct its reviews. In April 2021, the firm adopted a best execution committee charter, but the firm’s WSPs continued to lack procedures for how the committee was to consider the execution quality factors under FINRA Rule 5310.09(b) or under what circumstances the firm should consider modifying its existing routing arrangements.

Moreover, the WSPs did not describe any process or procedures regarding how the firm was to evaluate the execution quality available at competing markets. In practice, the firm did not conduct any reviews of competing markets.