TastyTrade, Inc.
The findings stated that the firm relied on a smart order router to direct all customer equity orders exclusively to five market makers, all of which paid the firm for the order flow. Between 2020 and 2022, the firm routed over 8.8 million equity orders totaling over 1.7 billion executed shares.
The firm’s best execution committee met on a quarterly basis to review the firm’s order routing practices and the execution quality of customer orders. However, the committee only reviewed the execution quality received from the five market makers to which the firm routed customer orders. The firm did not review data on the execution quality available at competing market centers to which it did not already route its order flow.
The findings also stated that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to comply with its best execution obligations. The firm relied upon the reviews of its best execution committee as its supervisory system for compliance with its best execution obligations. However, those reviews failed to consider whether the firm could have obtained better execution quality from competing markets and failed to reasonably consider all relevant aspects of the execution quality provided by the firm’s existing routing arrangements.
In addition, the firm’s WSPs lacked procedures for comparing the execution quality available at competing markets and reviewing orders on a type-of-order basis. Ultimately, the firm improved its supervisory systems, including its WSPs.
