FINRA Fines tastytrade $850,000 Over Best Execution Failures

FINRA has censured and fined tastytrade, Inc. $850,000 after determining that the online brokerage failed to properly review whether customers received the best possible execution on equity orders over a three-year period.

The sanctions stem from a Letter of Acceptance, Waiver, and Consent released this week. According to FINRA, tastytrade routed all customer equity orders exclusively to five market makers between January 2020 and January 2023, and each of those firms paid tastytrade for order flow. During that window, the Chicago-based broker directed more than 8.8 million equity orders, representing over 1.7 billion executed shares, without comparing execution quality against competing market centers it did not use.

FINRA found that tastytrade's best execution committee met quarterly but reviewed only data from its existing five market maker partners, never benchmarking that performance against alternative venues. The firm's reviews also relied on aggregated data rather than breaking down results by order type, and did not account for price disimprovement, a key metric under FINRA Rule 5310.09.

As a result, regulators concluded tastytrade violated FINRA Rules 5310(a), 5310.09, and 2010, which govern best execution and standards of commercial conduct. FINRA also said the firm's supervisory procedures, including its written supervisory procedures, were not reasonably designed to ensure compliance with best execution requirements, breaching Rules 3110 and 2010.

Settlement and Remediation

tastytrade, formerly known as tastyworks before its 2023 rebrand, neither admitted nor denied the findings but consented to the sanctions. According to the settlement documentation, the firm has since overhauled its supervisory systems and procedures to address the deficiencies identified by regulators.