Finra also said that broker-dealers should deliver “meaningful” customer disclosures about how their best execution and order fulfillment procedures may change during extreme market events.
“Appropriate meaningful disclosures may help inform whether a firm acted fairly, consistently and reasonably. Importantly, however, Finra has emphasized that a firm cannot rely on disclosures alone to justify deficient order handling procedures,” Finra said.
However, disclosures of alternative order handling procedures that are “unfair or otherwise inconsistent with a member firm’s best execution obligations would neither correct the deficiencies with such procedures nor absolve the firm of potential best execution violations,” Finra said.
Disclosures in customer account agreements that state a firm may, in its sole discretion, prohibit or restrict trading without notice, do not relieve a firm of its obligation to handle orders in a manner that is fair, consistent and reasonable, Finra said.
Firms should also consider disclosing to investors that stop prices are not guaranteed execution prices. “The price at which a stop order ultimately is executed may be very different from the investor’s stop price. Accordingly, while a customer may receive a prompt execution of a stop order that becomes a market order, during volatile market conditions, the execution may be at a significantly different price from the stop price if the market is moving rapidly,” Finra said.