According to FINRA, Cantor Fitzgerald & Co., based in New York, New York, was censured, fined $100,000, and ordered to pay $51,241.16 plus interest in restitution for failing to provide best execution with respect to customer orders in Over-the-Counter (OTC) securities. The firm was found in violation of its best execution obligations under FINRA rules.
Best execution requires broker-dealers to use reasonable diligence to ascertain the best market for a security and to execute customer orders so that the resulting price is as favorable as possible under prevailing market conditions. This fundamental obligation protects investors by ensuring they receive competitive prices when buying or selling securities.
The findings revealed that Cantor Fitzgerald's supervisory system for best execution failed to account for price opportunities available through OTC Link messages, an electronic messaging service widely used for trading OTC securities. Even after the firm incorporated OTC Link messages into its best execution supervision review, the review had unreasonably narrow parameters. Specifically, the firm only reviewed trades executed between 9:45 a.m. and 3:45 p.m., only when the order and OTC Link message were executable for at least five seconds, and only when the potential price improvement was at least $10. These narrow parameters meant that many instances of potential price improvement were excluded from review.
Furthermore, a technical issue caused an exception report used for best execution supervision to generate no data for 75 trading days. This meant that during those 75 days, the firm had effectively no supervisory review of best execution for OTC securities, leaving customers exposed to potentially inferior executions without any mechanism for detection or correction.
For investors, this case illustrates that best execution obligations are ongoing and require robust, comprehensive supervisory systems. Even when a firm takes steps to improve its processes, those improvements must be meaningfully designed to capture the full range of potential issues. Narrow review parameters and technical failures can undermine the purpose of supervisory controls. Investors who trade in OTC securities should be particularly attentive to execution quality, as these markets may have less liquidity and wider spreads than exchange-listed securities. Investors can review their trade confirmations and compare execution prices against publicly available market data to assess whether they are receiving competitive pricing from their broker-dealer.
