According to FINRA, Instinet, LLC was censured and fined $450,000 for violating Rule 611(c) of Regulation National Market System (Regulation NMS) by failing to take reasonable steps to establish that intermarket sweep orders (ISOs) met regulatory requirements.

The firm experienced multiple system failures that prevented it from properly routing ISOs. Due to programming and system errors, the firm failed to capture certain protected quotation data when making routing decisions, which resulted in the firm not routing additional ISOs necessary to execute against protected quotes displayed by certain market centers. The firm also experienced connectivity problems with direct market data feeds, causing its Smart Order Router to fail to capture quotation data from multiple exchanges.

Additionally, the firm's system logic would treat a quote as "stale" if it did not receive an ISO execution at a protected venue and would continue to treat the quote as stale until it received a quote update. At times, the firm waited more than one second before re-routing to a destination after a quote was marked stale. In at least one instance, the firm traded through a protected quotation approximately three seconds after it did not receive an execution at that protected venue.

FINRA also found supervisory failures, as the firm's supervisory system did not detect potential trade-throughs and ignored red flags regarding connectivity issues. Investors benefit from Regulation NMS, which requires broker-dealers to seek the best available prices when executing customer orders. When firms fail to comply with these requirements, customers may receive inferior execution prices.