ASA Urges FINRA to Adopt a Best Execution Safe Harbor

WASHINGTON – The American Securities Association (ASA) today submitted a comment letter to the Financial Industry Regulatory Authority (FINRA) on modernizing FINRA's best execution guidance.

"A best execution standard without a safe harbor isn't a standard, it's a lawsuit waiting for a plaintiff," said ASA President and CEO Chris Iacovella. "If the SEC rescinds the Order Protection Rule, then the industry needs FINRA to adopt a safe harbor it can rely on."

ASA's letter to FINRA follows an August 17 comment letter to the Securities and Exchange Commission (SEC) on the proposed rescission of Rule 611 and Rule 610(e) of Regulation NMS. ASA urged FINRA to coordinate the effective date of its action with the Commission's timeline.

ASA's letter outlined four key recommendations:

• Preserve the NBBO as an explicit benchmark. FINRA's guidance should state affirmatively that the consolidated NBBO remains the primary benchmark for retail-sized orders, independent of whether it remains "protected" under Rule 611.

• Adopt a Rule 5310 safe harbor in rule text. ASA proposed a seven-part framework, including execution at the customer's express direction, execution under a documented routing methodology, and venue selection supported by execution-quality data. These must be adopted as amendments to Rule 5310 or its Supplementary Material in rule text.

• Measure best execution by net cost, not displayed price. A firm that routes a customer order to a superior displayed price on a materially higher-fee venue without accounting for that fee has not obtained the best outcome for the customer.

• Give institutional order flow its own framework. For large orders worked over time, best execution depends on sourcing liquidity and managing information leakage — considerations that have little to do with whether a single fill matched the NBBO at a given instant.

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The American Securities Association (ASA) represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.