FINRA fines tastytrade $850,000 over payment-for-order-flow failures

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FINRA fined tastytrade $850,000 on July 22 over best-execution failures tied to payment for order flow, the first News piece here to focus on tastytrade specifically.

What FINRA found

Between January 2020 and January 2023, tastytrade routed all of its customers' equity orders, 8.8 million orders covering 1.7 billion shares, to five payment-for-order-flow market makers. FINRA's finding wasn't that PFOF itself is the problem, it's that tastytrade never benchmarked the execution quality it was getting against other venues over that entire three-year stretch. Best-execution rules require a broker to actually check, not just assume the arrangement is fine because it's common industry practice.

The pattern

This isn't an isolated action. FINRA has brought similar best-execution cases against Robinhood ($1.25 million) and E*Trade ($900,000) in the recent past, all centered on the same underlying question: is the broker actually verifying it's getting good fills, or just taking the PFOF market maker's word for it. tastytrade neither admitted nor denied the findings, standard for a FINRA settlement, and paid the fine plus a censure.

Why this matters if you use Cresori

tastytrade is one of the brokers Cresori connects to directly. This fine doesn't affect your existing trade history or account data, but it's worth knowing that "my broker offers commission-free trading" and "my broker is getting me the best price" aren't the same claim, and regulators are actively checking whether brokers can back up the second one. If execution quality matters to your strategy, this is the kind of story worth tracking broker by broker.

Sources: FinanceMagnates, July 22, Law360.