Folio Investments has been fined $1.3 million by the Financial Industry Regulatory Authority for best execution failures.
According to FINRA's order, from at least January 2017 to the present, Folio "failed to conduct reasonable regular and rigorous reviews" of execution quality.
"During this period, Folio routed its customer orders to two market centers that paid the firm for that order flow," the order states. "In 2022, Folio began routing a substantial portion of its orders to another market center, which was a firm affiliate. The firm failed to compare the quality of executions it obtained from its order routing and execution arrangements to the quality of executions it could have obtained from competing markets."
Folio is based in McLean, Virginia, and has six branch offices and approximately 50 registered reps. It was acquired by Goldman Sachs in September 2020.
Further, the order states, "in reviewing the execution quality provided by its existing routing venues, the firm reviewed price improvement, but did not consider other relevant execution quality factors."
The firm's price improvement review "was also unreasonable because it did not reasonably consider differences in order types or sizes," according to FINRA.
During the relevant period, Folio offered brokerage and custody services primarily to registered investment advisors, which used the firm's trading platform to create customized portfolios of securities for their retail customers.
"As part of the firm's 'windows trading' business model, at two separate times each day, Folio routed nearly all customer orders in the same equity security on the same side of the market for execution as one omnibus order," the order states.
Folio routed nearly all its order flow to three market makers.
From at least 2017 to 2022, "Folio routed nearly all large orders (of several hundred shares or more) to one market maker for execution and nearly all the firm's small orders to another market maker. Both market makers paid Folio for this order flow," the order states.
Folio began routing a substantial portion of its order flow to another market maker — a corporate affiliate — in late 2022, according to FINRA.
Between 2017 and 2025, Folio routed approximately 440 million equity shares for execution annually.
From at least January 2017 to the present, Folio had a best execution committee that met quarterly to review execution quality, but the "reviews of execution quality only included the executions of orders the firm routed to its existing routing venues and did not include data for the execution quality available at market centers to which it did not already route its order flow," FINRA states.
"Thus, the firm failed to compare the execution quality of its current order routing and execution arrangements to the execution quality the firm could have obtained from competing markets," according to the order.
The best execution committee's regular and rigorous review "was primarily limited to a single execution quality factor — price improvement — and the firm failed to reasonably review any other execution quality factor," the order continues. The committee also "did not review price improvement statistics broken down by order type or size, and therefore the firm could not reasonably evaluate differences in execution quality among its existing venues because differences in order types or sizes may have affected execution quality."
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