E*Trade Financial Corp. says it has implemented a review of its order-handling practices and pricing for order flow to ensure customers got "best execution," after a member of its board raised questions, according to a regulatory filing.
In the online brokerage's quarterly report, filed late Thursday with the Securities and Exchange Commission, E*Trade said the review—initiated at the request of its chairman, Frank Petrilli, and its general counsel—is "being conducted by separate firms of outside broker-dealer and bank regulatory counsel."
E*Trade says that so far, those firms have recommended that the company "implement changes to improve upon our standards, processes and compliance procedures," noting it agrees with the recommendations and "is implementing them."
The purpose of the review, which is continuing, is to ensure the broker/dealer, E*Trade Securities, is providing "best execution" of customer orders and "dealing appropriately with its affiliate under applicable regulatory standards," the company said. "Best execution" refers to brokers' legal obligation to get the best prices for customers' trades in the shortest time frame.
In the filing, E*Trade said it has informed "applicable regulatory agencies" of the review and if violations are found "bank and federal and state securities regulators could initiate investigations and we could be subject to monetary penalties and cease-and-desist orders."
The company also said that claims may be made by customers of its broker/dealer and that any of those actions could "adversely affect our market making and trade execution businesses."
Representatives for E*Trade didn't immediately respond to a request for comment.
E*Trade has been struggling for nearly five years to recover from bad bets made by its banking unit on the U.S. housing market. The online brokerage is currently in the midst of a search for new chief executive after it fired CEO Steven Freiberg in August. His termination came as E*Trade's stock traded near multiyear lows and after the company decided not to pursue a potential sale amid prodding by its largest shareholder, hedge fund giant Citadel LLC.
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