Failure to Execute Securities Trade Leading to Investment Loss

Failure to execute violates fiduciary duty and is also considered broker misconduct. It means a broker or advisor fails to execute a buy or sell order as authorized by the investor.

It also includes a delayed trade that is not executed when the market is favorable despite the client’s instruction.

What is “Best Execution” in a Security Investment?

“Best execution” means trading when the potential resultant price to the customer is as favorable as possible under prevailing market conditions.

FINRA Rule 5310 states that brokers must use “reasonable diligence” to determine the best security market. It also recommends the use of the following factors:

  • Character of the market for the security
  • Size and type of transaction
  • Number of markets checked
  • Accessibility of the quotation
  • Terms and conditions of the order which result in the transaction

Use of Broker’s Broker

Brokerage firms generally have their own inventory, which they trade with. If they cannot execute a trade and employ other means, Rule 5310 states, “the burden of showing the acceptable circumstances for doing so is on the member.”

What Counts as Failure to Execute?

Investors trust brokers to properly execute securities orders within a ‘reasonable time” authorization. Often, a broker recommends that a customer not sell or purchase certain securities upon proper research and hindsight. Such refusal is not actionable, provided the broker is acting in good faith, especially if the action does not result in losing the investor’s funds.

Failure to execute is mostly actionable if the broker has too many clients or is short-staffed and, as a result, cannot execute an investor’s trade in due time.

According to FINRA rules, firms cannot use insufficient staffing to excuse failing to execute trades on time.

Damages in failure to execute claims are assessed based on the difference in the price of when the order was to be executed and the price it was trading at the time the investor learned it was not executed.

We Offer Free Consultation

If your broker has faced investor allegations regarding the failure to execute, contact S.A. Law Group for a free case evaluation. You can also call us at (202)444-4222.

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