EXECUTIONREPORTS.COM AMENDED SEC RULE 605 / FINRA 5310.09 ENGINE
FINRA Rule 5310.09 Amended SEC Rule 605

Pershing & NFS Introducing Brokers: FINRA 5310.09(c) Reliance & Challenge Checklist

Checklist and review protocol for introducing brokers clearing through Pershing LLC or National Financial Services (NFS) to audit clearing routing under Rule 5310.09(c).

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Quarterly Best Execution Committee Checklist

  • Governance & Attendance: Record quarterly meeting date, review period, and formal attendance of CCO, Head of Trading, and operational principals.
  • Routing Disclosures: Compile disclosed Rule 606 routing venues (top 10 venues and any venue receiving ≥ 5% of non-directed orders).
  • Competing-Market Benchmarking: Compare mix-adjusted net price improvement against non-routed competing market centers across 24 Amended Rule 605 notional tiers.
  • Execution Speed & Fill Rates: Evaluate execution speed distributions across eight latency buckets (identifying p50, p95, and p99 percentiles) and limit order fill rates.
  • Economic Incentive Reconciliation: Cross-reference Payment for Order Flow (PFOF) receipts and exchange rebates against delivered net price improvement.
  • Action Mandate & Dispositions: For every flagged shortfall, record concrete routing modifications or document written business justifications (clearing connectivity, latency profile, commercial terms, or immaterial volume).
  • Supervisory Record Retention: Compute client-side SHA-256 content hash of the review dossier and archive minutes for multi-year retention under SEC Rule 17a-4 and FINRA Rule 4511.

1. Carrying Agreements at Pershing and NFS Under FINRA Rule 4311

Introducing broker-dealers clearing through BNY Mellon's Pershing LLC or Fidelity's National Financial Services (NFS) maintain fully disclosed carrying agreements governed by FINRA Rule 4311. Under these agreements, clearing firms provide trade execution, clearing, custody, and regulatory reporting infrastructure.

While Pershing and NFS provide institutional execution summaries, FINRA Rule 5310.09(c) makes clear that best execution supervisory responsibility remains with the introducing broker. The introducing firm must independently examine the clearing firm's execution quality and retain documentation evidencing that review.

2. Benchmarking Clearing Routing Against Outside Market Centers

A standard clearing firm execution review reflects only orders executed within that firm's selected routing destinations. Under Rule 5310.09(b), the introducing broker must evaluate whether competing market centers outside the clearing firm's network offered superior execution.

Using public Amended SEC Rule 605 market-center data, introducing brokers must benchmark Pershing and NFS routing destinations against competing wholesale market makers and exchanges across the 24 notional tiers, assessing net price improvement, effective/quoted spread ratios, and limit order fill rates.

3. Auditing Vendor and Clearing Methodologies Under Notice 15-46

FINRA Regulatory Notice 15-46 reminds broker-dealers that relying on third-party analytical models or clearing firm reports requires an understanding of underlying calculation methodologies. Compliance officers must evaluate how metrics are derived.

Committees must examine how execution speed is measured, how arrival quotes are benchmarked, how auction prints and non-firm quotes are treated, and whether speed reporting evaluates latency percentiles (p50, p95, p99) rather than misleading aggregate averages.

4. Quarterly 5310.09(c) Committee Audit Trail

To maintain an auditable supervisory record, introducing broker Best Execution Committees should document a structured quarterly review cycle:

1. Comparative Benchmark: Match clearing routing destinations against non-routed 605 market centers across all symbol and notional buckets.

2. Clearing Desk Dialogue: Document inquiries submitted to Pershing or NFS relationship managers regarding flagged performance deltas.

3. Institutional Factor Review: Evaluate clearing operational benefits, including multi-asset custody, prime clearing services, and financing capabilities.

4. Committee Minutes: Record committee findings, attendee attestations, and written business justifications in formal quarterly minutes.

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Regulatory Standard & Scope

Covers the competing-markets comparison in FINRA Rule 5310.09 from public 605/606 data. Your own order-level review is still required. Built around the four 5310.09 requirements and the eight factors. Your committee's review and decisions are still required; the dossier gives you a place to record them.