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Kentucky Regulatory Action

Kentucky Department of Financial Institutions: What Kentucky Financial Regulators Should Do About Citadel

The Kentucky Department of Financial Institutions, Division of Securities has jurisdiction to investigate Citadel Securities' payment for order flow practices affecting an estimated 750,000 Kentucky retail investors. Here is what state regulators should do — and why.

The Kentucky Department of Financial Institutions's Authority

Kentucky Attorney General Russell Coleman and the Kentucky Department of Financial Institutions have authority under the Kentucky Securities Act (KRS Chapter 292) to investigate broker-dealer practices.

The Harm Requiring Regulatory Response

Kentucky retail investors depend heavily on employer-sponsored plans and discount brokers. The state's coal and manufacturing economies have left many workers with IRA accounts subject to PFOF-based order routing.

What State Regulators Should Do

The Kentucky Department of Financial Institutions, Division of Securities, in coordination with the Kentucky Attorney General's office, should:

  • Open an investigation into whether broker-dealers serving Kentucky residents are meeting best execution obligations under state securities law
  • Issue a formal inquiry to major PFOF-dependent brokers about their routing arrangements with Citadel Securities and the execution quality they achieve for Kentucky residents
  • Contact NASAA to explore multistate coordination
  • Issue investor education guidance about PFOF practices and how Kentucky investors can protect themselves
  • Consider rulemaking under state securities law to require enhanced disclosure of PFOF arrangements affecting Kentucky retail investors

Contacting the Kentucky Department of Financial Institutions

Kentucky investors and advocates can contact the Kentucky Department of Financial Institutions, Division of Securities at https://kfi.ky.gov to report concerns and request regulatory action on PFOF practices affecting Kentucky residents.

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