What Rule 5310 Requires
FINRA Rule 5310 requires member firms and their associated persons to use 'reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions.' This standard applies to all customer orders, whether routed to exchanges, ATS venues, or wholesale market makers like Citadel Securities.
The PFOF Compliance Challenge
When a broker routes orders to a PFOF market maker, it must satisfy Rule 5310 by demonstrating that the routing arrangement produces execution quality that meets the best execution standard. FINRA requires brokers to review execution quality regularly and to evaluate whether changes in routing would improve outcomes for customers. A broker that routes solely based on PFOF receipts without evaluating execution quality likely violates Rule 5310.
FINRA's Best Execution Guidance
FINRA has issued regulatory notices and guidance on best execution, including in the context of PFOF. The guidance requires brokers to compare execution quality across routing alternatives, to review Rule 605 data from market makers, and to document their analysis. A robust best execution compliance program requires active, regular evaluation — not one-time setup.
Enforcement of Rule 5310
FINRA has brought enforcement actions against brokers for failing to satisfy Rule 5310, including the Robinhood action that preceded the SEC's 2020 settlement. While FINRA's 5310 actions target brokers rather than market makers, the rule's existence creates accountability pressure on brokers to negotiate for better execution quality from their PFOF partners.