Mar. 19, 2023
Subject: Importance of Best Execution and Proposed Regulation Best Execution Rule Dear SEC, I am writing to highlight the importance of best execution in trade execution for individual investors, as well as the need for a new regulation to enforce this practice. The best execution rule is crucial for ensuring that individual investors receive the most favorable terms possible for their trades, especially considering that they may not have a deep understanding of the complexities involved in choosing how to execute a trade. To achieve best execution, brokers have a duty derived from common law agency principles and fiduciary obligations to their customers. However, without a rule that the SEC can enforce, customers may not be aware of revenue arrangements between brokers and subpar trading firms or that they may be paying higher transaction prices. Different trading venues may offer different prices, slower execution can lead to missed opportunities, information leaks can inhibit a successful transaction, and less reliable settlement processes can delay receipt of proceeds. Therefore, brokers owe it to their customers to provide clear guidance on how to read and interpret the data in Regulation NMS Rule 605 reports, especially for retail investors who may not have a deep understanding of the markets. As you may be aware, Robinhood was charged by the SEC in December 2020 with failure to satisfy its best execution obligation, resulting in an aggregate loss of $34.1 million for its customers. The company made misleading statements and did not disclose payments received for routing trades to specific firms. In 2017, Citadel paid the SEC $22.6 million to settle best execution charges for executing customer trades at less favorable pricing when a better price was available. Brokers recommending mutual funds with 12b-1 fees and revenue sharing arrangements with clearing brokers have also faced best execution charges from the SEC. To address these issues, the proposed Regulation Best Execution rule would provide a more detailed and comprehensive standard for broker-dealers to follow, resulting in consistently robust best execution practices. The proposed rule would also require quarterly reviews of execution quality, providing transparency and accountability for broker-dealers' practices. In conclusion, the proposed Regulation Best Execution rule is a necessary step in protecting household investors and promoting fair and efficient markets. I urge you to support this proposal to ensure that individual investors receive the best possible execution for their trades. Thank you for your attention to this matter. Sincerely, Sony