Mar. 20, 2023
Hello, I am writing to emphasize the importance of best execution in trade execution, particularly for individual investors who may not understand the complexities involved in choosing how to execute a trade. Implementing robust best execution practices and providing clear guidance on interpreting relevant data, such as Regulation NMS Rule 605 reports, is crucial for promoting fairness and efficiency in the market. Best execution is derived from common law agency principles and fiduciary obligations; however, it is essential to establish a rule that the SEC can enforce. Conflicted orders have no place in a best execution rule, and without such a rule, 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, and slower execution can lead to missed opportunities. Information leaks can inhibit successful transactions, while less reliable settlement processes can delay the receipt of proceeds. In December 2020, Robinhood was charged by the SEC with failure to satisfy its best execution obligation, resulting in an aggregate loss of $34.1 million for its customers. Robinhood made misleading statements and did not disclose payments received for routing trades to specific firms. Citadel also paid the SEC $22.6 million in 2017 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 faced similar charges from the SEC. To ensure transparency and accountability for broker-dealers' practices, quarterly reviews of execution quality should be implemented. The proposed rule would provide a more detailed and comprehensive standard for broker-dealers to follow, resulting in consistently robust best execution practices. The proposed Regulation Best Execution is a necessary step in protecting household investors and promoting fair and efficient markets. By ensuring that household investors receive the best possible execution for their trades, we can create a market that benefits all participants. Thank you for your attention to these matters, and I look forward to seeing the implementation of these recommendations to enhance best execution practices for the benefit of individual investors. Sincerely,