Mar. 31, 2023
I am writing to emphasize the importance of best execution in trade execution, particularly for individual investors who may not fully understand the complexities involved in choosing how to execute a trade. As a concerned investor, I urge the SEC to take the necessary steps to ensure that brokers adhere to best execution practices and provide clear guidance to investors. Regulation NMS Rule 605 reports contain essential data for evaluating execution quality, but retail investors may not have a deep understanding of the markets or know how to read and interpret these reports. The SEC should provide clear guidance on interpreting this data, empowering retail investors to make more informed decisions. Brokers owe their customers a duty of best execution derived from common law agency principles and fiduciary obligations, but it is crucial to formalize this duty into an enforceable SEC rule. Conflicted orders should not be part of any best execution rule, as they undermine the integrity of the process. Without a robust best execution rule, customers may remain unaware of revenue arrangements between brokers and subpar trading firms or that they may be paying higher transaction prices. Different trading venues can offer varying prices, and slower execution may lead to missed opportunities. Information leaks can hinder successful transactions, and less reliable settlement processes can delay the receipt of proceeds. I urge the SEC to prioritize strengthening best execution practices and investor education. By doing so, you will enhance the transparency and integrity of the financial markets, while empowering individual investors to make more informed decisions. I also want to express my concern regarding the recent instances of brokerages failing to satisfy their best execution obligations, which have led to significant losses for individual investors. As a concerned investor, I believe it is crucial for the SEC to take necessary steps to ensure that broker-dealers prioritize their customers' best interests and provide fair, efficient, and transparent services. In December 2020, Robinhood was charged by the SEC for failing 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. Furthermore, 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. These incidents demonstrate the urgent need for greater transparency and accountability in broker-dealers' practices. Implementing quarterly reviews of execution quality would provide much-needed transparency and accountability in the industry. The proposed rule would offer 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. I urge the SEC to prioritize the implementation of this regulation to safeguard the interests of individual investors and maintain the integrity of our financial markets.